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(Fwd) Vendors in Turmoil: No End To Hosting Upheaval

From: Eric D. Pierce <>
Date: Mon, 10 Sep 2001 16:03:11 -0700
Message-ID: <>


   September 7, 2001

     Editor's Note

     Devise Strategies To Deal With
     Services Upheaval


     When times get tough and profits get
     pinched, vendors scramble for the high
     ground. In the IT industry, that safe
     haven has been services, with the likes
     of IBM, Hewlett-Packard and
     Compaq--as well as scores of
     second-tier competitors--positioning themselves as
     integrators, outsourcers and consultants rather than
     straight purveyors of low-margin product.

     For the most part, this strategy has worked. IBM, for
     instance, derives most of its profits from its services
     business (which also drives sales of IBM systems
     and applications). Unisys is alive today thanks to its
     services reincarnation.

     But the economic floodwaters are rising rapidly even
     on services vendors--with troubling consequences for

     Consider the industry upheaval in the past several
     months. MarchFirst, an Internet services juggernaut
     18 months ago upon its creation from the $7 billion
     merger of Whittman-Hart and USWeb/CKS, is
     defunct. The stock prices of leading Internet
     integrators Sapient and Scient are a tiny fraction of
     their 52-week highs as the companies try to digest
     restructurings. Razorfish, the once-promising
     boutique firm, is back in the red after slicing its way
     to a profit last year.

     Exodus Communications, the world's biggest Web
     hosting provider, is running out of cash--and with last
     month's three board defections and last week's
     resignation of CEO Ellen Hancock, it's running out of
     leadership. Much smaller Web hosters teeter near

     While IBM Global Services, EDS, Accenture and
     most of the other full-service IT vendors are holding
     their own, they're cutting corners to keep their
     numbers up. Compaq, realizing that Digital's services
     organization wouldn't be enough to carry it through
     the next few years, last week locked arms with HP to
     create the world's third largest IT services outfit
     (behind IBM and EDS). Rival Dell, meantime, has
     sold its Web hosting assets to Sprint, having already
     bailed on application service provision and other


     So what does all this upheaval mean for customers?
     And what can you do about it?

         Your IT "partner" today isn't likely to be the
         same person working for the same company
         tomorrow. Your infrastructure and contracts will
         pass from one services vendor to another.
         Maintenance and support will be delivered with
         patchy consistency. Be prepared to ride out the

         Keep the crown jewels in-house. As the
         distinction between e-business and
         business-as-usual blurs, a company's Internet
         assets are its core assets. Identify which pieces
         are truly strategic--and hang on to them (or bring
         them back in-house).

         Gravitate toward size and stability. If you must
         entrust your Internet infrastructure or operations
         to an outsider, it may pay to choose a big,
         lumbering vendor that'll be around in a year over
         a best-of-breed hotshot that may not.

         Negotiate services contracts as if your
         company's life depends on them. Take no price,
         service level, personnel commitment, business
         milestone or other contract detail for granted.
         Map out an exit strategy should you want to take
         your business elsewhere in the event your
         vendor's financial or organizational wherewithal
         changes materially.

     Don't take upheaval in the IT services industry lying
     down. You have options. Explore them.

     Robert Preston is editor in chief of InternetWeek. He
     can be reached at { HYPERLINK "" }


HP-Compaq: A Lot To Prove: Customers ask, What's in it for us?




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