No doubt the EDS acquistion was the engine for the increased service revenues and service margin dollars. Just a few months ago, The Wall Street Journal and other business venues were questioning the benefit of the EDS acquistion to HP. My point is that the EDS acquistion and the ability to generate more service revenues was the defining factor in HP’s financial stability in 2009. What newpaper or business magazine is writing that story? And why not?

Good blog! However, the HP top line services revenue clearly benefited from the EDS acquisition. At the time of the acquisition the combined companies had a service revenue stream of $38 Billion. In 2009 the revenue was below $36B. So like most technology firms, HP experienced a slight decline in service revenue while improving margins – the improvement in margins is largely due to the elimination of redundant costs that existed as a result of the merger.

Mark Hurd and HP definitely get credit for turning a product dominated firm into one with a better service to product mix. On the other hand I am not so sure that the service performance of HP was any more remarkable than that of many other firms.

Anyway, the major trend I see coming is the need to show how our services are contributing to an acceleration of the business value realization (ROI). Many services have been focused on the IT side to date and, as we discussed at TS World in Vegas, many businesses feel they are not using much of the products they have licensed anyway. There is therefore a big responsibility and opportunity for Technology Services organizations to fill the gap, but it requires the appropriate mix of business and technical skills, as well as focus on short term and incremental business value delivery.

To some extent that’s the idea behind the Value Add Services, although many standard/existing services concept are still applicable, and, to me, this concept of value realization through services was already the foundation of our Professional Services business.

Bottom line, with Cloud Computing ranking at 24% and VAS at 3%, I feel we’ve a lot of education to do on the VAS concept… and many copies of JB’s book to distribute!!

I think we need to be careful to define where this pressure on profit margin exists in the supply chain. While Brocade may have serious issues with competing against other manufactuers that does not conclude their products offer no margin of profit for a VAR. It may be true – but it does not follow as a given. There are many issues effecting manufacturers which do not effect their product value or margin opportunity to a VAR or customer.

I agree many individual products commodotize quickly, but what you seem to be saying is that segments are commodotizing much more quickly. There is an element of the convergence of segments which follows a fairly “standard” view that the market will only support three “winners”. This in part, drives the value equation of products. So while the value of hard drives in storage solutions has dropped, the segment has continued to drive new, higher values at higher margins.

So I suspect the question is – can we sustain a percentage of the market in a high value/high margin position over an extended period of time? That is, is there always a product available that provides value and margin?

I agree there will always be product technologies in the earlier stages of adoption that command premium prices. However, there clearly seems to be an inverst relationship between Moore’s laws and the longevity of product margins. The more product companies can cram into a piece of hardware or software, the shorter the timeframe for them to charge premium pricing. How long did data de-dup solutions command premium prices compared to how long companies like EMC were able to charge premium pricing for basic enterprise class storage solutions?