REDMOND, WASH. (03/16/2000) - Microsoft Corp. this week made its most significant leap into the consulting services business by forming a $1 billion joint venture with Andersen Consulting Inc. designed to help enterprise customers build e-commerce systems on Windows 2000.
In addition to creating the new venture, dubbed Avanade, the partners will create a 3,000-employee business unit within Andersen called the Microsoft Solutions Organization. The unit will be dedicated to designing industry-specific and cross-industry e-commerce systems.
In essence, Andersen will help enterprise customers develop their e-commerce systems, while Avanade will build the platforms, applications and integration services to make the systems work. Microsoft and Andersen emphasize that the focus will be helping customers quickly get e-commerce systems up and running.
"This is a very significant partnership in the enterprise space for Microsoft," says Dwight Davis, an analyst with Summit Strategies in Kirkland, Wash. "This is the old-line world of consulting where Microsoft has not had a focus.
Andersen Consulting is a first among equals in this space."
Microsoft CEO Steve Ballmer called the partnership unique for his firm. "When it is time to do a big job, if you are IBM or Oracle today, you say. 'I am going to put all my people on it, I'll do that implementation for you, Mr.
Customer.' That is not our core competency - we want it to be," he says.
Ballmer says he is frequently asked how Microsoft plans to get into the enterprise, and says he now has a good answer.
"With the creation of Avanade, people are saying, 'Are you going to have skin in the game?' Well, we got skin," Ballmer says. "Andersen can build the solution, and Avanade has the skin to make sure that thing gets appropriately implemented and operated."
Avanade plans to focus on reusable e-commerce applications, Windows application development and integration, high-availability enterprise and Web infrastructures, and data-center consulting services. The creation of Avanade, which hopes to hire 3,000 Microsoft experts over the next two years, is subject to regulatory approval, the partners say.
As part of the $1 billion deal, Microsoft will contribute $385 million to support Avanade, and application development support and other intellectual capital. Andersen will provide intellectual capital, training, resources, solutions development and other services.
The move is part of Microsoft's plan to transform itself into a firm that delivers software as part of a service available over the 'Net (its so-called Next Generation Windows Services), as opposed to just shrink-wrapped applications.
"It's a part of how we take Windows 2000, Windows 2000 Data Center and the Next Generation Windows Services on up into the e-commerce world," Ballmer says.
Some 25,000 Andersen staff will be trained on Windows 2000, SQL Server, Exchange Server, e-commerce technologies, Windows DNA 2000 and Visual Studio development system-based tools. Microsoft and Andersen also will develop horizontal and vertical applications based on products from vendors such as Commerce One and PeopleSoft.
Mitchell Hill, a 20-year Andersen partner, will be Avanade's CEO. Besides its Seattle location, Avanade plans to open offices in San Francisco, Dallas, Chicago, New York, London, Frankfurt, Sydney, Paris, Sao Paulo and Singapore in the next 18 months. Plans also call for taking Avanade public at some time.
The Microsoft Solutions Organization within Andersen will be headed by Karl Newkirk, a senior Andersen partner and former global managing partner for the firm's Enterprise Business Solutions business.