EDS Can't Afford To Be Tech Agnostic

It's partnering with key vendors to be more price-competitive with IBM
EDS used to pride itself on providing whatever technology its outsourcing clients asked for. But to compete with IBM, last week it gave up neutrality and enlisted the help of several tech heavyweights to update its IT service offerings and lower operating costs. EDS will work with a group that includes Cisco Systems, Computer Associates, Dell, EMC, Microsoft, and Sun Microsystems to create utility-computing offerings.

The service provider's contract signings fell 42% last year. It hasn't been price-competitive with IBM because of the expense EDS bears in supporting numerous software and hardware combinations, says Charlie Feld, executive VP for portfolio management at EDS. "We've been reluctant to choose sides. But being agnostic is too expensive," Feld says.

"Being agnostic is too expensive," says Feld, EDS executive VP for portfolio management.
EDS will work with its tech partners to create its Agile Enterprise Platform--a service offering through which outsourcing customers pay based on the computing power they use. EDS also is partnering with MCI and Cisco to develop standard network offerings.

The company will employ Microsoft's BizTalk server platform as its main application-integration server and use Computer Associates for system-management software. It will deploy Sun servers for Unix customers and steer Windows users toward Dell servers. EDS will support technologies from competitors such as Hewlett-Packard and IBM but will offer an incentive to move off them. "It's not that we won't service those other technologies, but there will be an additional cost," says Robb Rasmussen, VP for global alliances at EDS.

Switching platforms might not sit well with customers. Lloyd St. Clair, executive VP for IT at car-rental company Dollar Thrifty Automotive Group, plans to stick with the HP machines EDS runs on his behalf "unless there's a very strong economic incentive to switch," he says.

EDS needs to counter IBM's successful eBusiness On-Demand program through which IBM offers outsourced computing services to customers priced according to usage. IBM uses a combination of Linux, along with its own hardware and middleware such as WebSphere and DB2, to build its utility-computing platform.

Customers like Paul Mercurio, senior VP and CIO at Mobil Travel Guide, are embracing such offerings. The operator of Web-based travel advisory and reservations systems pays IBM to run its servers. IBM uses z990 mainframes with virtual Linux partitioning technology, which lets the vendor allocate processing power on the machine to Mobil as needed. "We can change the amount of power we need with a phone call," Mercurio says. The variable pricing saves him about 25% annually in infrastructure costs.

Hewlett-Packard also is aggressively marketing utility services. Nick Van Der Zweep, director of utility computing at HP, says the company has shipped more than 10,000 systems with capacity-on-demand, and it offers customers hosted access to such systems. HP relies on its Utility Data Center product, along with its OpenView application-integration software and HP-UX operating system to facilitate utility computing.

To match the homegrown offerings of IBM and HP, EDS needs to work out new pricing models, not just with its customers but with partners. "If you're using free software like Linux, it's not a problem. If it's any kind of commercial software, it quickly becomes murky," says D.H. Brown Associates analyst Tony Iams.

EDS's Rasmussen concedes the company doesn't have all the details worked out with partners, including Microsoft. "That's a challenge: How can we get the necessary licensing changes if that's at all possible?" he says. Still, EDS believes it needs to tackle such challenges if it's going to build a team to compete in the utility-computing market.

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