Big Blue makes another major "on demand" win with Morgan Stanley, which will move some of its business applications from a mainframe environment to a shared IBM infrastructure.
The five-year, $575 million contract is an extension of an information technology services agreement struck between the two companies in 1999, and it builds on a separate grid computing deal announced by the two in September. Utility computing can help companies save money by letting them tap into multiple networked devices on an as-needed basis. Proponents say this approach lets companies run programs more reliably and reduces the cost of maintaining data centers.
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Once Morgan Stanley moves to the new infrastructure, it will pay only for the back-end computing power it uses, which the company believes may help it save millions of dollars. The deal will allow the investment company to acquire processing power, storage capacity and networking bandwidth automatically, as its needs dictate. The companies said they created a sophisticated pricing system in order to facilitate the arrangement.
Morgan Stanley described the effort as an element of its goal to further automate its data centers. IBM said it will assume some of Morgan Stanley's staff, based on the outsourcing contract, but the company did not offer further details regarding how many employees may change companies. IBM will also provide help desk support services to about 20,000 people in Morgan Stanley's Individual Investor Group.
"Technology lies at the heart of modern business, and that's why it's so important for Morgan Stanley to have a hand-in-glove working relationship with a technology provider that intimately understands how our business works," John Schaefer, president of Morgan Stanley's Individual Investor Group, said in a statement.
IBM says the migration of Morgan Stanley's mainframe processing to a shared infrastructure at one of its facilities marks a significant event in the evolution of the computing giant's "on demand" strategy. Company representatives said the deal highlights the fact that major customers are increasingly willing to make IBM a significant part of their daily business operations.
"We're helping (Morgan Stanley) to further marry business process to underlying technology that we control, which is the culmination of everything we talk about with on-demand," said Eric Ray, vice president for financial markets in IBM's Global Services unit. "We'll be overseeing everything from infrastructure to security to applications running on the shared infrastructure, which is something unique in the financial services market."
IBM, Hewlett-Packard, Sun Microsystems and a handful of others have been working hard to persuade customers to employ utility computing in order to maximize back-end system performance and cut overhead. IBM's on-demand initiative has gained a number of customers over the last year and may be the best-known utility computing offering on the market.
In IBM's 2003 annual report, the company said it earned more than $1 billion in revenue from its hosting business, which is profitable. The company singled out e-business hosting as an emerging growth area. The division's revenue has increased 20 percent over the past three years and now has 2,000 clients, according to the report.