Collectively, vendor companies with separate services organizations racked up a whopping $135 billion in IT services sales in 2006. That's more than the gross domestic product of Israel. It also bests the combined payroll of the 12 top-paying teams in Major League Baseball. Remarkably, IBM Global Services alone accounted for more than one-third of that $135 billion tally. Then there's data management veteran Sybase, which saw its services group's sales skyrocket by more than 300 percent.
Any way you slice it, IT services--everything from custom solutions to business process consulting to applications hosting--means big business for today's leading technology vendors and ISVs. That's why, for the first time, VARBusiness is recognizing separately 25 vendors whose services organizations reaped the most revenue in 2006. It's an elite list of the IT industry's most recognized household names--from Hewlett-Packard to Microsoft. All but four of the companies grew their 2006 revenue year-over-year: Eleven of the companies saw double-digit increases, and three saw triple-digit.
After several years of sluggish growth in vendor services, a great majority of the companies on our list have picked up momentum. Software companies and networking vendors, in particular, have green-lighted their services businesses to respond to increased customer demands for greater levels of services. The resulting growth, for some, balances a slowdown in traditional product sales. For several ISVs, services now comprise more of their business than do product transactions.
Take Sybase. Total revenue for 2006 was $876 million. Of that, only $345 million reflected sales of licensed software. The remaining $531 million is services and maintenance. At document management stalwart Xerox, services made up nearly half its $16 billion in total sales last year.
That reflects customer demand for solutions that address specific business problems and require consultation, assessment, monitoring and plenty of technology integration. Wrap that around the emerging trends in managed services and applications hosting, and it becomes clear why many vendors today are putting resources and muscle behind their services arms.
"The services space is a free-for-all right now," posits Ken Presti, president of Presti Research Consulting in Sunnyvale, Calif. "You've got huge growth rates. ISVs want a piece. Manufacturers want a piece. It will be interesting to see who ends up with the lion's share."
Today, that lion's share belongs to IBM Global Services (IGS), which is actually made up of two groups--one focused on technology services, the other on business consulting services. With $48 billion in sales last year, Big Blue's services juggernaut accounts for more than half of its total revenue--besting the combined sales of IBM hardware, software and financing. From an income perspective, however, IGS makes up 37 percent of IBM's overall profit for the year; and at just less than 2 percent growth for the year, many in the industry, including IBM chairman and CEO Sam Palmisano himself, have admittedly been disappointed in services.
"Services is an area where we have worked hard and should be making more progress, to give an honest assessment," Palmisano told an audience of solution providers at the company's recent PartnerWorld conference in St. Louis.
NEXT: How IBM is reworking its services strategy.