Sears, Roebuck and Co. and IBM announced plans Tuesday to combine their computer data networks and jointly market the system to outside customers under the umbrella of a new company. It is an undertaking that analysts said would create the world`s largest non-governmental network for computer communication.
The companies` joint venture, to be named Advantis, will handle the direct computer-to-computer communications that an increasing number of businesses use for such activities as ordering supplies, making payments and sharing data between distant offices. The company also will handle some telephone communications, but officials said they are not planning to become a long-distance telephone service.
Advantis, to be controlled by International Business Machines Corp. through a majority-ownership stake, should begin operations by the end of the year, officials said. The company will be headquartered in the Schaumburg offices now used by Sears Technology Services Inc., although only ”a handful” of top executives from IBM will be added to the existing staff at the site.
The enterprise fits in with the growing trend of outsourcing, in which businesses contract with outside suppliers for a variety of services, from computing to janitorial work, rather than employ their own staffs to perform such tasks. In Chicago, for example, Continental Bank Corp. recently contracted with IBM subsidiary Integrated Systems Solutions Corp. to handle all its computer services.
Data networks appear to be strong candidates for outsourcing, because costs fall dramatically as the size of a network grows, said Gary Curtis, head of the information technology practice at Boston Consulting Group.
A similar network started several years ago by Electronic Data Systems Inc., the pioneering computer-services firm founded by Ross Perot and now owned by General Motors Corp., has been ”fundamental” to Electronic Data`s recent growth, Curtis said.
Data transmission expenses for businesses have been rising sharply in the last three to five years, both because the use of computers continues to increase and because most economic growth during the recession has been in international trade, Curtis said.
A press release from Advantis quotes unnamed industry analysts putting the potential market for network services at $7 billion by 1994, although Curtis said that number seems ”a little high.”
Advantis will be assured a large amount of business through long-term commitments from its two corporate parents to handle their own sizable needs. The Sears network, for example, handles credit card purchase approvals for the company`s Discover Card, automatic computerized merchandise orders placed with Sears suppliers and data transmission from field offices of its Allstate insurance subsidiary.
Some 9,000 outside customers of the networks that the two companies now operate separately also will be transferred to the combined entity. Executives said they expect $1 billion in business the first year.
Combining two computer networks always involves the risk of delay or added costs, but executives said they expect to integrate the two systems relatively quickly because both are IBM-based.
The two companies also can draw on previous partnerships in computer services. The Prodigy network for home computers is a venture between IBM and Sears.
The penetration of Sears` network into small- and medium-size cities should complement IBM`s high-capacity network, which is concentrated in industrial centers, said Sam Albert, an information systems consultant based in Scarsdale, N.Y.
Medium-size companies, often not located in major metropolitan centers, are likely customers of a data-transmission network, he said.
”This is not a case of 1 plus 1 equaling 1.2,” Albert said. ”The IBM network may be in Nashville, Tenn., but it`s not in Tuscaloosa, Ala. Now it is.”
Advantis will provide service to 550 cities in 92 countries, the companies said.
Advantis will start with some 3,000 employees, half coming from Sears and half from IBM. All of Sears Technology Services` employees will move off the Sears payroll and onto that of the separately capitalized joint venture.
Charles F. Moran, chief administrative officer for Sears, said Sears`
plans for the venture do not include laying off employees.
While Sears long has marketed Sears Technology`s services to outside customers, the company has viewed it mostly as a cost center. ”We are transforming this from a utility to a profit-making center,” said Moran.
IBM`s share in the venture will be held through its systems consulting subsidiary, Integrated Systems Solutions Corp.
