HP Deal for EDS Would be a Mixed Bag for the Channel

The proposed merger between Hewlett-Packard and EDS is going to give just about every Hewlett-Packard channel partner in the world cause for pause.

HP has been trying to build up its IT services business for the past few years. But in terms of its total size, HP’s efforts to drum up services business wasn’t much of an issue for channel partners. In contrast, IBM channel partners have a long history of conflict with IBM’s multi-billion global service business.

IBM likes to argue that IGS gives a lot more than it takes in the form of creating a massive amount of sub-contracting work for IBM’s channel partners. But IGS also aggressively competes for business sometimes at the overall expense of price. HP has already developed a reputation for low-balling prices when it comes to IT services in order to get the business because it has negligible market share compared to other IT services companies.

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The bottom line is that the HP channel community will probably split when it comes to seeing this deal for EDS as a good thing or a bad thing. Those partners that are primarily hardware focused will see the deal as a good thing because downstream from HP they may see more business flowing through EDS.

But a lot of other partners choose to push HP hardware because when it came to offering services that compete with the services of channel companies HP was relatively neutral. A lot of those partners, especially the ones focused on the higher end of the market where EDS competes for services revenue, are now going to be thinking twice about partnering with HP. As a result, a lot of those types of partners might be more inclined to think about doing business with Dell or Sun now.

Given the product margin pressure on the product side, HP probably has little choice in terms of expanding its portfolio of IT services. It’s no secret that IBM uses IGS to pull a lot of IBM hardware and software sales. HP has historically relied on third-party IT services partners to counter the effect of IGS in the market. But being dependent on the kindness of third-party companies to push your products probably isn’t enough to guarantee expanding market share so on paper the EDS is probably a net positive for HP.

But within the channel HP hasn’t been all that stellar about creating channel program around its existing IT services. Adding a company such as EDS that has little to no experience working with the channel isn’t going to help matters in the short term.

HP will need to think a lot of these issues through quickly but unfortunately the company does not have a reputation for speed when it comes to these types of deals. For example, HP is still trying to figure out how to build an effective channel strategy around a raft of software acquisitions that is has made in the last two years.

All most HP channel partners can do at this point is watch, wait and hope that this time somebody makes putting a channel strategy together around EDS services a high priority.

Michael Vizard is editorial director of Ziff Davis Enterprise. He can be reached at michael.vizard@ziffdavisenterprise.com.