Annex Bulletin 2006-36 September 26, 2006
An OPEN client edition
Updated 9/26/06, 6:45AM GMT, adds Appendix A
Analysis of IBM Global Services' Ground-shifting Announcements
Services in a Box
IBM to Integrate Software, Hardware and Services into Reusable Assets, Call Them "Service Products"
SCOTTSDALE, Sep 26 - In an effort to bolster the growth and profitability of its largest business unit - the $47.5 billion-IBM Global Services (IGS) - Big Blue announced today a new way of delivering IT services. Calling them "service products," IBM unveiled reusable assets that can be purchased, implemented and run the same way a client would use computer hardware or software. Think of them as "services in a box," if you wish, a ground-shifting move for IBM.
"There has been extremely strong collaboration with the software group" in developing these products, said Liz Smith, general manager of infrastructure access services, in a pre-release briefing. "The bet is one of the biggest and most important for IBM," company executives also said. Smith added that she was convinced the new services move would also help IBM grow the software and the hardware that are integrated within the new services "products."
And since hardware and (even more so) software have much higher profit margins than the services (36% for hardware; 84% for software vs. 28% for services in the latest quarter), that's good news for the IBM bottom line.
From a customer standpoint, the "services in a box" approach will be appealing as it improves the efficiency of delivering service solutions, thus saving the customer money, or increasing its business volumes, depending on the application.
Not all customers, of course, will go for it. Some will continue to prefer customized solutions. And a certain amount of customization would also apply to the companies that buy the new IBM services products.
IBM Move Fits In with Long-term Trends
Overall, however, it is a step in the right direction. And it fits like hand in glove with new trends that we foresaw emerging from traditional custom services offerings. They will ultimately help customers restructure themselves more rapidly, and improve the speed to market of their products. Here's an excerpt from a January 2004 report, for example, titled "IT Industry: Whither Goeth It?", one of our "Holy Grail" expeditions:
We also said this may lead to a new roles for the IT services vendors:
Back to stark reality of today, not much has changed in nearly three years since we described our dreamy vision of the future. Until now. Now that IBM has sanctioned a new product-based approach to services (which we called "building blocks" in the above report), there are pretty good chances that other IT services vendors will follow. But rather than compete with Big Blue across the board, which is a daunting prospect for any competitor, they are likely to pick out the niches of expertise in which they can offer their own services products.
Some are already doing it. Accenture, for example, is "already (making) significant investments in developing reusable assets in the healthcare sector," we noted in an April 2005 report (see "Roaring Ahead," Apr 2005). EDS has also talked about it last year, in the context of its huge U.K. Defense Ministry contract. But only a few computer conglomerates can hope to take on IBM across a wide front. HP and Fujitsu (EDS), for example, come to mind as possible candidates.
First Launch in Telecom Sector
Nor will IBM necessarily have all of its new ducks lined up on day one of this announcement. We can expect a gradual rollout of "services in a box" that will ultimately comprise its new "services products" portfolio. The first two shoes to drop, however, are in the telecom market, which IBM characterized as a "booming market for networking services that can facilitate anytime, anywhere business communication."
The "Network Convergence Services Product" analyzes readiness for communication networks that support data, voice and video. The second product, "IP Telephony Services Product," helps customers design, deploy and manage IP telephony infrastructure to reduce costs associated with managing and maintaining separate voice and data equipment and networks.
Over the next eight weeks, IBM will roll out more than 30 new "service products," the company said (see Appendix A for details of the IBM Global Services product lines). And then we'll have to wait and see if the competition follows in Big Blue's footsteps, or keeps on offering mostly custom services, as they have been doing since the inception of the industry.
Happy bargain hunting!
IBM Service Product Lines
Currently, there are 10 Service Product Lines (SPL). They are grouped into three Service Product Area Groups.
For additional Annex Research reports, check out... Annex
Bulletin Index 2006 (including all prior years' indexes)
For additional Annex Research reports, check out... Annex Bulletin Index 2006 (including all prior years' indexes)