Big Blue partners win slice of services

IBM today announced a new program for its business partners, under which they can work with IBM to provide services to customers.

To date, partners have been limited to just selling products and services. But with the small- to midsized market exploding, analysts say IBM now needs help tapping leads and providing support, customization, systems integration, and outsourcing services to its growing list of customers.

Under terms of the new initiative, announced at IBM's annual Business Partner Executive Conference (BPEC), IBM's customers will decide which services they want to buy from IBM and which they will buy from a business partner. Partners are "encouraged" to sell IBM services during a sale, but IBM can also independently pursue sales to the same customer. The company also said its salespeople, when appropriate, may pass leads to partners--though the partner using the lead is expected to "maximize the IBM content of the solution."

Analysts said it's about time IBM gives its partners a piece of the services business, something Hewlett-Packard and Compaq have already done with a wide array of packaged services their channel partners sell.

"HP's reseller services are an enormous asset to HP and IBM is going to have to do a lot of catch-up work," said International Data Corporation analyst Dorothy Rosenthal. Rosenthal added that IBM and its partners, many who are veterans at providing services, will also need to resolve conflict over how services work is divided between them.

Through the arrangement, IBM will earn 20 percent of the gross from services work that their partners carry out. Potential conflict between internal IBM sales and the firm's partners is expected as the new system works itself out, said Hans Ulrich Maerki, general manager of IBM Global Services. But in a $450 billion market, IBM needs its partners to make the sales needed to expand the company's market share.

"I don't think we can keep up a 20 percent growth rate without our people in the market helping us," he said. The agreement follows IBM's partners ongoing request to be able to provide services to offset dwindling hardware sales margins, he said.

IBM may ask its partners for a fee to provide the leads, but "at least [the leads] won't fall into a black hole," said Jan McGinty, director of IBM's channels development.

Partners may apply to sell services in the following areas: hardware and software support, education and training, e-business, midrange outsourcing, and Year 2000.

It remains to be seen whether partners will excel at providing services, particularly on more complicated projects, said Gopi Bala, analyst at the Boston-based Yankee Group. But IBM needs its partners to generate leads and help the company meet the growing e-business needs of its customers, he said.

As the largest global services provider, IBM currently holds about 9 percent of the worldwide market.

IBM executives said the company's sales to the small- to midsize market topped $29 billion last year and are growing at a rate of about 20 percent. The firms sees capturing the e-commerce market--services that help customers sell over the Internet--as key to future growth. E-commerce is expected to grow to $95 billion over the next year, according to International Data Corporation.

Within this market, which IBM defines as companies with 1,000 seats or less, IBM is focused on enterprise resource planning services, supply chain management software, e-business services, and outsourcing.

A key new service for IBM's Small to Medium Business (SMB) division is the fixed-price Midrange Express, which enables customers to outsource part of their systems operations and management to IBM. The AS400 version of Midrange Express rolled out last December, while the offering for Windows NT and Unix is due out in the second quarter. It takes about four to six weeks to finish a Midrange Express project at a cost of $3,000 per month.

IBM's 45,000 business partners worldwide generated 40 percent of the company's revenue last year.

The company's partners are most interested in providing lucrative ERP services to the mid-market, said George Marini, manager of IBM's global distribution practices. In Europe, about 100 of the company's partners say they are capable of mid-tier ERP implementations, McGinty said.