Microsoft revs up enterprise consulting business

Microsoft Corp. created a worldwide services organization Tuesday, saying it is now ready to become a primary contractor for IT executives looking for Microsoft-centric consulting and professional services.

Microsoft said it is formally combining its Microsoft Consulting Services, which has more than 4,000 consultants worldwide, and its Product Support Services, which employs 9,000 support staff. Microsoft says it plans to expand the number of employees in the new service organization by 20 per cent to 30 per cent each year.

The combination is aimed at providing large enterprises with a Microsoft-led team that can design, implement and maintain complex e-commerce and Web platforms, namely Microsoft’s new .Net platform.

But it also will provide Microsoft with another revenue stream as the economy and Microsoft’s bread-and-butter PC market tighten.

Microsoft’s Consulting Services currently has programs for IT that focus on such things as e-commerce, enterprise application planning and distributed computing. The Product Support Services will contribute its Alliance support subscription-based service that provides on-site assistance and other services.

“They clearly are unifying services that stretch from the architecture of systems through the back-end maintenance,” says Dwight Davis, an analyst with Summit Strategies. “This is an evolution of what Microsoft has been doing for the past five or six years so they could show the enterprise they stand behind their products. That is not new, but what this new organization represents is a willingness to be a prime contractor.”

Indeed, the new services organization gives customers the option of directly contracting with Microsoft, which said it would start to take contractual responsibility for delivering services directly.

“The fact that products like DataCenter, Windows 2000 and SQL Server are becoming viable alternatives for mission-critical applications is prompting customers to tell us they want us to take on more of the risk of these rollouts and be a prime contractor,” says Bob McDowell, who as vice-president of worldwide services will lead the new organization.

As an example, McDowell points to a recent project it spearheaded for the British government to integrate citizens and business users with government institutions. The first part of the deal involved deploying Microsoft BizTalk Server 2000 as the linchpin of an electronic payment system for business tax.

But Microsoft says it would not abandon its 32,000 Microsoft Certified Partners and one million Microsoft Certified Professionals, although analysts say the move surely will send a shiver through those ranks.

McDowell says the work with the British government is a prime example of its partner strategy. He says the contract included 20 people from Microsoft and 40 from various partners. “That will be the model going forward,” McDowell says.

Microsoft said the new organization will give partners, who help deploy, design, build and maintain Microsoft-based enterprise systems a single point of reference when they themselves are lead contractors on projects.

But part of Microsoft’s motivation for taking a lead role is to help large enterprise customers cut through the quagmire that is its .Net vision. The .Net platform – with its eight servers and a wide range of client devices and development tools – is a means for delivering software over the Web instead of in shrink-wrapped packages.

“Our .Net vision is what’s driving a lot of this demand for services,” McDowell says. “A lot of that is around building .Net services and the current .Net servers are the foundation of that.”

The service organization also plans to focus on creating specific deployment scenarios and processes around business operations, knowledge management, training project and risk management, services business development and communications. Those will be designed similar to the current Microsoft Solutions Framework, which details the development and deployment of applications and infrastructure components, and the Microsoft Operations Framework, which addresses best practices for distributed computing.

The move to create the service organization comes a little more than a year after Microsoft spent $1 billion to team with Accenture, then called Andersen Consulting, to form Avanade. The consulting firm is focused on development and consulting services targeted at enterprise customers that want e-commerce and Web-based platforms. At the time, CEO Steve Ballmer said the venture was proof Microsoft had “skin in the game” when it came to meeting consulting and implementation needs for large enterprises.

Microsoft has historically not operated its consulting practice as a profit centre. But with the tightening economy, slow down in the PC market and desire from large customers to work directly with Microsoft, the software giant has finally changed its tune.

“Microsoft with its announcements over the past year has been saying it is ready, willing and able to move its consulting efforts to being a profit centre,” Davis says.

Microsoft’s revenue from consulting is up 38 per cent, as reported in its most recent quarterly earnings statement issued last week. But while McDowell says the services organization will generate profit, it will be “nowhere near what is generated from product sales.”

There is no doubt, however, that there is money to be made in assisting enterprises in setting up complex systems that span internal networks and the Web. IBM Global Services just last week reported 21 per cent growth in its revenue and also announced it was expanding its line of services with the $80 million cash purchase of Internet consultant Mainspring.

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