As HP/EDS Deal Shakes Out, Will VARs Pay The Price?

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With Hewlett-Packard's pending $13.9 billion acquisition of EDS, of Plano, Texas, the vendor is poised to become an instant player in the global IT services arena. But integrating an army of some 210,000 global service employees, the combined services rosters of HP and EDS, with HP's enterprise-oriented service providers, and then avoiding the inevitable conflicts between EDS direct and the channel, is a challenge solution providers say the vendor should not underestimate.

"It's a good move for HP because HP has been sitting on the sidelines while IBM's global services has been going gangbusters," said Mark Melillo, CEO of Melillo Consulting, an HP enterprise partner in Somerset, N.J. "But I do have some concerns with more conflict with HP in accounts around services. HP is very direct-centric."

He noted that HP, Palo Alto, Calif., has more sales reps and that HP software reps now have services quotas, which has fueled a tendency to take more services deals direct, he said.

Those concerns are the same ones voiced by IBM business partners over the years as they have struggled to team with the vendor's global services organization. IBM's global services has sometimes poached or attempted an incursion into accounts already being served by business partners.

The problem for IBM, Armonk, N.Y., and one that must be avoided by HP, is that IBM services often had no idea who the business partners were and what services capabilities they brought to the table.

Everything Channel, in a conference call with HP CEO Mark Hurd and EDS CEO Ron Rittenmeyer following the announcement of the pending acquisition, asked what would be the impact on HP service authorized enterprise partners and how they would integrate with the new EDS services organization.

"It's good for HP so I think it will be good for our channel partners," said Hurd. "Our commitment to channel partners is in the DNA of HP. I don't think there's going to be anything but goodness in our outsourcing business today, and what we do in Consulting and Integration, we try and make it very complimentary with our partners, so I don't [see] anything but goodness."

HP, for its part, has pursued a services strategy that pushes midmarket services maintenance accounts to the channel with the hopes that solution providers would provide better coverage in both services and HP product sales to those midmarket customers.

But those services tend to be low-end, break-fix, not the high-margin consulting and integration services many HP enterprise partners aspire to.

As one HP solution provider, who asked not to be identified, noted, "All the heavy lifting is in the midmarket. Many of us are already selling services into enterprise accounts and HP needs to deal with that."

But some solution providers believe there is enough stratification between the EDS services business and those engagements the channel will pursue to avoid most conflicts.

"Without knowing the terms or details, I think I would be encouraged," said Dave Butler, president of Enterprise Computing Solutions, an HP enterprise solution provider in Mission Viejo, Calif. "When IBM bought PricewaterhouseCoopers a few years ago, it was a shot in the arm for professional services. Today, we see IBM out there promoting their strategic services. My hope is that this would be an accelerator for HP to get to the next level of services. HP has been pursuing this for years."

This should not result in more competition to the channel, "Assuming that HP can work out the channel issues," Butler said.

Larry Holzenthaler, executive vice president of sales and marketing at Total Tec Systems Inc., an HP enterprise solution provider in Edison, N.J., agreed that HP has a good shot at avoiding services conflicts. "It's good for HP to have a strong professional services practice to support their hardware business with a same model as IBM's," he said. "We really operate for the most part in a different space than the C and I [Consulting and Integration] group does. We never see EDS and we never see C and I."

Next: Channel Challenges

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