Steve Ballmer, the CEO of Microsoft, has laid out his position about where the company stands regarding IT services, ruling out any change in direction that would see it become a software and services giant. Speaking at the company’s Executive Partner Summit in Portugal, Mr Ballmer said Microsoft’s partner model is too important to allow it to change strategy.
The partner model has served us incredibly well…and I see nothing on the horizon to cause us to see it any differently. It’s Microsoft. It’s not Microservices and it’s not Microreseller, he said.
This comment puts paid to any speculation that Microsoft would consider building up its IT services operations by acquiring one of its partners.
Last March, rumors surfaced that the software giant might have been interested in acquiring some or all of its troubled partner EDS, the world’s second largest services company after IBM Global Services.
That speculation occurred after former EDS CEO Dick Brown stepped down and was replaced with CBS chairman and CEO Michael Jordan. Mr Jordan has spent the past year restructuring EDS and reducing its debt mountain in order to shore up its business, and last month he went on the record to state his intention to keep the services giant an independent concern.
Mr Ballmer’s announcement will come as some relief to the 775,000 Microsoft partners worldwide that rely on software reselling and the higher margin consulting and implementation services that Microsoft lets pass on to them. In fact, Microsoft said it aims to split the proportion of work it gets from services 60:40, with its partners getting the largest share.
Despite this, Microsoft employs some 4,000 consultants worldwide, according to Simon Witts, VP for Microsoft’s enterprise partner group. The majority of the consultants are on site but there are others who do the 24/7 managed support, he said. We aim to push this up from 12,000 enterprise business to 20,000 enterprise businesses in the next few years, but it will remain a cost center, which is very different from IBM Global Services.
The fact that Microsoft sees IT services as a cost center rather than profit center underscores its strategy to keep its distance from becoming a serious services player. Were it to consider this as a key part of the Microsoft strategy, the company would be looking to generate maximum profit from services, as it does in software.
One of Microsoft’s most high-profile partnership projects to date is with Accenture for the UK National Health Service. Signed in December 2003, Microsoft is acting as a contractor to Accenture, alongside BT and iSoft, in its GBP1.1 billion 10-year contract to develop an NHS Care Records Service for the North East of England. Mr Witts said that the company is providing Microsoft services from two data centers, running Windows Server 2003, SQL Server, and BizTalk Server 2004 tools.
Mr Ballmer pointed out that Microsoft’s investment in research and development is also a key part of its strategy. He said Microsoft will invest some $6 billion in R&D over the next 12 months, and a portion of this will be going to its partners. In July, for example, Microsoft and Capgemini invested $25 million each to expand their alliance, accelerating the development of packaged industry solutions based on Microsoft’s .NET software platform. The two companies are developing tools for Windows Server System and .NET for the healthcare, public sector, energy, chemicals, utilities, automotive, manufacturing and retail sectors.
But perhaps it is in the rapidly consolidating business software market where Microsoft will begin to spend some cash. Mr Ballmer was in talks with SAP about a merger earlier this year, but then pulled out on the grounds that it was not making sense at the time. He said Microsoft is not experienced in making big acquisitions, and ruled out making a bid for rival PeopleSoft:
We see growth in the business application areas such as in CRM and ERP solutions for organic growth. We do keep our eyes open from a strategic and profit perspective, he said. But we have not acquired a lot of big companies. We talked about buying SAP, and we are not buying PeopleSoft.