KPMG’s recent acquisition of Equaterra signals some new dynamics in the market for outsourcing advisory services. The acquisition creates an intriguing combination of capabilities encompassing high-level consulting services for tax, supply chain management and IT strategy with Equaterra’s proven outsourcing transaction strengths. Moreover, it confirms a mini-wave of industry consolidation following TPI parent company’s Information Services Group (ISG) acquiring long-time benchmarking specialist Compass (more recently, ISG acquired public sector specialist STA Consulting).  

The mini-wave of consolidation may seem paradoxical given that growth has returned to the outsourcing marketplace. Forrester believes the overall market for such services will grow 7.1% to $254B this year. If the outsourcing market is again growing, why are the winds of industry consolidation blowing? Although the opportunity is broadening, large mega-deals that firms like TPI and Equaterra grew to prominence on are getting scarcer and scarcer. Moreover, clients are taking a more holistic view of outsourcing alongside evaluating shared services and other organizational dynamics, creating the need for a broader value proposition extending beyond transactional services. Although many outsourcing advisory firms have gone down this path with strategy and research services, the KPMG-Equaterra combination creates an unusually strong combination. KPMG, which heretofore had lagged principal competitors PwC and Deloitte in the scale of its outsourcing advisory service, should benefit substantially from the addition of Equaterra’s resources and capabilities.

It’s a beautiful sunny day here in England, the first snowdrops have appeared in my garden and at least one of my pet hens has restarted laying – yes, Spring is on the way. Meanwhile, in the US the main harbinger of the changing season is the migration of baseball teams to Florida and Arizona for their annual pre-season ritual known as ‘Spring Training’. In the software sourcing world, the rites of Spring often include major negotiations with Oracle and Microsoft ahead of their fiscal year ends of May and June respectively. That’s why this is a perfect time of year to get some spring training of your own, at one of our ever-popular Microsoft Negotiation workshops.¹ Anyone considering a major purchase or renewal with the Redmond Sluggers between now and the World Series should come along to Amsterdam on February 16 or Dallas on March 2 to hear why they may have extra leverage this year, and how to use it to get the best possible deal.

Microsoft had very high sales revenue for its December quarter, particularly the business division, but that didn’t come from the multi-year Enterprise Agreement (EA) and Software Assurance (SA) deals that the direct sales teams need. Microsoft’s revenue boost came from one-off purchases of its just-released Office 2010 product through its retail and small business programs. EA/ SA deals would initially appear in the accounts as unearned revenue in the balance sheet, and that was at the same level as two years earlier.² So these results are consistent with our research that predicts that Microsoft’s direct sales teams will struggle to meet their tough EA bookings targets this year, and that will strengthen prospective buyers’ negotiating position.

We can’t promise warm weather or adoring fans, but our spring training session will help you with:

We are pleased the AT&T iPhone monopoly is over (three and a half years later?!), but we do not expect that Verizon will aggressively pursue multinational enterprise (MNC) customers who frequently travel overseas with its soon-to-launch (data pricing not yet announced) iPhone service. The Verizon iPhone 4 will run on its existing EVDO network, so international roaming capabilities are limited since the CDMA-based cellular network platform is incompatible with the GSM-based networks used by well over 85% of the world’s cellular carriers. Verizon's iPhone won't work in cellular mode in most places outside the US and Canada. There's no such thing (yet — or likely on the drawing table) as a CDMA/GSM World iPhone, so the opportunity for your overseas iPhone travelers will be restricted to AT&T's network if your primary cellular service was purchased in the US (It should work okay in Wi-Fi mode for data, which helps somewhat.)

 A second reason that enterprise iPhone users won't jump to Verizon is that they typically are bound by multiyear contracts (two years is the norm) – whether or not they are CLU (corporate liable user), and we anticipate that AT&T will play an aggressive retention game for North America-only enterprise iPhone customers.

Rumors became official on Tuesday: Siemens succeeded in finding a viable partner to buy its IT Solutions and Services (SIS) business. For all of us following the market in the past it wasn’t a surprise that ATOS ORIGIN is paying €850 million to take over Siemens’ IT business. This sum is a mixture of shares, bonds and cash, which will make Siemens a prime shareholder of ATOS for at least for a five-year period. In return ATOS will provide Siemens with Managed Services and System Integration worth €5.5 billion over a period of 7 years.

Question: What does this mean?

In the short run, even though this transaction will make ATOS the biggest European-headquartered IT service provider (with an expected combined revenue of approximately €8.7 billion in 2010 growing to an expected €10 billion in 2013) the direct impact for the IT user market will be minor. The mentioned outsourcing contract effectively represents one of the largest deals globally, but the impact on clients will be minimal as SIS delivers a significant amount of services to Siemens today. Second, ATOS ORIGIN is currently running a major restructuring program called TOP. And those projects combined with an acquisition of the mentioned size will be a challenge — at least. Thus meaning that ATOS ORIGIN’s focus will either be to finish the TOP program and then integrate SIS or extend TOP to include SIS. Either way the new organization will need some time to form — and so will the market impact.