IBM Acquires PWCC

Never mind the general hilarity about IBM buying Monday (the name Price Waterhouse Cooper’s Consulting arm had selected for itself, as it moved toward an IPO).  That only led to silly jokes about who might buy Tuesday and Wednesday.

There are more serious – and interesting – questions to ask here.

1. How on earth was IBM able to buy PWCC for only $3.5 billion when only a year or so ago HP tried to buy it for $18 billion and failed?
   
   We’d guess you could hum a few bars of “Oh, what a difference a year makes . . .” And it does – in market caps, in company evaluations, and in how greedy PWC might feel, as the entire accounting industry goes through its post-Enron reconfiguration.
   
   

2. How was IBM able to do a deal in about two weeks?  We’d say “smart IBM” for recognizing a bargain and being ready to move so quickly.  We suspect, however, that this isn’t the first time that IBM’s thought of buying PWC.  So they may have had lots of investigation and how-to-integrate thinking already on-the-shelf and ready to re-use.
   
   
   (Code isn’t the only thing that is handy for reusability, after all.) We also suspect that having Sam Palmisano, who played a major role in creating the IBM Global Services, behemoth as it exists today (he ran it, after all), was important.  He knows the value of increasing your business by an instant 20% in personnel and 15% in revenue (and that’s not counting what IBM hopes to drag in hardware and software sales –
   
   “Too soon to calculate a potential multiplier.” Ginni Rometty, the new division’s manager, said in the announcement briefing to analysts.  
   
   

3. And what happens now?  That’s the interesting question.

Look for IBM to increase its business in business process consulting, in enterprise applications (ERP, CRM, and SCM), and in vertical markets where PWC had particular expertise.  Of course there will be some overlaps and rearrangements.  (IBM, for example, intends to take some PWC staff and put them into its outsourcing operation.)

The other systems vendors – HP and Sun for sure, and perhaps Microsoft as well – are now even less evenly matched than they were before in competing with IBM.  With hardware increasingly commoditized and customers insisting on dividing their software purchases between multiple vendors, services represent an important revenue source.

Competitors may say that they can do this via partner relationships but the simple truth is that:

	Partners aren’t your partners; they’re everyone’s partners (with the possible exception of Accenture, where Microsoft has made an investment).
	Partners get to KEEP the revenue they collect from their service engagements.  They simply (hopefully) guide hardware and software revenue toward their systems partners.  Systems vendors with substantial service businesses, like IBM, get to keep that revenue themselves – and it shows up on the bottom line.

We suspect that HP is gnashing its teeth that it was unable to do anything to buy PWC at less than one-fifth of what it once offered – and had to watch it go to a tough competitor.  We expect them to start shopping for a replacement, perhaps Deloitte Consulting, since it’s the only remaining major accounting firm that has yet to spin off its consulting business.  That assumes, of course, that they have their current merger with Compaq well enough in hand to take on another major chore.

There could be competition, too.  Sun, Computer Associates, or Microsoft could suddenly awaken and decide that owning a significantly sized internal services business sounds like an important part of a 21^st century platform vendor’s business model.  

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