With the cost of IT hardware falling (Moore’s law still holds sway) and new software delivery models, such as SaaS or open source, changing the software cost equation, IT vendors are turning to services to bolster revenue and profits. It’s a clear sign that despite all the talk of simplifying IT, companies like yours are going to need costly professional services to make the stuff work.

Although the current economic slump has cut into current IT professional services and consulting revenues, there has been considerable interest on the part of IT providers in acquiring professional services firms. HP, for example, previously acquired EDS for almost $14 million and recently renamed it HP Enterprise Services.

Dell, which is generally regarded as a hardware player, acquired Perot Systems, the professional services company Ross Perot formed when he bailed out of EDS years ago. Dell and HP compete ferociously in the computer desktop and server markets.

The most recent is Xerox, which bought Affiliated Computer Services (ACS). For $6.4 billion, Xerox acquired a major position in the IT services business, from which it obviously expects to generate a new substantial revenue stream. When was the last time you considered Xerox an IT powerhouse?

The ACS acquisition by Xerox raised eyebrows among the M&A pundits and triggered considerable talk about which IT service providers are the next acquisition candidates. Speculation is swirling around the acquisition prospects of Accenture, Computer Sciences Corp., and Hewitt Associates, among others.

The acquisitions represent attempts by IT hardware providers to bolster their bottom lines with professional services revenue. They come at a time when the revenue models of IT vendors of all types are in flux. However, the increasing complexity of the IT infrastructures of most companies promise rewards for those who can make all of this work together.

Commodity pricing is driving down the price of hardware and making it difficult for vendors to command top dollar. Open source and on-demand cloud-based pricing models threaten the revenue that software vendors get from selling enterprise licenses along with annual maintenance fees that turn into cushy annuities. SaaS threatens to undercut the revenue that consulting firms can capture from software deployment and customization engagements.

The only place left for IT vendors to add the kind of value that generates a premium price is integration services. Someone still has to make all the IT stuff work as promised. That’s what the professional services firms do.

But even that revenue isn’t a sure thing. The offshore outsourcing companies have driven down prices here, too. And the professional services firms best positioned to compete have opened offshore centers in the hopes of offering a low-cost offshore component as well. However, IT professional services still look to be where the money is, at least for now. ###