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IBM spirits Diageo away from HP

Big Blue continues its string of on-demand computing services wins, announcing a new infrastructure outsourcing deal with beverage giant Diageo.

IBM continued its string of on-demand computing services wins, announcing Friday a new infrastructure outsourcing deal with beverage giant Diageo.

Under the seven-year agreement, IBM assumes management of Diageo's worldwide information systems infrastructure. Analysts familiar with the deal estimated its value at $400 million to $500 million.

Diageo previously used HP to manage its infrastructure operations, according to analysts. HP has expressed its intent to compete directly with IBM in the market for IT outsourcing services. HP representatives could not be reached for comment.

A representative of U.K.-based Diageo, a distributor of alcoholic beverages including Guinness beer and Smirnoff vodka, said the company chose IBM based on its on-demand information technology outsourcing model. The on-demand strategy allows IBM customers to purchase IT services such as storage on an as-needed basis, much in the same way they might buy utilities such as electricity.

The Diageo representative said the deal was signed with the goal of integrating disparate computer systems the company acquired through a series of mergers and acquisitions. Diageo was formed through the merger of beverage makers Guinness and Grand Met, along with subsequent acquisitions including the wine and spirits business of Seagram's.

"This agreement will help underpin Diageo's drive for consistent and sustainable profit growth by providing a simpler, more efficient and flexible (information technology) infrastructure," Robin Dargue, chief information officer at Diageo, said in a statement.

IBM has recently landed a number of high-profile agreements based on its on-demand strategy. The company reported that it won IT services contracts totaling $3.8 billion in the third quarter of 2003 alone, including deals with Qwest Communications, the state of California, Raytheon and engineering giant ABB.

Executives at IBM believe that the flexible pricing model of on-demand computing, along with the ability to tie in market expertise, will continue to win over customers. Frank Britt, an IBM vice president, said Diageo is similar to a number of other companies in the industry that have grown via acquisitions.

"Linking infrastructure to business strategy is a fairly new idea to most customers, but we know they're catching on fast," Britt said. "We still face some confusion in the market based on all the on-demand computing messages being forwarded by different vendors, but customers are starting to figure out what is fact and what is fiction."

Earlier this month, IBM won an outsourcing pact with Danish toy maker Lego, another former HP partner.

According to Stratos Sarassamlis, an analyst at Stamford, Conn.-based Meta Group, HP did not make it to the final round of candidates being considered by Diageo.

"The flexible price structure of (IBM's) utility model is very appealing to customers in light of the current economy," Sarassamlis said. "The cost reductions appreciated though the strategy allow businesses to reinvest in their infrastructures, which they see as a catalyst for growth in the future."

Sarassamlis said it took some time for the European business community to figure out all the implications of on-demand computing, but he believes large numbers of companies in the region will select IBM for outsourcing agreements in the near future as a result of the strategy.