IBMs PwC Deal Rocks Services Landscape

IBM dramatically altered the IT services landscape last week with its $3.5 billion buyout of PricewaterhouseCoopers' PwC Consulting business.

IBM dramatically altered the IT services landscape last week with its $3.5 billion buyout of PricewaterhouseCoopers PwC Consulting business. The deal joins PwCs vertical industry, business application integration and management consulting experience with IBM Global Services broad IT outsourcing and consulting expertise.

While the agreement puts IBM in a powerful position among the elite service providers, clients could find an organization more willing to bypass IT in favor of dealing with business units. In addition, the newly formed operation might be less willing to recommend technologies other than its own, insiders suggest.

"We view this as a real game changer in the industry," said John Joyce, senior vice president and chief financial officer at IBM, in Armonk, N.Y., of the deal to buy the business and technology consulting practice of PwC.

Jim Burdiss, vice president and CIO at Smurfit-Stone Container Corp., in St. Louis, a client of both companies, said he felt good about the merger. "They bring different things to the table," he said.

Still, analysts see the move to provide soup-to-nuts services as an effort to leapfrog chief rival Electronic Data Systems Corp., of Plano, Texas.

"EDS had a huge advantage over IBM in management consulting with its A.T. Kearney [Inc. unit]. IBM had nothing credible," said Julie Giera, analyst at Giga Information Group Inc., in Cambridge, Mass.

"We look at PwC Consulting as more of a systems integrator," said an EDS spokesman. "A.T. Kearney is a high- value, management consulting firm."

EDS and fellow IGS competitor Accenture Ltd. are likely to respond to the competitive threat from IBM by pushing technology-agnostic positions, sources said.

Others, such as Hewlett-Packard Co., might have more trouble dealing with a stronger IGS. HP has been wooing consultancies since an $18 billion bid to buy PwC Consulting dissolved two years ago.

"It leaves HP in the dust," said Linda Cohen, an analyst at Gartner Inc., in Stamford, Conn.

HP officials said that theyve already "conquered the IT infrastructure services hill" and that the company will renew its focus on partnerships with other Big Five consulting companies, according to Juergen Rottler, HP Services strategy vice president, in Cupertino, Calif.

With the merger putting a dent in competition, sources said IGS representatives would likely begin targeting customers business managers and freezing out IT managers.

"If you are an IBM client, they will start moving beyond the IT organization," said Gartners Cohen. "That is the intent of this marriage. If youre a PwC client, you will start to hear them pushing IBM products. If you are a Sun [Microsystems Inc.] aficionado, get ready for that."

The biggest challenges IBM likely will face will be integrating PwC Consultings partner-oriented culture. But the failed HP bid and PwC Consultings preparation for its initial public offering—the unit was about to be renamed Monday Inc.—gave the consultancy a jump-start, analysts said.