American Express Co. bought into IBM Global Services' utility-based IT service delivery model in a big way Monday. The financial services firm will pay IBM Global Services about $4 billion over seven years to host its Web site, network servers, data storage, and help-desk support.
The American Express contract is IBM Global Services' largest for utility-based service delivery, says Paul Sweeny, IBM Global Services' general manager of financial services. Sweeny adds that the recession is pushing acceptance of the utility-based model, in which payments are based on actual usage of IT services rather than a flat fee. American Express estimates that it will save "hundreds of millions of dollars" in IT during over the life of the contract, he says.
As part of the agreement, American Express will also move about 2,000 employees worldwide to IBM Global Services. The employees will continue to work out of American Express' data centers in Phoenix and Minneapolis, as well as locations in England and Australia. In March, IBM will begin taking over American Express' transaction-processing operations.
The concept of on-demand access to IT resources isn't new, but it's been slow to attract large companies such as American Express, says Andrew Schroepfer, president of Tier 1 Research. Larger companies have been compelled by cost-cutting measures in the past year to procure IT services through a utility-based model because it relieves them of the responsibility of upgrading equipment and managing the IT environment. Says Schroepfer, "This is a more efficient technological way to buy processing power and a more efficient way to pay for it."