Integrators Cozy Up to Microsoft, HP Following Services Deal

KPMG and Cap Gemini Ernst and Young are currently in negotiations to expand their alliances with Microsoft or possibly gain worldwide prime integrator status, officials from those companies said.

"I'm not surprised they're pushing that relationship hard with the new HP, but I am surprised about the scale of the commitment," said John Parkinson, chief technology officer at Cap Gemini Ernst and Young.

"HP is committing quite a bit of resources. The prime integrator status matters, as does access to Microsoft marketing dollars," Parkinson said. "We're talking to Microsoft and thinking about [seeking prime integrator status, but we won't make a decision until the end of the year."

KPMG is also sizing up its partnership with Microsoft. "We're looking into that, and there are several other strategic initiatives being considered," said Jim McGuire, senior vice president of KPMG's alliance with Microsoft.

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Those two integrators have been in Microsoft's close circle for several years. Avanade, the 2-year-old services company jointly owned by Microsoft and Accenture, would not comment for this story. Accenture could not be reached.

Many of HP's services competitors have already invested heavily in .NET training, certifications and support. While most view the HP alliance as a positive for adoption of .NET technologies, they want to ensure there is an equal playing field.

Unisys, which was named Microsoft's 2002 Global Services Partner of the Year in July, is not clear about what the worldwide prime integrator status will mean in the field, or its possibility as a competitive threat.

"I'm glad to see HP has put a stake in the ground and said they're dedicated to the Microsoft market space because that's been up in the air quite a bit," said Mark Feverston, vice president of enterprise servers for Unisys in Philadelphia. "But what does [the HP-Microsoft pact mean? Will HP do something different than what we're doing with .NET? We're all gearing up for .NET."

Microsoft acknowledges that HP is the only SI to hold that status today, but insists the deal is not exclusive. A spokesman said the former Compaq Global Services, now part of HP's services arm, was named a worldwide prime integrator for NT and Windows 2000 in the past.

"We do not believe that this agreement with HP in any way harms other partners," said Peggy Fischer, marketing manager of Microsoft partners. "In fact, we believe that strong endorsements from industry systems providers will accelerate demand for .NET solutions worldwide."

Further down the food chain, some Microsoft solution providers are sizing up their own relationships with Microsoft and Hewlett Packard in the aftermath of the announcement.

While they acknowledge HP will be going after global enterprise accounts not on their turf, they fear there will be yet another competitor in a market where services dollars are already scarce. They also wonder how this might impact potential subcontracting deals and market development funds they expect to get from Microsoft to push the .NET platform.

HP, for example, plans to create an internal group of .Net solution architects and establish a worldwide sales force of systems engineers and enterprise sales professionals to sell Microsoft .Net solutions. To accomplish this, HP is training in-house, hiring outside and eyeing several acquisitions in the channel to increase its .NET work force.

Some solution providers are cozying up to HP, or engaging in acquisition talks, to secure their positions going forward. At least one solution provider who asked not to be named is planning to announce its own partnership with HP.

"In addition to large systems integrators who should be scared, I think middle market services companies should also be worried," said the solution provider. "But it may present an opportunity for companies like ours to roll up into HP as a way to instantly give them these abilities....and in this lousy economy, it might be a good idea to consider."

While Microsoft has committed to investing $500 million in the channel for .NET training and channel development, some are envious about Microsoft's injection of cash into HP at a time when the whole services industry is hurting.

"I'm jealous," said Oli Thordarson, president of Alvaka Networks, hinting that Microsoft wants to ensure that its longtime ally in Compaq Global Services remains strong under the HP umbrella. "Some things are not so good at HP and Microsoft is throwing them a bone."

Observers noted that the pact with HP fulfills Microsoft's promise to move to a more partner-centric model rather than develop its own services arm. When Microsoft launched its joint venture with Accenture two years ago, called Avanade, it was promoted heavily as the systems integrator for Windows 2000 and other infrastructure deployments going forward.

One analyst noted the impact on systems integrators has yet to be determined, but said, overall, major .NET partnerships are critical for Microsoft's ability to compete against other large players. It's also a significant step for HP, which has been under pressure to define its market position following its acquisition of Compaq Global Services and IBM's purchase of PwC Consulting.

"It'll be interesting to see how this plays against an EDS or a KPMG, as the real play for .NET is services," said Rob Enderle, research fellow at Giga Information Group. "This may also keep IBM up at night and be a wake up call to Dell that HP isn't done yet."

Analyst briefed earlier this week by Microsoft officials said Orlando Ayala, Microsoft worldwide sales vice president, strongly endorsed the union and presented it as an expanded alliance with the new HP--and not simply a public reaffirmation following the merger.

"It's fairly significant. It carries on a significant partnership between Compaq and Microsoft," said Dwight Davis, a vice president at Summit Strategies. "The broader issue for HP was to quiet the uncertainty about where it stood as a company. So this carries on a significant partnership between Microsoft and Compaq, but even larger, it's important for Microsoft to have on its side HP, a very big player for all of it's troubles. It's better that HP support .NET than lie low."

From the channel standpoint, the move also demonstrates Microsoft's recommitment to a partner-centric model after dabbling in the services waters with Avanade and building up its own Microsoft Consulting Services.

"This move is consistent with the long term strategy of Microsoft Services," said Bob Igou, senior analyst for Software Support Services at Gartner, who predicted some time ago that Microsoft would form alliances like this along the lines of specific product or technology such as .Net.

"It is typical competition," he said. "HP has the size and expertise to do this."