AXA demands on-demand from IBM

Insurance company AXA has signed a six-year, $1bn (£63m) outsourcing deal with IBM for on-demand computing, which analysts have described as a display of the muscle of large companies in outsourcing negotiations.

IBM will provide AXA with IT capacity on demand, which AXA hopes will save it several hundred million dollars over the contract period.

AXA's server, mainframe and storage systems will be integrated under an on-demand computing structure. AXA will retain management control of the IT infrastructure and staff, and will move from a fixed-cost approach to a flexible, variable-cost service that can respond quickly to changing market conditions.

Anthony Miller, research manager at Ovum Holway, said the computing on demand model is something outsourcing companies such as IBM are being forced to swallow. "They are making the best of a bad situation," he said. "Before, the customer would pay a fixed price, with any extras coming at a premium rate.

"The on-demand model shows how powerful major corporates are becoming in negotiations. The financial services companies are the last to come to the outsourcing party, but this deal is just one in a recent slew of major IT outsourcing deals including JP Morgan and IBM, and ABN Amro and EDS.

"Up until now they have been a bit precious about losing control of their IT systems because they are so crucial to competitive advantage, but in the current economic climate banks are being squeezed and they need to cut costs, so IT has come under the microscope."

Claude Brunet, member of the management board of the AXA Group, said in a statement that the deal "prepares us for an increasingly competitive marketplace by giving us flexibility to adjust rapidly to changing business needs."