Cap Gemini Inks Megamerger

SAN MATEO (03/03/2000) - The professional services firm of a combined Cap Gemini Group and Ernst & Young Consulting casts an imposing shadow, especially on the U.S. market. But many business, technology, and cultural factors conspire to make their union a challenging one.

The $11 billion merger of the European services titan and the Big Five consulting outfit announced this week stands to create a formidable international services company, with strengths in strategic consulting, systems design and integration, and outsourcing.

The deal gives Cap Gemini a long-sought U.S. foothold and frees Ernst & Young LLP from the restrictions of being tied to tax and auditing operations.

However, Cap Gemini and its U.S. counterpart must bridge organizational and cultural differences, technology gaps, and geographic distances to pull together a company that can compete in a frenetic market, according to observers.

"You have a Big Five culture with tax and audit roots and run by partners vs.

[that of] a France-centric IT services company with a background of software development and integration, and a management board directing it," said Marianne Hedin, an analyst at International Data Corp. (IDC) in Framingham, Mass.

"They have a lot of priorities to grapple with -- branding, integration, and expansion, and learning how to cross-sell their services," Hedin added. "The question is, can they handle it all at once."

The companies must also coordinate efforts in the critical e-business market, according to Hedin.

"Cap Gemini was very late in getting on board in the Internet and e-business [arenas], and there has to be a transfer of experience and knowledge from Ernst & Young," she said.

The combined company will focus on growing its e-business efforts both internally and through acquisition, and will announce a major ASP (application service provider) strategy in the first half of the year, according to Mike Meyer, CEO of Cap Gemini America.

"ASP is an interesting business. We couldn't afford to tackle it in the U.S., and Ernst & Young has made a bunch of investments in that area," Meyer said.

The combined entity will also bolster its Asia/Pacific operations which to date have been minor, according to Meyer.

Despite its integration challenges, the company will pose a significant threat to U.S.-based services players, according to IDC's Hedin.

Operations in the United States should represent over one third of its revenues, company officials said.

"It's going to be much tougher for large companies like CSC, IBM, PricewaterhouseCoopers, and Andersen. They are now going to have Cap Gemini breathing down their neck. This giant will be in their backyard," she said.

Cap Gemini Group, in Paris, is at Ernst & Young LLP, in New York, is at

Consulting giant

Cap Gemini and Ernst & Young combined have 58,000 employees and the following revenues.

* 1999: 7.8 billion euros ($7.5 million, per exchange rate the day of the deal)* By top vertical industries:

* Financial and insurance - 19%

* Telecom and media - 15%

* Retail and distribution - 14%

* Manufacturing - 13%

* Life sciences - 11%


Professional services players are hopping on the ASP (application service provider) bandwagon with force, as the blazing-hot market continues to grow.

Computer services giant Electronic Data Systems (EDS) this week announced it is packaging Web hosting and network management services ranging from bite-sized, fixed-price offerings for small companies to heftier a la carte menus for large businesses jumping into e-commerce in a big way.

The new service packages, called the EDS Web Computing Suite of Services, come in three flavors: application service provisioning, network and security services, and Web hosting. They are being rolled out now.

Also increasing its profile in the ASP space is services giant Computer Sciences Corp. (CSC), which this week announced a Web hosting service for medium and large companies and e-business start-ups.

CSC's offerings will include security, hosting facilities, high-speed network access, and integrated service management and user support. Addressing one of the main sticking points for ASP services, the company is stressing its secure architecture, which benefits from CSC's work for the U.S. government, according to company officials.

CSC's hosting service will employ dual firewalls, continuous intrusion detection, secure operating systems, and virus detection.

Electronic Data Systems Inc., in Plano, Texas, is at Computer Sciences Corp., in El Segundo, Calif., is at

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