Analysis: More competition in services as vendors move in

Dell and Xerox have joined the ranks of HP, IBM and Fujitsu in the global services market through separate acquisitions.

Earlier this week, Dell said it had bought IT services firm Perot Systems for US$3.9 billion ($4.46 billion).

And Xerox said it would buy Affiliated Computer Services in a deal it described as a "game changer" for its business.

Australian IT analysts told CRN the acquisitions were fuelled by the negative impact of the recent financial crisis on the hardware market.

They said the deals would also create questions and concerns around existing partnerships between local IT service companies and both vendors.

Linus Lai, associate director at IDC Australia said product vendors whose primary source of revenues were from hardware were always interested in growing services "to sustain and grow their businesses".

"Companies like IBM, HP/EDS, Dell/Perot, Accenture, CSC and others can leverage deep IT integration capability," Lai said.

Adam Jura, senior analyst for Industry IT at analyst firm Ovum said vendors saw services as a "more constant stream of revenue".

"Services are less susceptible to shocks like the financial crisis than hardware and provide vendors with more certainty about future financial performance," Jura said.

He said the success of IBM and HP were influential on those starting or expanding their services businesses.

"I think IBM and HP recognised the need for more stable revenue streams earlier on in the piece, as well as the potential to offer bundled product/services offerings," he said.

"Interestingly, both IBM and HP have had a slightly increased focus on software over the last 12-24 months (look at IBM and their recent push in analytics, including the acquisition of Cognos among others). Will Dell and Xerox follow down this path in the next 12-24 months as well?"

Jura saw "pockets of impact" for the deals in Australia.

"Certain areas such as managed print services could see increased competition," he said.

"It could also create some interesting questions [and] concerns around existing partnerships between local services companies and Dell/Xerox.

"These issues will likely solidify as the acquisitions [are completed and integration begins]," he said. "[Then] we'll be able to get a better insight into the intention of managing these relationships into the future."

Chris Herrmann, managing director at Sydney IT integrator Far Edge Technology, said the deals would have greater impact on integrators working with these vendors.

"These consultancies are already competing against other large IT service providers, the difference is now services are tied to a hardware vendor,"  Herrmann said.

"It may have an impact on the relationships that these IT service providers previously had with the vendors."