Services the next battleground

With the hardware market expected to remain flat, the heavyweight vendors, IBM in particular, are advancing on the IT services field with a gleam in their eyes.

With the hardware market expected to remain flat, the heavyweight vendors, IBM in particular, are advancing on the IT services field with a gleam in their eyes.

And the new HP is no exception, aiming for and claiming a growing share of a growing market.

Services general manager Simon Tong says IT services make up a “large chunk” of the new HP, occupying 390 staff out of 580, and that portion may even increase as HP becomes “more business outcome-led, as opposed to flogging boxes”.

Analyst firms IDC and Gartner both estimate the New Zealand IT services market to have been worth about $2 billion in 2001. IDC expects services to grow annually by 6.4% by 2005, with Gartner predicting an even more impressive 8.9% annual growth until 2003. Gartner says business processes and transactions will grow annually by 17.5% and managed services by 9.7%.

With opportunities like this, the significance of having a complete services offering is readily seen.

IDC senior analyst Mark Cribbens says Compaq was very strong in doing repairs, while the old HP was stronger in services on a Unisys model — making most revenue from activities like ASPs, outsourcing, integration and selling maintenance contracts with the hardware.

The merger, Cribben says, gives the new company two data centres — one in Auckland, one in Christchurch — boosting its offering of managed services.

New sources of revenue could also include utility computing and application services. Currently IDC estimates services account for 15% of HP revenue, compared with almost half at IBM and over half at Unisys.

“They will be unhappy in 2006 if services still provides this same amount,” Cribbens says.

There are hurdles ahead. “IBM since the PwC merger [announcement] has a distinct advantage in terms of high-end outsourcing markets — the skills and knowledge that don’t exist in the HP environment in New Zealand,” he says. “But [HP] can leverage from its global services team.

Even so, HP’s Tong is exceedingly bullish, claiming that since the merger his services division has been “inundated” with enquiries and has signed several large deals.

Managed services are enjoying “good business”, while outsourcing is “growing” and application development “growing very quickly”. Overall growth, he says, is “well ahead of the market”.

The reason appears to be simple. “Services sit on top of everything else and glues everything else together, from standard iPaq support to -application development and outsourcing.”

Before the merger, HP, following its takeover of CSC last year, employed 100 services staff; Compaq’s services arm employed 270, including 150 in software development.

HP’s services division is now split across the country, with 120 in Christchurch (mostly developers), 130 in Wellington and the rest in Auckland, Rotorua, Hamilton, and Dunedin. It can also count on 3000 colleagues in Australia.

Tong says the consultancy and integration services come from the old Compaq, customer support was the foundation of the old HP and one of the reasons HP bought CSC was to get outsourcing capability.

With HP now also incorporating the former Digital, Tandem, Continuum and Paxos, many staff have been involved in mergers before and knew how to keep the place going and look after and communicate with customers.

Now, as the biggest game in town, customers’ expectations will be ever higher and HP must be clearer in its intentions, Tong says. He claims customers increasingly “knock on our doors asking can we do it cheaper, better, faster?”

The merger has opened up new opportunities. For example, Tong highlights HP’s expanded market for its OpenView system management tool. “It is something we are talking to companies about and they say they want it.”

A larger business also has more potential to invest in its clients. “We are prepared to invest heavily in time and no local company can afford to do that. We can afford to spend hundreds of thousands of dollars before you see a return,” he says.

While HP will go out aggressively into the market, Tong says it is inappropriate to take business from its partners — Gen-i, Computerland, Axon, Datacom and Tech Pacific. “We are either a good friend or a nasty foe,” he says.

But what about HP services becoming too big for its boots?

AUT IT manager Calum MacLeod, who is not a HP customer, says the university once had dealings with a major multinational but was never happy with its inconsistent and impersonal service levels.

“The people they send to do the job are different each time so they have no knowledge of our business, which we find frustrating, and they are not as flexible as we would like them to be,” he says.

HP hopes it won’t fall into the same trap, saying it uses local people, though for standard warranty issues, the economics of the industry sometimes mean using agents.

“Occasionally they won’t deliver to the same standard and we have to keep an eye on them,” says Tong.

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