Don't Hold HP To A Double Standard

Let's face it, HP's decision to purchase EDS for $13.9 billion is making some VARs nervous about how the move is going to impact their services business. My immediate response is that VARs are being hypocrites, and here's why.

For years, VARs have been building out their services businesses, resulting in a channel that derives nearly half its revenue from professional and technical services. VARs were told to diversify or perish. Today, your average thriving VAR has developed a strong services, software and hardware portfolio, while those who didn't aren't around to read this column. So why grouse about HP CEO Mark Hurd's decision to buy $22.1 billion EDS, which has been struggling, whose shares seem like a relative bargain and whose business helps strengthen HP? A stronger HP doesn't necessarily translate into a threat. It should result in a stronger company with a better product and services portfolio, not to mention a better longer-term outlook.

Wall Street skeptics have it wrong. The newspapers writing critical stories also have it wrong because they don't understand the value of the services business. I don't hear VARs screaming about IBM's huge services businesses, which has been basically carrying the company for years. People applaud IBM for its success there, so why wouldn't the same hold true for HP? Also, why wouldn't more competitive pressure on IBM Global Services finally motivate it to get serious about engaging with the channel? IBM for years has mostly talked about a channel strategy for its services arm but in the end has done little. If HP can figure out a way to leverage its channel for a more comprehensive services push, it could really inflict some pain on IBM.

One of the biggest issues facing HP is how it will drive up EDS' operating margins, which at 6 percent are about half of IBM's. But if you consider the markets EDS serves—running customer mainframe systems, operating help desks for PCs or outsourcing client business processes—could partners play a bigger role, profiting from such activity while freeing up costs for HP? Could HP help the integrator leverage public-sector partners more to help lower its cost of doing business? I say yes to both counts.

Suddenly, and I mean very suddenly, Adrian Jones, the executive responsible for HP's North American partners, has a difficult job ahead of him. While many of the issues I raised will be hashed out by HP and EDS bigwigs, we will really see what Jones is made of in the coming months. He will have to deal with the daily fears of HP partners scared out of their wits, while carefully crafting a way for the HP channel and EDS to peacefully co-exist. Jones has one thing in his favor, though: HP's partners are a satisfied and happy lot at the moment, as evidenced by the recent grades in our Channel Champions and Annual Report Card surveys. But if he and HP make missteps in handling the EDS integration, all that hard work will be lost.

Are you suffering from double vision?
Everything Channel Senior Vice President/Editorial Director Robert C. DeMarzo can be reached at [email protected].