recent announcement to acquire EDS for $13.9 billion (£7.1 billion) may have sparked talk of
consolidation in the IT services industry, spare a thought for the impact of
this deal on Xerox, a long-standing EDS partner. With HP aggressively looking to widen its
footprint in the corporate printing space as part of its Print 2.0 strategy,
the acquisition of EDS will help it make further inroads to compete with Xerox
Global Services (XGS), currently a $3.4 billion (£1.7 billion) organisation and
a key growth engine for Xerox.
with Xerox as an outsourced IT provider is long established and was recently
extended with a deal in April 2008 where Xerox signed a $263 million agreement for EDS to manage and support its end-user, service desk and
mainframe operations. But it is Xerox's
position as an EDS Agility Alliance partner which is where the HP/EDS deal is
going to hurt most.
Xerox has been an EDS Agility
Alliance partner since 2004. EDS acts
both as a systems integrator for Xerox products, software and solutions, as
well as working with Xerox to deliver joint managed print services (MPS) such
as through EDS Managed Output Services offering, which combines Xerox's office
services and systems with EDS' desktop services support. Although Xerox also works with other
consulting companies such as IBM Global Services, Deloitte and Accenture, it is
its global partnership with EDS that elevated it to being Xerox's key strategic
partner. Its most notable deal is with the
UK's Department for Work and Pensions (DWP), which is a £400 million ($781
million), seven-year printing contract that helped to more than triple the
total contract value of Xerox/EDS services from 2006 to 2007.
Xerox has for some time now been squarely
focused on growing its business by leading with services in large enterprise
relationships. XGS has been the growth engine in this strategy and in 2007 demonstrated
a services annuity growth rate of 8%.
XGS is organised along three business areas—Office Services, Business
Process Services, and Document Outsourcing and Communication Services—and as
such offers competencies across the complete document lifecycle. Xerox Office Services (XOS) is the largest of
these three groups, offering MPS to large enterprises and has seen double-digit
growth in contracts from 2006 to 2007.
HP is Xerox's most notable competitor in the
MPS market, offering assessment, optimisation and management of the document
output environment. Although HP has been
ramping up its MPS portfolio, it currently lacks the document lifecycle and
workflow and document outsourcing capabilities that Xerox is able to offer
through its other XGS offerings. Another
key differentiator is multivendor support capabilities—Xerox claims to have approximately
one million competitive devices under XOS management, made possible by its
multivendor trained support staff. Also,
Xerox's higher penetration in the high volume production and copy centres gives
it the ability to better manage and optimise environments using these devices.
But with HP looking to increase its penetration
in the enterprise printing market, it is actively expanding its MPS
capabilities and already benefits from its heritage in managing the enterprise
IT infrastructure. Meanwhile, its recent
acquisition of Exstream software, a provider of document automation software
for high volume transactional printing and customised communications, is an example of its intention to play in the wider
space of production printing, which is a space where Xerox is firmly entrenched.
Its acquisition of EDS is potentially giving it broader access to IT services
engagements where HP equipment and solutions can be sold.
selling point is that it is the largest services firm that is independent of
any hardware or software vendor and, as with many mega IT vendors, have to work
by co-opetition due to having their fingers in so many pies. Existing EDS/Xerox contracts
will have at least need to run their course and where there is a major end user
commitment involved may well be renewed.
However, whilst HP have stated that it will continue to advise
clients to buy systems from all vendors, it will clearly be positioning its
managed print services as a viable alternative to other vendors' offerings.
In the light of the EDS deal Xerox may well now
consider deepening its ties with its current global IT partners to exploit the
potential opportunities to be gained from engaging with potential IT
outsourcing clients. Although IBM Global Services is already a global partner
for Xerox, its relationship with InfoPrint Solutions Company (a joint venture
between IBM and Ricoh) may mean that Xerox will also need to focus on its other
partners such as Deloitte, Atos Origin and Accenture. Dell is another key supplier
that could potentially be hurt by the EDS deal, and could be a company that
Xerox chooses to strengthen its alliance with. Whether Xerox would look to make
an acquisition of its own in this space is doubtful—CSC is the smallest, yet
still worth around $7 billion (£3.6 billion)—a lot for Xerox, a $17 billion
(£8.7 billion), company to swallow.
For now, XGS has plenty of growth opportunities
from its already successful office services, document and business processing
services and has developed a strong portfolio to maintain its leadership as a
document services provider. HP's
acquisition of EDS will certainly impact XGS' momentum, but it should be well
positioned to maximise the value of its
other established partnerships. What
remains to be seen is if HP makes any further acquisitions which threaten
Xerox's stronghold in its established markets.
In the meantime, the combined power of HP and EDS will
certainly enable HP to extend the reach of its Print 2.0 strategy into new
markets and support its strategy of gaining more inroads into the coveted
enterprise printing space.