HP Buys EDS: Immediate Synergies Are Few, But Long-Term Opportunities Look Promising

Hewlett-Packard (HP) did it again! Almost seven years after its acquisition of rival technology vendor Compaq and a string of smaller software acquisitions in the meantime, HP this week announced that it is going to acquire IT outsourcing giant Electronic Data Systems (EDS). While on the surface, the acquisition will make HP the world's second-largest IT service provider behind IBM, the deal in effect points to the looming end of the traditional IT outsourcing model, a business model that EDS once helped to pioneer. In the short run, the immediate synergies between HP and EDS are few, and the integration challenge will be immense. But in the long run, the EDS acquisition provides HP with the opportunity to pioneer a services-led business model for technology vendors, one that is different from the business models that HP and EDS follow today.