July 11, 2005 12:00 PM PDT

Microsoft eyes cookie-cutter approach to services

When it comes to Microsoft's strategy for the managed services business, the game plan has a familiar ring: high volume and low cost.

CEO Steve Ballmer offered a few details on the company's long-term plans for expanding its consulting services at Microsoft's worldwide partner conference Sunday in Minneapolis.

Rather than pursue the highly customized, consultant-heavy approach seen at IBM Global Services, Microsoft will mimic the commodity PC model, he said, as it pursues managed services--those services that help companies run systems already in place.

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What's new:
Rather than pursuing the highly customized, consultant-heavy approach seen at IBM Global Services, Microsoft will mimic the commodity PC model when it comes to its managed services effort.

Bottom line:
It's unclear how Microsoft's plans will affect its relationships with partners. CEO Steve Ballmer says that partners will need to "evolve" their products and services over time.

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"The world will be moved to not just managed services, but managed services that are somehow designed, if I could say it this way, more like a product or a standard offer and less like a set of customized outsourcing services," Ballmer said in response to a question during the conference.

Microsoft already has a managed-services project under way with Energizer to run the company's desktop PCs. In that deal, Redmond's first significant move in this area, it also offers a number of hosted applications, such as e-mail and instant messaging.

Through that trial engagement and a few others, Microsoft intends to develop more service offerings, Ballmer said.

"I told our team we're not learning fast enough what it will take for us to engineer the technology that lets managed services evolve from a world of infinite customization to a world of much more standardization," Ballmer said.

The question of the software giant's intentions in services is of keen interest to Microsoft's partners, such as systems integrators and value-added resellers, which offer consulting in conjunction with Microsoft software.

In Microsoft's push into business applications, the company is already accused of competing against its packaged application partners.

In his speech, Ballmer said that partners will need to "evolve" their products and services over time as Microsoft enters new markets, such as services and applications.

He noted that Microsoft is still in the process of devising its managed services, such as desktop support, and that the role of third-party consultants is not yet totally clear.

Staying clear of IBM
Microsoft's experiments in managed services are meant primarily to improve customer satisfaction and lower support costs, rather than unseat IBM's massive Global Services organization, said Forrester Research analyst Julie Giera.

"Microsoft doesn't have any plans to become the next IBM Global Services," Giera said. "They are certainly trying to figure out how customers can avoid problems with Microsoft software, how they can run it more effectively and efficiently and figure out their role in that."

Giera said that Microsoft's reputation suffers when customers have a poor experience with the company's software, even when the problems may lie with another supplier.

She added that there is a market need for standardized and cheaper managed services, particularly among small and medium-size businesses.

For its part, IBM's Global Services is also trying to nab more midsize customers. Earlier this year, it launched a program to partner with smaller, regional consulting companies that cater to the midsize market.

At the same time, Big Blue is pursuing higher-end services centered around its business management consulting division.

By emphasizing these business-consulting-led engagements, IBM is seeking to differentiate itself from competitors and evade the price pressure on common outsourcing services, analysts said.

Indeed, Dell's entrance about four years ago into the market for "PC deployment" services around its hardware has pushed down prices, Giera said.

"Software and services are becoming commoditized markets. Dell has pushed hard to commoditize service and bring down the price," she said.

Ballmer recognized that Microsoft Consulting Services, or MCS, does pose potential competitive conflicts with its partners. But, he said, its standardized managed-service approach offers a better opportunity for partnering than IBM Global Services.

"I know there's always a lot of controversy around good old MCS," he said. "We say the same things, you ask the same questions, it goes on every year. But our 4,000 little MCS people is not what it's going to take by themselves to compete with IBM."

 

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