Microsoft Shoots For Biggest Services Contracts

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April 24, 2001 (3:41 PM EDT)

Microsoft Shoots For Biggest Services Contracts

Microsoft Corp. will form a new services organization that merges its 4,300 consultants and more than 9,000 technical-support employees in hopes of winning more big contracts.

The move seeks to unify management of a product-support group whose lines of authority snaked throughout the company under worldwide services vice president Bob McDowell.

"That was OK when the scale of the jobs was smaller," he said.

Microsoft (stock: MSFT) needs the focused staff and standardized technical methods to act as a prime contractor if it wants to compete for contracts with other vendors that have large services organizations and proven track records.

As a prime contractor, Microsoft would bear more technical and financial risks associated with contracts.

Microsoft's enterprise-services revenue grew 38 percent during the third quarter. The company doesn't break out revenue from consulting and technical support, but services growth outpaced the enterprise software and services line as a whole, which grew 22 percent, to $1.25 billion for the quarter.

Microsoft doesn't plan to make its services business responsible for generating profits by itself, but McDowell said it should be able to generate enough profits from its enterprise contracts in order to expand the entire group, which will also include product support for consumers and software developers.