IT services consolidation: Data centers weigh risks

As Dell buys Perot Systems, Xerox digests ACS and HP re-brands EDS, IT pros aren't convinced that a one-stop hardware and services shop is best for their needs.<

Data center professionals aren't sure they like the idea of getting services and servers from the same provider. And in the wake of a recent IT services consolidation taking place as hardware companies buy services and integration expertise, that is a purchase decision many data centers will face.

That concept of one throat to choke is very attractive for many companies.
Dave Yarnold,
CEOServiceMax Corp.

IT professionals have to weigh the risks and benefits of vendor lock-in versus the convenience of dealing with fewer suppliers. Some IT pros said that smaller, independent and more specialized service providers are a better, and less pricey, choice for their projects compared with IT services giants like Electronic Data Services, now known as HP Enterprise Services, and Perot Systems, soon to be owned by Dell.

Al Gallant, the technical services director at a large New England hospital, summed up his situation. "We are an HP shop, with 95% of our servers purchased from HP; however I wouldn't use services from EDS or Perot. I have used independent integrators and they tend to be less costly than an EDS or Perot. The independents also usually do a better job," he noted.

"Trusting a services provider is really simply based on whether they can do the job at a competitive rate and in the agreed-upon time table," Gallant said.

Dave Yarnold, the CEO of ServiceMax, a software vendor that deals a lot with IT professionals, said many of them see the appeal of sourcing services and hardware from one place. "That concept of one throat to choke is very attractive for many companies. The idea of one service-level agreement, one number to call, can be hard to beat."

The push toward IT services, hardware consolidation

Whatever the reason -- and it could be that the recession has made deal prices too good to pass up, hardware giants are snapping up IT services expertise. Most recently, Xerox bought Affiliated Computer Services for $6.9 billion in a blockbuster deal that came just days after Dell announced plans to buy Perot, and presumably its Fortune 100 client and healthcare industry client base, for $3.9 billion. The granddaddy of all these deals was Hewlett-Packard Co.'s acquisition of EDS for $12.8 billion in May 2008.

One nuance is that many smaller, independent and more specialized systems integrators and IT service players often act as subcontractors to EDS, Perot and IBM's huge services arm.

"The ironic thing is [that], large customers end up paying EDS-- or HP Services or whatever it is now-- a premium and get our services as part of a bigger deal. … The net effect is they're paying the big guys more for services they could have gotten directly from us for less money," said one New York City-based service provider who did not want to be named.

In theory, one reason to go with an independent IT services company is to get objective advice on what hardware/software/networks to implement. The thought of HP Enterprise Services recommending IBM hardware is simply not a scenario many users can fathom.

"You would think they have the integrity to offer an honest opinion," said Michael Sykes, engineer in Verizon Wireless' data center group. "But they know where the check is coming from. The temptation is there for them to push their own product."

On the flip side, getting IT services from the primary server hardware vendor means the customer should expect a higher level of service, Sykes added. Of course, that often comes with a hefty price tag.

Most of the remaining big independent IT services firms have practices around all the major vendor platforms. That way they have the bases covered. If a big account is an existing IBM-WebSphere-DB2 shop or runs the Microsoft Windows/.NET stack or is a legacy Oracle database account, the services company can go with the flow as needed.

Big IT services companies play the field
"Objectivity rather than independence is what you get" from the big services companies, even those owned by a big hardware company, said the CTO of a large Chicago financial institution. "All the big SIs [services integrators] are aligned with all the big vendors. Even IBM/HP etc. [have] no choice. No platform vendor has more than a 10% market share, so why lock yourself out of 90% of the addressable market? Sure there are cross-sell pressures, and arguably you get a better-educated and -trained workforce from the primary vendor, but in practice, all the big [SI] players need to play the entire field,:" he said.

This IT professional would like to see more big-services players other than IBM and HP in the mainframe space.

For many budget-constrained IT shops this discussion is moot.
Gary Miller, who works in network operations at the University of Western Ontario said because the school's budget is limited, the IT department has no choice but to analyze IT purchases on its own. And these folks know they're being objective.

"We only have so much money, and that's it," he said. "So sometimes it's just about getting what you can afford."

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