The company began reporting its financial results for the first time last year and revealed in its SEC filings that it has been making impressive progress. In the 12 months ended September 30, 2006, it increased net profit 49% to $46.7m on sales that rose 23% to $518m, a figure that ranks it as the 48th largest IT services in the world, according to Computer Business Review.
Avanade’s pre-tax profit margin was a healthy 10.9% last year, and the company can rightly claim to be a true global player. The Americas accounted for 54% of its revenue in fiscal 2006, with 39% from Europe, and 7% from Asia Pacific.
Some 27% of its sales comes through direct sales to enterprise clients (in the UK, this means FTSE 100 companies), with 67% of its fiscal 2006 revenue coming from working as a sub-contractor to Accenture, and 6% from engagements passed on by Microsoft.
Richard Hall, CTO at Avanade’s UK operation, said that being so closely tied to Microsoft has not been the hindrance that some might have expected it to be. I have never come a cross a truly ‘independent’ advisory firm, he said. There is always a degree of bias toward one set of products. There are actually relatively few enterprise software vendors that customers can choose from, and they want to work with specialists.
Avanade’s strong financial performance in the last three years has coincided with consistently solid results from Accenture. Relationships between services vendors are notoriously difficult to manage, but Hall said the Accenture/Avanade dynamic works because the line drawn between the two organizations is very clearly defined. We are the global Microsoft delivery arm of Accenture, he said. Without exception, we are the people who deliver Microsoft services as part of an Accenture contract.
Avanade was formed in 2000 as a 50:50 JV between the two companies, with Microsoft pumping an initial $385m in cash into the venture, which was initially designed to deliver e-business and other enterprise services for the Windows 2000 platform. It has since expanded into providing development and implementation services around .NET, security, enterprise messaging, business intelligence, and infrastructure services. By December 2001 Accenture decided to take a majority 78% stake. This left Microsoft owning 19%, and the employees the remaining 3%.
The company now has more than 6,000 employees worldwide and expects its headcount to pass the 7,000 mark at the end of this year. Some 2,000 of its staff are contracted from Accenture at centers in India, the Philippines, and Spain, and Hall said that while global sourcing brings obvious cost advantages, it also gives it greater staffing flexibility. If we quickly need to get 100 extra developers to work on a particular project, the only way we can get them is to look to our offshore locations. India has a huge talent pool for high-value Microsoft skills such as Dynamic CRM, he said.
Avanade sees itself as a horizontal systems integrator. Hall said: We find that if something has worked well in one sector, it can work well in another. 80% of the problems and patterns that we tackle in the government sector are the ones that we come across in, say, the insurance sector.
Microsoft has thousands of services partners around the world, so what privileges does Avanade’s relationship with Microsoft afford it? Hall said: We give them feedback into what customers are thinking in terms of what they want to see from Microsoft, and this gives us an influence and a dialogue with them.
