IT Outsourcing Wars

With private equity firms reportedly looking at a buyout of outsourcing giant Computer Sciences Corp. (CSC), it’s a good time to look at the future of IT outsourcing.

The private equity play, which was reported by The Wall Street Journal last week, comes as IT outsourcing giants like CSC face cutthroat competition in the Fortune 1000 from other outsourcing giants like IBM Global Services and EDS. Also fueling the fire is competition from fast-growing offshore outsourcers from India that have lower costs, higher margins and dramatically higher stock multiples. What’s ironic is that the uphill scenario facing companies like CSC is taking place as a new wave of solution providers prospers by providing outsourced IT services to small and midsize businesses.

STEVEN BURKE Can be reached at (781) 839-1221 or via e-mail at sburke@cmp.com.

Arnie Bellini, president of ConnectWise, says the summit, which will include managed service provider (MSP) software players such as N-Able, Kaseya and Level Platforms, is sold out. He expects the outsourced IT business of ConnectWise partners to be up 15 percent this year and 25 percent in 2006. That market growth has CSC and even Dell, IBM and Hewlett Packard champing at the bit to move downstream. At the same time, Bellini and solution providers are moving more squarely into the midmarket.

Bellini said his message to his fellow partners is simple: “Defend your turf. You won that space. These are your clients.”

Ultimately, Bellini said the CSCs and the offshore outsourcing giants are doomed to fail in the small-to-midsize market because they cannot match the high-service, lower-cost, high-touch model of his fellow IT outsourcers. He’s right. These large IT outsourcing companies are in for a difficult time unless they can figure out a way to partner with the smaller, more nimble outsourcers.

What is your view on the IT outsourcing wars? Let me know at (781) 839-1221 or via e-mail at sburke@cmp.com.

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