BMC Hunts Integrator Partners for Services Thrust

BMC Hunts Integrator Partners for Services Thrust<@VM>BMC Software Inc.

Joseph "Chip" Nemesi

By Patrick Seitz, Senior Editor

BMC Software Inc. executives say their experience with federal government customers was a major driver behind the company's decision to focus on selling services and total solutions instead of just products for specific applications.

Houston-based BMC, which sells systems-management software, officially launched its professional services business unit in August to address the growing demand of clients for support services. The division, also based in Houston, was created in October 1998 and is now staffed with 300 consultants, including about 45 in the Washington area office.

"Almost every time we bid on a software contract in the federal government there is a requirement for some type of assistance in installing it," said Joseph "Chip" Nemesi, vice president of professional services for BMC Software. "The commercial market is following the federal government's lead. Perhaps in this case, the government came up with the best model first."

The trend toward support services and outsourcing is occurring because agencies are maintaining less staff for software installations, Nemesi said. Government and commercial organizations are shifting from permanent IT staff to service companies, he said.

BMC is a leading developer of software solutions that improve the availability, performance and recoverability of business-critical applications and data. BMC competes against such companies as Computer Associates International Inc. of Islandia, N.Y., and Tivoli Systems Inc., an Austin, Texas-based unit of IBM Corp. BMC reported fiscal 1999 revenue of $1.3 billion, up 79 percent from a year earlier, and net earnings of $363 million, up 119 percent.

Jonathan Eunice, senior analyst and IT advisor with Illuminata Inc., Nashua, N.H., said BMC was "very much a latecomer to the services mentality." BMC has lost opportunities because of its tardiness, but the market is large enough for it to still grab a healthy slice, he said.

The market for systems management services is easily $5 billion a year, said Richard Ptak, vice president, systems and applications management, Hurwitz Group Inc., Framingham, Mass.

The biggest hurdle BMC faces in its transition from a product company to a services company is "having enough talent to meet the demand," Ptak said. BMC is hiring and training services personnel, while Computer Associates is acquiring experienced workers through acquisitions, he said. "The big thing in the services market is experience and that takes time to build," Ptak said.

BMC is selling its products and services both directly and through integrator partners. "We often bid software and services with an integrator leading the charge," Nemesi said. BMC is now establishing a network of authorized service providers. Among the integrators BMC has teamed with are Advanced Concepts Inc., Milwaukee; Compaq Computer Corp., Houston; and SSDS Inc., Englewood, Colo., said Harry Clarke, general manager, BMC Software, Federal Operations, Bethesda, Md.

BMC is working with systems integrators out of necessity, Nemesi said. "The approach in the federal government has always been to work through integrators to procure new applications," he said.

Revenue from BMC's professional services unit is projected to grow from $29 million in fiscal 1999 to $60 million in 2000, Nemesi said. BMC's fiscal year ends March 31.

"We are going to at least double this year. I could foresee this business growing at that rate for the next few years easy," Nemesi said. Public-sector sales account for about 10 percent of total services revenue, he said. Nemesi estimated that the federal government alone will account for about $6 million in sales in fiscal 2000.

"The real story is that a couple of years ago we did almost no business in that market," Nemesi said. "Our penetration rate in the government market is going to increase quite a bit. I expect a lot of new government customers over the next year."

BMC federal customers include the FBI, the Navy's Space and Naval Warfare Systems Command, and the U.S. Geological Survey.

Of the 100 employees in BMC's federal office, about 45 are focused on services. The company already offers services on the General Services Administration schedule, Clarke said.

The professional services division provides software installation, maintenance and education services, Nemesi said. In addition, the division provides custom software and consulting services in areas such as change management, he said.

"One of the main areas where BMC is really strong is the whole area of highly critical applications," Nemesi said. BMC can ensure that applications such as e-commerce and enterprise resource planning systems are operating and secure around the clock, he said.

BMC takes a much more focused approach than its competitors, said Illuminata's Eunice. The company gets customers to prioritize one or two top applications instead of taking a broader, systematic approach, he said. The focused approach can be problematic with complex, interconnected systems, such as e-commerce operations, he said.

When BMC provides services to its clients, it plans for a limited engagement. "We hear from customers that they don't like working with services companies that become a part of their staffs," Nemesi said. "They complain that whenever they let someone in, it becomes a never-ending relationship."

The key is to determine what an organization needs, provide it and get out, he said. "Our engagements are designed to end." Headquarters: Houston

Business: Software and services
for systems management

Fiscal 1999 Revenue: $1.3 billion

Fiscal 1999 Net Income: $363 million BMC Professional Services Division

Fiscal 1999 Revenue: $29 million

Fiscal 2000 Revenue: $60 million (est.)

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