Industry grapples with services merger

Industry grapples with services merger

Cisco Systems' recent major investment in KPMG LLP has resulted in scepticism from industry players. They claim the alliance will result in bad tidings for existing customers and partners of both companies, delivering technologically biased services and edging out smaller partners.

Networking vendor Cisco and consulting firm KPMG recently announced they will invest more than $US1 billion to form KPMG Consulting, aimed at advising companies worldwide on how to take advantage of the Internet.

Cisco is taking a share of slightly under 20 per cent in the new venture, with KPMG taking the remainder. While the alliance will prove a "good move" for both Cisco and KPMG, it spells trouble for KPMG's customers, said Piyush Patel, president and CEO of Cabletron Systems, another networking vendor.

"I don't think it's good for KPMG customers because they hire KPMG to give them a vendor-agnostic view of what's best for them, and to provide an unbiased opinion on the technology and applications to run and use," Patel said.

"Cisco's taking a major stake in KPMG is damaging for the customers because KPMG consultants will be biased," he added. KPMG also has a huge presence in the systems integration and consulting arena, which he said was "bad news for the smaller system integrators that carry Cisco's equipment", a view which at least one such integrator concurs with.

According to Lew Starita, managing director of high-end integrator CDM, the deal will be detrimental to the services component of his business.

Starita added that it is ironic that Cisco demands such high levels of channel training and commitment to sales: "They turn around and hit you over the head when you are least looking," he said.

But Cisco insists the new alliance will not affect its relations with its current partners. "This alliance will not change the status of our existing relationship with our other partners," said Bill Chang, Singapore country manager, Cisco. "And rather than operate as competitors, the partners, including KPMG, can also work together to form an ecosystem for our customers.

"It's just that they're addressing different ends of the markets. Right now, we have small system integrators for our smaller customers, and bigger integrators to handle our high-end customers," Chang added.

Furthermore, the alliance will see KPMG focus on business processes "which presently, very few of our partners are involved in", he noted. The global consulting firm will still advise its customers on what it thinks are the best technologies to use, and whether Cisco fits into the customer's business model, Chang said.

"If you're a small system integrator, your target market will be different. And if you were a large financial company, you probably wouldn't want to go to a smaller system integrator," said Sandra Ng, associate director for communications research at analyst International Data Corporation.

"So they're addressing different markets, and [competition among Cisco's partners] is not really a big concern. I feel Cisco is using KPMG as another channel," Ng said, and noted that while the concerns highlighted are not unfounded, it depends on what the relationship between the two partners will be like.

"It all boils down to the relationship of the two partners, which is just like any channel-vendor relationship," she explained. "If the channel is very close to a particular technology vendor, of course they'll push products from that one vendor.

"So it doesn't matter if you carry more than one brand, and a lot of channel partners now carry multi-vendor products," she noted. "From Cisco's point of view, they're trying to take advantage of KPMG's capabilities . . . and if KPMG were to recommend Cisco's technologies, that would be a plus point [for Cisco]."

The new entity will comply with all independence requirements, according to a KPMG spokesperson who dismissed the claim that the firm will be biased towards Cisco.

"There is no independence concern since Cisco is not an audit client of KPMG," he said. "KPMG puts great value on its independence and would not jeopardise more than a century of business integrity.

"And at the end of the day, customers will still have to decide for themselves what they want for their company," Chang concluded.

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