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MS-Andersen JV aims at IBM, Sun – Ballmer

$15bn by 2002? Saliva a-go-go at nascent Avenade...

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Steve Ballmer has accidentally revealed the real reason for Microsoft's $1 billion joint venture with Andersen Consulting, which is being called Avanade. He says it's all to do with competing with IBM Global Services, Sun and Oracle in the services business, and was quoted by Reuters as saying that: "We've never been able to form a partnership to serve this market super, super well." The claimed scale of the venture is considerable. Microsoft is putting in $385 million of cash, but there's a bit of a mystery as to how the figure of $1 billion is arrived at: perhaps they are valuing their contributions to the organisation at their consultancy rates? Quite apart from the joint venture, 25,000 Anderson consultants are to get "enhanced" Microsoft training. Avanade would have as CEO Michael Hill of Andersen, with Microsoft having on the board its CFO, John Connors, and Paul Maritz, who nowadays looks after developers at Microsoft. The company hopes to get 5,000 "certified technical experts", although the initial plan is to find "3,000 technologists with expertise in Microsoft's products". To get going, the venture plans to draw on staff from Andersen, Microsoft's product support services, and Microsoft's consulting services. Andersen has "conservatively" estimated that Avanade could turn over $15 billion by 2002, but that does seem rather fanciful, especially as Anderson is only an $8.3 billion outfit itself. The plan to take Avanade public "at some future date" may be overly premature and optimistic, because there's the initial hurdle of gaining regulatory approval for setting up Avanade in the first place. It would be surprising if Sun CEO Scott McNealy isn't already poised to bang on the doors of the FTC and the DoJ, protesting against the proposal, following his call for a remedy in the Microsoft case that would include curtailing Microsoft's expansion. News of this deal may not make pleasant reading for KPMG, following the announcement a month ago of a lesser deal which would result in KPMG hiring 500 people in the next 18 months to offer services to dot.com companies, using Microsoft's software of course. The only consolation might be that while Andersen gets to work with Microsoft on the Fortune 500, KPMG will be given the smaller guys. There's a disturbing dimension to the Andersen deal, and indeed more generally with relationships between vendors and consultancy firms. Although we have no reason to doubt the integrity of the consultants concerned, the closeness of the embrace with a vendor, and the probable absence of any advocacy of alternative software, will for many people destroy the credibility of the consulting firm as being able to offer independent advice. The consultancy becomes a sales agent of the vendor, and gets to offer services in addition. It is highly undesirable that if such consultants also advise Microsoft's competitors, their integrity will have to depend on the thickness of their Chinese walls. ®

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