The siren song of services

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http://news.cnet.com/news/0-1272-210-4852906-1.html?tag=bt_pr

By Michael Kanellos
February 20, 2001

Increasingly, large computer companies are discovering the potential
opportunities in the market for high-end, value-added services and
consullgrni fuhzzch blaaa

....Sorry, nodded off at the keyboard for a moment.

Once again, the siren song of services is wielding its wreckage in the
computer industry.

* Chip giant Intel shut down an e-commerce hosting business and
snuffed out a $200 million project that planned to establish a
dedicated, for-hire network for global streaming media broadcasts.

* Dell closed an e-commerce exchange where small and large companies
alike could explore buying partnerships.

* Hewlett-Packard got burned last November when its $18 billion bid to
acquire the consulting wing of PriceWaterhouseCooper fell through. (In
an ironic twist, the news came the same morning CEO Carly Fiorina had
to give a keynote speech at Comdex.)

* Compaq, which acquired a 20,000-plus army of consultants from
Digital Equipment three years ago, keeps reporting flat services
revenue.

* IBM has banked on services to return to its former glory for years.
But like Admiral Stockdale, they're still looking for the right
solution.

Considering woeful tales like these, one might think that major
high-tech companies would run screaming from consultants. Just the
opposite.

In fact, Microsoft now plans to establish quotas on its sales people
for services and maintenance.

"Historically we haven't gotten much," CFO John Connors said recently.
"We think we have an opportunity there and we'll be introducing a
maintenance (product or program)."

Dreams or pipedreams?

Why the appeal? Simply, it's the dream of achieving higher margins.
Services can theoretically deliver higher profit margins than the
messy business of manufacturing. There are no chemical shortages or
trucking costs. And you don't need to offer spiffs to retailers to
sell your product instead of a rival's, or put up with foreign
competition that works for cheap.

All a company needs to do is maintain disciplined cadre of
exceptionally educated experts to bilk Fortune 500 companies for
millions of dollars of billable hours.

A whiff of prestige comes with services too. Consulting firms claim
they employ the world's brightest strategic thinkers. They might, but
they also hire a lot of guys brandishing class rings who looked like
they got hosed off and stuffed into a suit on graduation day.

But these grand plans for consulting revenue rest on very shaky
assumptions about human nature.

For starters, people hate getting advice. When you boil it down, that
is what consulting firms do--they send officious busybodies to provide
obvious recommendations about things that you could be doing better.
Then they expect to get paid for it.

Most customers find it hard to get beyond the suspicion they are being
exploited. If the service firm is tackling a complex job, the customer
winds up feeling like a dope because they can't perform it themselves.
If it's a relatively simple job, they wonder why they're getting stuck
paying outrageous fees.

Home Depot has become one of the largest retailing empires in the
world on the principle that most individuals would rather screw up on
their own than hand over the selection of their kitchen allpaper to
someone with "H-A-T-E" tattooed on his knuckles.

The same level of anxiety doesn't attach to computer products. People
believe they have a greater amount of control when it comes to
shopping. Plus, there's none of that touchy-feely "ongoing
relationship" propaganda that seems part of every consulting pitch.

Must I be a "recurring revenue stream" for you? Can't you just sell me
a new smoke alarm and be gone?

So how will all of this pan out? Over the next few months, a slew of
service announcements will emerge, followed by series of apologies and
cancelled projects. The CEO will declare that the company is getting
back to basics. Then, some bright young executive will, as they say in
the consulting world, begin to think outside the box.



Department Editor Michael Kanellos runs the Enterprise Computing and
Personal Technology sections at CNET News.com. His writing has been
published in the Chicago Tribune, Escape Magazine, and other
publications. He started his professional career as a busboy at an
upscale chain restaurant.

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