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Journalism of Courage
SEATTLE, MAR 14: Microsoft Corp said on Monday it was forming a $1 billion venture with Andersen Consulting to help deploy Internet services based on its Windows 2000 technology and give it a leg up in consulting, where it has long played second fiddle to its biggest rivals.
The new company, called Avenade, marks Microsoft’s biggest push into electronic-commerce services, a sector that analysts have said is becoming increasingly important as companies such as International Business Machines Corp shift away from being simply makers of software and hardware.
Investment in Avenade would top $1 billion. Microsoft is to pour in $385 million in cash, while Anderson is to supply "sweat equity" such as training, services and intellectual property, executives from the two companies said.
Initially, Microsoft would own 49 per cent of Avenade, with New York-based Andersen holding the rest, but the stakes were expected to even out within a few months, an Andersen spokesman said.
"The alliance really is the last critical piece for us to put in place to address the topic of… how does Microsoft really pursue the biggest opportunities in the e-commerce market place?" Microsoft chief executive Steve Ballmer said at a conference call.
Avenade will recruit a 5,000-strong army of consultants who will help corporate giants set up Web-based services and systems based on Windows 2000, Microsoft’s flagship operating system for businesses. The market for such services is seen topping $20 billion a year by 2003, and Avenade aims to rake in $1 billion a year in revenue within three years, said Mitch Hill, a 20-year Andersen veteran who will head up the new company.
"We’re probably starting on Andersen’s core business, which is Fortune 500 customers. Virtually all those customers are thinking of e-commerce, or how to take the business to the next level through the Internet," Hill said.
The deal plugs a hole in Microsoft’s strategy to make Windows 2000 the preferred software for businesses. While the company does offer consulting, much of it is done on a smaller scale or through partnerships with computer retailers.
Consulting is seen as an increasingly important part of the e-commerce game, and companies such as Sun Microsystems Inc, IBM, and database software maker Oracle Corp have cashed in on such services. "We’ve never been able to form a partnership to serve this market super, super well," Ballmer said.
"We have a number of great partners and will continue to have a number of great partners, but let’s confront a little reality here – there is only one Andersen Consulting," Ballmer said.
"The only one that you can say approaches Andersen is IBM Global Services, and that’s who we generally end up competing with," Ballmer said. He also named Sun and Oracle as key rivals in the sector.
Andersen chief executive Joe Forehand said the deal marked an important shift for his company, which is a leading force in management and technical consulting, into supporting a technology it believes will be a corner stone of the Internet age.
"As we move into the e-commerce world, being able to deploy solutions becomes extremely critical," Forehand said in an interview. "Clients are increasingly turning to Microsoft in the enterprise space, so this is a marriage that the market place has made."
Avenade, expected to be launched formally within several weeks, after winning regulatory approval, had its sights set on selling shares to the public, Ballmer said. The allure of potentially lucrative stock options in a company backed by two powerful brands would also be a juicy carrot with which to lure top-notch consulting talent, Ballmer said.
"There’s no specific timetable (for going public). We justwant to make sure we get the company really humming. And sure, an important aspect is making sure Avenade can do kind of recruiting it needs to do," Ballmer said.
