Overview: The Top 25 Vendor Services Companies

Collectively, vendor companies with separate services organizations racked up a whopping $135 billion in IT services sales in 2006. That's more than the gross domestic product of Israel. It also bests the combined payroll of the 12 top-paying teams in Major League Baseball. Remarkably, IBM Global Services alone accounted for more than one-third of that $135 billion tally. Then there's data management veteran Sybase, which saw its services group's sales skyrocket by more than 300 percent.

Any way you slice it, IT services--everything from custom solutions to business process consulting to applications hosting--means big business for today's leading technology vendors and ISVs. That's why, for the first time, VARBusiness is recognizing separately 25 vendors whose services organizations reaped the most revenue in 2006. It's an elite list of the IT industry's most recognized household names--from Hewlett-Packard to Microsoft. All but four of the companies grew their 2006 revenue year-over-year: Eleven of the companies saw double-digit increases, and three saw triple-digit.

After several years of sluggish growth in vendor services, a great majority of the companies on our list have picked up momentum. Software companies and networking vendors, in particular, have green-lighted their services businesses to respond to increased customer demands for greater levels of services. The resulting growth, for some, balances a slowdown in traditional product sales. For several ISVs, services now comprise more of their business than do product transactions.

Take Sybase. Total revenue for 2006 was $876 million. Of that, only $345 million reflected sales of licensed software. The remaining $531 million is services and maintenance. At document management stalwart Xerox, services made up nearly half its $16 billion in total sales last year.

That reflects customer demand for solutions that address specific business problems and require consultation, assessment, monitoring and plenty of technology integration. Wrap that around the emerging trends in managed services and applications hosting, and it becomes clear why many vendors today are putting resources and muscle behind their services arms.

"The services space is a free-for-all right now," posits Ken Presti, president of Presti Research Consulting in Sunnyvale, Calif. "You've got huge growth rates. ISVs want a piece. Manufacturers want a piece. It will be interesting to see who ends up with the lion's share."

Today, that lion's share belongs to IBM Global Services (IGS), which is actually made up of two groups--one focused on technology services, the other on business consulting services. With $48 billion in sales last year, Big Blue's services juggernaut accounts for more than half of its total revenue--besting the combined sales of IBM hardware, software and financing. From an income perspective, however, IGS makes up 37 percent of IBM's overall profit for the year; and at just less than 2 percent growth for the year, many in the industry, including IBM chairman and CEO Sam Palmisano himself, have admittedly been disappointed in services.

"Services is an area where we have worked hard and should be making more progress, to give an honest assessment," Palmisano told an audience of solution providers at the company's recent PartnerWorld conference in St. Louis.

NEXT: How IBM is reworking its services strategy.

Last year, IBM launched a transformation strategy for IGS that seeks to simplify its offerings for both the customer and IBM business partners that resell or work jointly with IGS on various projects. Services are now grouped into 10 market segments.

"The biggest change we've made is simplifying the portfolio," says Beth Feeney, vice president of integrated technology services sales for IGS' Global Technology Services unit. "We're trying to provide clarity and the ability to deliver more reusable assets."

Asset-based services is a notion being pushed hard by IGS. The best example can be found in IBM's purchase of Internet Security Services (ISS) for $1.3 billion last August. IBM's intention is to give a product dimension--ISS' software--to its own security services offerings.

"This is an important trend for us--to keep growing our services business--and it gives our partners something easier to sell," Feeney says. More asset-based services will be coming down the pike, she adds, mentioning a forthcoming suite around digital video surveillance.

Mark Wyllie, senior director at Mainline Information Systems, says IGS' asset-based services make sense.

"A productized service with a fixed fee and standardized deliverable makes services much more tangible," says Wyllie, who's been working with IGS for several years.

A Question of Conflict

The big question that arises is this: Do vendors with flourishing services arms take business away from their partners? That depends, although many of the vendors on our list say that they engage with partners on a number of levels--either having them resell services, work collaboratively on a project or sub it out.

Most vendors' services arms are dedicated to their own product lines, although some, like IGS, incorporate third-party products into the mix when devising a complex solution for customers. Additionally, vendors often must provide the services for their largest enterprises customers--the Boeings or Exxons of the world--because more often than not, those corporations demand that the vendor work directly with them.

That's where subcontracting comes in. Of our top 25 vendors, 90 percent say they subcontract to partners. For instance, Symantec is seeking to grow its services organization aggressively over the next three years. Typical engagements include in-depth security, risk and compliance assessments for small to enterprise customers, according to Jeff Hausman, senior director of product management for Symantec Global Services. Symantec's services business grew by 110 percent last year. At $1.4 billion, it represents just 5 percent of the company's overall revenue, though Hausman says the goal is to double that within three years. The mandate is to involve partners as much as possible, he says: "They help us with the depth and additional capabilities that take what we offer and create even better solutions for the customer."