Dell acquisition of IT services group was inevitable

Dell needed a large IT services group to gain in data center markets...and that's what Cisco needs too...

Dell's ambitions to expand into data center markets with large servers and data storage required it to quickly expand its IT services and the quickest way to do that was through acquisition.

Hewlett-Packard did the same in May 2008 when it acquired EDS for nearly $14 billion. IBM has known the value of a strong IT services group for many years thanks to former CEO Lou Gerstner who transformed the world's largest computer company into the world's largest IT services company.

The Dell acquisition focuses attention on Cisco Systems. It too has ambitions in data center markets and it too needs to bolster its IT services group. However, Cisco's challenge is that acquisitions of IT services companies could harm its valuation since these are less profitable businesses than its core business. But it may have little choice since all of its rivals have large IT services organizations and they won't be be recommending Cisco gear.

The Dell acquisition also points to an increased polarization in IT markets. Increasingly, corporations prefer to deal with one vendor, there is a "one throat to choke" appeal. There are fewer incentives to build best-of-breed IT systems from a broad selection of vendors.

However, with greater levels of commoditization in hardware and software there is less advantage in best-of-breed systems and more to be gained by efficient implementation and execution of large IT projects -- and that comes from having experienced IT services groups.