Thursday, March 24, 2005

IBM wants recurring revenue

Interesting comment at the bottom of the IBM/Corio news release:

IBM has closed a $182 million deal to buy Corio, which delivers software online, and plans to pick up the pace of acquisitions to fuel growth in its mainstay services business, an executive in charge of the strategy said. International Business Machines Corp., the world's largest computer company, aims to strengthen its lead in existing markets for computer services as well as enter new areas, said Todd Gordon, vice president, portfolio management, for the company's services business. In a report published on Wednesday, Merrill Lynch analyst Steve Milunovich said IBM stands to boost profit margins by offering "asset-based" services that depend on software instead of the older labor-intensive approach based upon outsourcing. This he said would make IBM's services businesses more comparable to the likes of payroll processor Automatic Data Processing Inc. than IBM's long-time computer services rival Electronic Data Systems Corp. The model for asset-based services is more ADP than EDS. Margins could be two-three times better than traditional outsourcing," Milunovich forecast.