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Microsoft, Andersen Consulting team on Net services business

The companies plan to form a $1 billion joint venture to provide Internet and consulting services to companies using Microsoft's Windows 2000 operating system.

Microsoft and Andersen Consulting said today they plan to form a $1 billion joint venture to provide Internet and consulting services to companies using Microsoft's Windows 2000 operating system.

Microsoft said it will pump $385 million into the new venture, dubbed Avanade, which creates a new organization within Andersen focusing entirely on services for companies using Microsoft's software. The software giant will also provide development support, while Andersen will provide training and other consulting services.

Avanade is likely intended to help assuage fears that the adoption of Windows 2000, the new business operating system software launched by Microsoft last month, is a difficult and arduous task. Several research groups have said that companies migrating to the new platform are likely to face integration problems during the switch.

"Andersen's commitment to Microsoft is a ringing endorsement of Windows 2000's Internet future," wrote PaineWebber analyst Don Young in a report this morning. He added that the deal "highlights the industry momentum that is lining up behind Windows 2000."

A recent survey by International Data Corp. found that only about 5 percent of the smallest businesses said they planned to move to Windows 2000 in the next 12 months. The study also found that larger business operations--those with 50 to 999 employees--are expected to move faster, with 17 percent planning to go to Windows 2000.

The new company, together with the recent launch of Windows 2000, gives Microsoft a means for tackling larger-scale e-commerce software and services contracts. The company competes against IBM, Oracle, Sun and other firms that already have large services divisions. Microsoft has in the past partnered with a range of firms for services help.

"Our huge opportunity is to capture a larger percentage of what large enterprises spend on IT. We have made great business on the client, we have made business on desktop productivity, and on the Unix front we have done a pretty good job chipping away at old Sun and IBM on the bigger projects," said Microsoft chief executive Steve Ballmer.

The formation of Avanade, to be headquartered in the Seattle area, is subject to regulatory approval. The company, which is expected to employ more than 5,000 workers, also plans to open offices in San Francisco, Dallas, New York, Paris, Frankfort, London, Sydney, Sao Paulo and Singapore in the next 18 months, Microsoft and Andersen said.

The company will work directly not only with Andersen and Microsoft but also with key original equipment manufacturers (OEMs) and other technology providers.

The companies also plan to take Avanade public at some future date.

Mitchell Hill, an Andersen partner with more than 20 years' experience with the firm, will be Avanade's chief executive.

Other tech firms have also recently teamed with consulting firms, hoping that third-party support will help companies move faster toward adopting new technologies. Just last week, Cisco teamed up with European technology consulting firm Cap Gemini to add to its stable of networking services professionals. Last year, Cisco also made an investment in technology consultants KPMG while Lucent Technologies acquired International Network Services.