American Express, IBM ink massive deal

In an IT support blockbuster deal, financial services giant American Express Co. has signed a US$4 billion, seven-year IT contract with IBM Global Services.

Under the deal, which was announced today, New York-based American Express (Amex) will maintain oversight of its applications, network personnel and IT strategy, while handing over the reins of its IT infrastructure – including some 2,000 operations workers, tech support staffers and programmers – to IBM.

Glen Salow, executive vice president and CIO at Amex, said his company will receive wide-ranging support services on an as-needed “utility model” basis.

For Amex, the arrangement is called “out-tasking” rather than the traditional outsourcing structure, Salow said. Instead of hiring a company to come in and take over their IT systems, Amex is having IBM come in as a partner to help guide their IT ship.

The arrangement “achieves a level of flexibility while assuring ourselves … a good price and quality,” Salow said.

A host of other companies were in the running for the contract, but Salow wouldn’t say how many or what companies vied for the contract. “We felt there were potentially a handful of companies who could do this work for us,” he said.

The deal, which goes into effect March 1, includes options to extend the contract after the first seven years. IBM will provide Amex with wide access to its vast computing resources, while saving the company hundreds of millions of dollars in IT costs over the life of the deal. Amex has one of the world’s largest IT operations, according to the company, and processes approximately 1 billion transactions daily.

Paul Sweeny, general manager of financial services at IBM Global Finance, called the contract the largest utility services or financial services deal ever signed by IBM Global Finance, and one of the group’s five largest deals ever.

“This will cause a lot of senior executives at financial institutions to look at their own situations,” he said.

Bruce Caldwell, an analyst at San Jose-based Dataquest Inc., said the deal looks like a mix of traditional outsourcing and IBM’s new utility “pay-as-you-go” approach to IT services. One thing the deal means for certain, he said, is that by signing up a major financial services company such as Amex, IBM gains huge credibility in the approach.

“It’s a major endorsement by a major American company with huge IT resources,” Caldwell said. “This is certainly a very substantial endorsement.”

IBM Canada Co. in Markham, Ont., is at