As IT cleared a path for an expanded partnership with Andersen Consulting, Microsoft may have thrown up roadblocks for its other Windows 2000 service partners.
The Redmond, Wash., company this week announced it will team with Andersen to create a US$1 billion joint venture, called Avanade, to provide services for building and deploying Windows 2000 platforms and technologies.
The announcement came less than a month after the formal Windows 2000 launch in San Francisco, at which Microsoft shared the stage with service partners such as IBM, Compaq Computer, Electronic Data Systems and Hewlett-Packard.
Those partners, many of which were part of Microsoft's early adopters program, will now find themselves competing with the Avanade venture in a market for Windows 2000 services that some analysts estimate could reach $15 billion by 2002.
Microsoft's service partners "put some time, money and effort into spreading the gospel of Windows 2000 among their users, and they might feel betrayed by this," said Charles King, an analyst with Zona Research.
Any strain or increased competition emanating from those partnerships could put an additional burden on IT managers planning Windows deployments, observers said.
Dissing the partners?
"Usually, Microsoft walks a pretty fine line between praising the partner of the day and not dissing other partners in that area. This time, they said Andersen is the first among equals," said Dwight Davis, an analyst at Summit Strategies.
"Existing partners in services and systems integration ... have to look at this announcement and be a little leery," Davis said, adding that Summit fielded calls from several Microsoft partners that were "somewhat shaken" by the Andersen agreement.
In announcing the Andersen deal, Microsoft CEO Steve Ballmer touted Andersen's size -- 65,000 consultants -- and its ability to scale deployments for larger organizations.
"Let's confront a little reality here. There is only one Andersen Consulting. There is nobody, [not] even IBM Global Services," that has the experience consulting on complicated, scalable systems for larger enterprises, Ballmer said. "Nobody has the scale."
Officials at Microsoft and New York-based Andersen acknowledged that the deal pits them against IBM, EDS and other partners.
"It sounds like an oops on Ballmer's part" to publicly favor Andersen, said Al Williams, director of distributed systems at Pennsylvania State University, in State College. The school is a Windows 2000 site that partners with IBM for services.
The Avanade announcement, however, has not shaken Williams' faith in IBM's ability to support Windows 2000.
In the industry, "everybody is everybody's partner, and everybody is everybody's competitor," he said. "That's the strange phenomenon."
Ballmer backtracked a bit after touting Andersen's expertise this week, reiterating the importance of all partnerships to Microsoft. He described the pact with Andersen as a "unique" arrangement and a chance for Microsoft to reach larger enterprise customers.
Doesn't faze Big Blue
The enterprise is the likely battleground on which the Avanade venture and Microsoft's existing services partners will clash. IBM, for its part, dismissed the potential fight.
"We are not particularly concerned about their partnership," said Mike Sinneck, vice president for Microsoft enterprise services at IBM Global Services, in Somers, N.Y. "When you're talking about [large, scalable] computing for the enterprise, you are in our house. This is what we do. There isn't anybody better than IBM at enterprise computing, period."
Other service partners were more diplomatic.
The Microsoft-Andersen venture will create "a little bit of overlap ... but by and large, it's a very complementary addition of skills," said Jeff Lynn, vice president for professional services at Compaq Services, in Stow, Mass. "We don't see our role shrinking."
"We understand that Microsoft cannot partner exclusively with one systems integrator," said Robin Hill, senior vice president at KPMG Consulting LLC, in New York.
In fact, KPMG and Microsoft had discussed launching a joint venture similar to Avanade before KPMG opted last month to launch its Microsoft Dot.com practice for Windows 2000 services, Hill said.
KPMG, she added, is not concerned about losing any business to Andersen, noting that Microsoft is contractually obligated "to provide us [sales] leads."
EDS officials in Plano, Texas, declined to comment.
By creating a separate venture with the feel of a startup and the promise of a potentially lucrative initial public offering, Microsoft and Andersen will have an easier time attracting and retaining hard-to-find IT talent, said Ana Volpi, an analyst at International Data Corp.
A separate venture may also serve to keep Microsoft, which has never had a strong reputation for handling partner relationships, at arm's length. In the services industry, if partnerships aren't working, "implementations are a nightmare," Volpi said.
Summit's Davis called the joint venture with Andersen "a first for Microsoft, a notable deal. And we're jaded by ... announcements" that mean nothing.
