Dell, IBM Expand History’s Largest IT Services Pact

Fresh on the heels of a $16 billion (US$) strategic agreement signed last March, direct computer systems company Dell Computer and IBM have announced a seven-year pact that will make IBM Global Services available to Dell’s corporate, government and education customers.

Although terms were not disclosed, this additional deal has the potential to be worth a total of $6 billion. The entire $22 billion alliance is believed to be the largest IT pact ever recorded.

Beginning in 2000, the Round Rock, Texas-based Dell will offer customers a wide range of IBM’s installation and on-site warranty services. According to Samuel J. Palmisano, IBM Global Services senior vice president and group executive, the agreement “will help ensure that Dell’s customers’ products are up, running and operating at peak efficiency.”

Dell will market the IBM services in tandem with those of key partners Unisys and GetronicsWang, as well as its own. According to Dell vice chairman Kevin Rollins, “The relationship enhances Dell’s global reach and offers customers more choice in selecting IT solutions.”

Dell has not specified when it will begin marketing its services internationally, but the expectation is that the process will begin sometime next year.

The Big Picture

Dell is adding a big missing piece of the IT puzzle to its already formidable arsenal. With this new framework, Dell will gain a reach into large enterprises at the earliest stages of network planning. Thus entrenched, Dell will continue to draw revenue from both the ongoing sale of hardware, as well as from software and consulting services.

IBM will now essentially serve as Dell’s inside sales rep, recommending an endless array of highly-profitable integrated offerings to many of the biggest IT consumers in the world. According to E-Commerce Times industry analyst David Geller, “It will be interesting to see how the inevitable conflict-of-interest plays out between selling IBM’s own hardware solutions and those of Dell. True, in the past, it was announced that Dell would integrate IBM components into the computer systems it sells, but IBM still represents major competition for Dell in many product segments.”

This deal also represents a notable shift of power in that industry pillar IBM is now playing second fiddle to Dell, a relative newcomer. To a great extent, Dell’s meteoric rise in the computer industry has been tied to an enormously successful e-commerce strategy.

IBM, too, is well aware of the impact of e-commerce on industry positioning and is, therefore, dedicating considerable resources into promoting its own e-business strategy. By combining “front line” on-site sales with a healthy balance of e-commerce, industry giants IBM and Dell are charting their strategies for the next decade.

“Their competitors are sure to be not far behind, and we can expect to hear of more mammoth-sized alliances in the coming year,” Geller added.

About Dell

Founded in 1984 by Michael Dell, the company has become the fastest-growing computer vendor in the world. In its fiscal year ending in January, the company pumped out $1.5 billion in earnings on revenue of $18 billion.

Nearly 70 percent of the systems Dell sells are sold to government agencies and large corporations. The company, which employs about 24,400 workers, is expected to process 50 percent of its business via the Internet by 2000.

About IBM Global Services

IBM Global Services offers a broad range of hardware, software, research and services to companies of all sizes. It is currently the world’s largest information and technology services provider, and is the fastest-growing component of IBM’s vast corporation.

IBM Global Services produced revenues of $29 billion in 1998. The company employs approximately 160,000 people in more than 150 countries worldwide.