Computer Associates and Compaq are on their way to joining the "We laugh at the Maytag repairman" club.
You've seen the Maytag commercial on TV. The ad shows a guy bored out of his wits because there is nothing for him to do. No broken washers or dryers to fix. No customer calls on how to make the hardware work. No one wanting his services. In Maytag's ideal plug-and-play (or wash-and-dry) heaven, the repairman is a lonely guy.
The computer systems "repairman" doesn't suffer so. In fact, he's a pretty busy guy, especially in corporations that run big, mission-critical applications. So it's no wonder that Compaq and Computer Associates are the two most recent companies who have shown themselves willing and wanting to jump into the services business, where the repairmen are well-used and well-paid.
Late last month, Compaq agreed to plunk down $9.6 billion to acquire Digital, mostly so it could jump on the services gravy train. On Wednesday, CA made an $8.4 billion bid for Computer Sciences for the very same reason.
IBM has already made "services" a big part of its business. In fact, IBM's computer services division generates some $19 billion in sales per year. Which shows that whether IBM and others are assembling a complex puzzle of hardware and software or making sure it doesn't disintegrate, these companies are raking in the bucks.
What the heck is going on here? If computing is getting easier, why do companies keep making more and more money from services?
To be sure, services revenues were a big part of the mix in the big-iron era. But Computer Associates was given up for a has-been in the early '90s because most of its revenues were derived from sales and services for mainframes. Today it is once again in great financial health. Its earnings grew from just over $50 million in 1990 to close to $200 million this past year, according to a New York Times report.
But PCs are supposed to be "faster, better, cheaper," not to mention simpler. Today an average PC can handle 200 million instructions per second. Robust workstations and servers can handle even more. Just this week Data General said it will introduce a server with 64 advanced Intel "Deschutes" Pentium II processors, a machine that will supposedly offer mainframe-like performance and likely cost hundreds of thousands of dollars less. No more need for big iron.
In software, the SAPs and Oracles and Microsofts sell client-server solutions that apparently cost magnitudes less than mainframes, at first. But once a customer falls for the relatively cheaper up-front cost of buying the software, he still has to pony up for the army of consultants to provide the "services" that actually keep a system such as SAP's R3 humming.
In fact, the new way of showing machismo in the industry is to boast how many consultants it takes for your software to get up and running. The CEO of NetDynamics told us over lunch this week that it took 75 people from EDS to service and support his product's implementation at a customer site. It had to be complicated enough that mere information services professionals within the customer's organization wouldn't be able to tackle the task; that is, if there were enough of them to tackle the task to begin with.
What we seem to have here is a case of the fox guarding the henhouse. Computer Associates, IBM, SAP, et al., you have to remember, are the ones who control how these products are designed and built. And they are all looking to the services business as their major growth sector.
But no complexity, no service revenues. Do you think the thought has crossed their minds that maybe, just maybe, simplifying their system management, databases, or human resource applications, for example, is not really in their best financial interests?
One shudders to think the advice these companies would provide Maytag. No more rest and relaxation for that repairman, that's for sure.
Jai Singh writes about the meaning behind the headlines on Fridays in Perspectives.