HP, Dell Look to Gain on IBM in IT Services Space

With its acquisition of Perot Systems, Dell is looking to quickly expand its capabilities in the $800 billion IT services space, currently dominated by IBM. Both Dell and Hewlett-Packard, which has integrated EDS into the fold, want to increase the recurring revenues available from their services businesses. Meanwhile, IBM continues to look to its massive software and research businesses to add more capabilities to its services offerings.

More than a month after closing the deal on a $3.9 billion acquisition of Perot Systems, executives from Dell went before analysts and reporters to tout the deal's ability to help Dell expand beyond its systems-making roots.

During an hourlong Webcast Dec. 16, the Dell officials spoke of the potential financial boost (about $7.5 billion in annual revenues), the size of the company's new services unit (42,000 employees), the size of the IT services market (about $800 billion) and Dell's place in it (among the top 10) that the acquisition of Perot brought with it.

They also talked about catering to the "underserved" midmarket and how they planned to differentiate themselves from larger rivals such as IBM and Hewlett-Packard with modular offerings, high degrees of automation and shorter engagements.

"The old approach of embedding an army of consultants locked in processes, frameworks, and proprietary software and hardware is inefficient and burdens consumers and their customers with too high of a cost," said Peter Altabef, president of Dell Services and formerly president of Perot. "In contrast, we want to help organizations innovate and focus on strategic objectives while spending less on routine IT management. This is a new initiative that is redefining services from the customer's perspective, making IT easier to access and simpler to manage and, most importantly, aligning our solutions to our customers' success."

Paul Bell, president of Dell's public sector group, said his company is looking at services engagements that run 60 to 90 days involving two or three Dell Services people.

"Our competitors continue to bring teams of consultants that don't want to go away," Bell said.

Dell is only the latest of the larger systems makers to see services as a way of expanding its reach beyond its rapidly commoditizing hardware business. HP, already a significant services player, has integrated services company EDS into the fold some 16 months after closing the $13.9 billion deal. Even printing giant Xerox is getting into the game, with its $6.4 billion purchase of Affiliated Computer Services in September.

All are looking, in one form or another, to mirror some of the success that IBM has had with its Global Services unit over the past 15 years, moving away from low-margin hardware sales to stronger services businesses that offer recurring revenues.