It has been interesting to read commentary about HP-EDS and the theories about why, when, who
Hypothesis 1: It is a two horse race now - IBM and HP
Even after the acquisition, IBM and HP Services together will still be less than 15% of the global outsourcing and systems integration market. There are tens of niches in outsourcing from desk side management to WAN services to application management to BPO - not to mention various geographic, vertical and SME niches. While EDS will make HP stronger in many of these niches, global telcos, offshore players, VARs, regional specialists continue to grow nicely in many of these. HP will still not be number 1,2 or 3 in many of these niches.
Hypothesis 2: Services are inherently "low margin" - this will be Mark Hurd's Waterloo.
Look
at well run Indian services firms in particular. Gross margins in mid 40s and
reasonable SG&A - which make them almost as profitable as many
software vendors. Executed well, this could be Mark's biggest impact on HP.
Hypothesis 3 - It's about the Data Center
I wrote last month about the opportunity in Data Center Makeovers. But while HP has done a nice job with its own internal DC consolidation, that does not mean it can build a major practice around it. Besides it's about way more than consolidation. It's about green, virtualization, remote diagnostics and more, and frankly much of the recent innovation in DCs has come from Google, Microsoft and amazon, not the outsourcing industry. If anything, the persistence of outsourcers to keep milking older data centers may partly be contributing to an energy crisis.
