Editorial: Rashes and cons

Editorial: Rashes and cons

Rationalisation and consolidation continues to lead the news in the channel at the moment with two of our main stories this week revolving around significant acquisitions.

Firstly, Powerlan's divestment of its Business Infrastructure box-shifting division has finally come to fruition with Brisbane-based NetOptions winning a bidding war for the operation. Then, we see that IBM has decided to take out one of its emerging competitors in the global services space by spending $US3.5 billion on PwC Consulting.

Obviously, the two announcements are totally unrelated but it is further evidence of the maturing of the industry in both hardware and services sectors. Box shifters need to attain sufficient volume for the low margins to deliver operating profits while the services side of the industry has watched as fierce rivals emerge from non-traditional IT suppliers.

Powerlan appears to have struggled with the integration of all the business it acquired on the spending that followed its spectacular float in 1999 during the height of the tech boom. The company's head honcho, Theo Baker, has gone on the record in recent months as saying the company needed to move away from being a value-added reseller and focus on intellectual property.

It seems that there are no longer enough boxes being shifted for the value-added services to be built around. Instead the plan is now to focus on owning best-of-breed software and building annuity revenues and services revenues around those offerings.

To achieve its intellectual property goals, Powerlan has been making a play for telecommunications software developer Clarity International in recent months. It is hoping to add this to its growing number of software products. These include Portfolio Manager, which was acquired as part of Commercial Software Services in 1999; Rapid Web Publisher, which was acquired from Entercorp in December 2000; and financial services software developer IMX Software, acquired in September 1991.

IBM's buyout of PwC Consulting is far removed but equally as interesting. Big Blue and other IT vendors with high-end solutions once dominated the services market alongside traditional IT services organisations such as CSC and EDS.

In the 1990s, amidst the ERP boom, which generated a truckload of revenues from complicated implementations at the big end of town, all the big traditional accounting firms moved in on the action. Some were more successful than others. The top dollar paid by IBM for PwC Consulting would indicate that the might of PwC's IT consulting arm was one of them.

With such low margins now applicable to much of the hardware in an IT solution, the profit is in the services. IBM has worked hard to use its services offerings as the cream from deals with the big accounts. It is renowned for discounting PCs, in particular, in large accounts - sometimes to the point of selling at below cost.

It can then leverage that standard operating environment at the desktop into its far more profitable back-end hardware, software and services capabilities. IBM is still the best-equipped vendor to deliver customers the total-solution-from-one-supplier nirvana, which high-end customers seek. Buying PwC not only offers IBM substantially increased services revenues but also assists the vendor to move desktop and notebook boxes in a highly competitive market.

It should be remembered that consolidation is not a bad thing for the channel. It is a sign of maturity and can lead to efficiencies that improve customer satisfaction and supplier profitability. Many would conclude that such developments in the IT industry are well overdue.

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