Microsoft uses upfront cash to get in back door

Although it is debatable how the world feels about a “self-propagating” Microsoft Corp., a spurred growth in the back office is exactly what the software giant may have achieved with its recent US$1-billion pact with Andersen Consulting, according to IDC Canada analyst Keith Ellis.

“You achieve two things,” Ellis said, explaining Microsoft’s enormous investment in the deal, including US$385 million up front to start a joint-venture services company with Andersen called Avanade (subject to regulatory approval).

“One, you become a player in the market. You’re able to create a services company that will have an inherent value,” Ellis said. “But, more importantly, you’re creating a skill set around your product services.”

Ellis said many software companies find it very difficult to get people not only to use their products, but also to understand them enough so they can become solution providers.

Microsoft is seeking to remedy that situation by training a vast number of Andersen personnel — almost 25,000 or close to 40 per cent of Andersen’s worldwide workforce — on Microsoft’s enterprise platforms, including Windows 2000, Microsoft SQL Server, Exchange Server, e-commerce technologies, Windows DNA 2000 and Visual Studio development system-based tools.

“How deep are all the people going to be (trained)?” Ellis asked. “I don’t know. But 25,000 is an impressive number, no matter how you slice and dice it.

“This will drive much more credibility for the MS platform in the back office. You’re hooking up with Andersen Consulting, who are no stranger as an enterprise player. They’re going to be in the back offices of these organizations, and they’re going to be developing applications and solutions that sit over the top of a Microsoft platform.”

Microsoft’s pact with Andersen is comprised of two components: the joint company, Avanade; and a new Microsoft Solutions organization created within Andersen.

To be headquartered close to Microsoft in Seattle, Avanade will specialize in reusable e-commerce applications, Windows DNA development and application integration, highly available enterprise and Web infrastructures, and data centre consulting services. The company expects to hire 3,000 technologists with Microsoft expertise within the first two years of its existence, with long-range plans to expand to 5,000 employees, at which time Andersen estimates the customer segment for Avanade will be US$15 billion.

There will be some overlap between Avanade and Andersen, but the newer company will not be taking away business from the parent company, Ellis said.

“The fundamental value proposition of Avanade is that of an implementation-oriented firm, to develop and implement applications,” he explained. “Andersen’s value proposition is much more in the consulting space, with implementation being a following activity.”

Andersen’s Microsoft Solutions Organization will employ 3,000 business solution architects with Microsoft expertise. The dedicated group will support the development of industry-specific and cross-industry solutions on the Windows 2000 platform. Andersen plans to leverage its business and technology experience to work with a variety of industries, including automotive, financial services, government, healthcare, manufacturing, retail, telecommunications and utilities.

Avanade has no plans to open a Canadian location just yet, focusing instead on the United States and large cities on the other continents, but Ellis expects the new firm’s Microsoft practices to seep across our border in the near future.

“The innovation that gets driven by a firm like that will spur greater numbers of Microsoft practitioners in the Canadian market,” Ellis suggested, adding other services companies will jump on the bandwagon at that point, feeding Microsoft’s back-room growth.

“The more practical capabilities (services firms) have with the product, it tends to spur the product,” he said. “It’s kind of the chicken and the egg thing, one self-propagating the other.”

As for Andersen, its reasons for the deal with Microsoft are simple, Ellis said. “(Andersen) is going to extend its market reach, and Microsoft is going to pay for it.”