Vendor lineage
Electronic Data Systems (EDS)
Invented the idea that a company could hand its computing to somebody else entirely.
Ross Perot founded Electronic Data Systems in 1962 in Dallas, on a proposition that barely existed as a market: that organisations would rather pay someone else to run their data processing than run it themselves. Every managed service and every outsourcing contract since descends from that bet.
EDS built systems that became invisible infrastructure, including the networks that let bank machines accept and dispense money. Its business was never the hardware; it was operating the thing on somebody else's behalf, under contract, at a price agreed in advance.
It belongs on this timeline because the services model it created is the one every vendor on the rest of this page now sells alongside their products - and because an instructor-led training business is itself a descendant of the same idea, that expertise can be contracted rather than hired.
Founding stories
Electronic Data Systems
Incorporated on 27 June with $1,000 borrowed from his wife Margot, in one room with one desk on the fifth floor of the Blue Cross Blue Shield building, at $100 a month. Perot had joined IBM in 1957 after the Naval Academy and four years at sea, and by January 1962 had already met the annual sales quota the company set him. He proposed that IBM sell the management of data processing rather than only the machines. IBM was not interested, so he left and did it himself.
The timeline
- Founded, and immediately capital-light
Rather than buy computers, EDS rented time on machines other organisations had already bought and were not fully using. That kept the capital requirement near zero and meant the company was national from very early, because the borrowed machines were spread across the country.
- The first long-term contracts
Frito-Lay through Herman Lay, and insurance data processing for Mercantile Security Life - the start of a line that by 1990 made EDS the largest insurance data processor in the United States.
- Medicare
New federal healthcare programmes generated paperwork at a scale nobody had systems for. EDS built the claims processing. By 1968 Medicare and Medicaid were around a quarter of revenue; by 1977 healthcare claims were nearly forty per cent of it.
- Public offering
Seven per cent of the company sold, and revenues through this period roughly doubled year on year.
- Iran
A three-year $41M contract with Iran's social security administration ended with the country six months behind on payments and EDS suspending work. Two executives, Bill Gaylord and Paul Chiapparone, were detained with bail set at $12M. With diplomatic channels closed, Perot assembled a private rescue team under a retired Green Beret colonel, Arthur Simons, whom he had previously employed searching for American servicemen missing in Vietnam. Both men got out.
Contract value, the payment dispute, the detentions and the bail figure per Encyclopedia.com and FundingUniverse, which give substantially the same account.
- General Motors, twenty-two years to the day
GM bought EDS on 27 June 1984 for $2.5B, the largest sum paid for a computer services business to that point - and exactly twenty-two years after the company was incorporated. The terms required GM to keep EDS as a separate entity with its own performance stock, which is an unusual concession and a sign of what the seller was worth. Disputes over autonomy followed, and Perot's departure with them.
- Independent again
GM spun EDS back out, and promptly became one of its largest customers - which is the outsourcing argument stated as a corporate action.
- Hewlett-Packard
Announced 13 May at $13.9B and completed 26 August. EDS had reported $22.1B of revenue and 136,000 staff the year before.
- Into DXC
Merged with Computer Sciences Corporation on 3 April to form DXC Technology, ending the name after fifty-five years.
Flagship products and solutions
- Facilities managementThe original service and the original word for it: EDS ran your data processing on your behalf, staff and machines included, on a long contract. Everything the industry later called outsourcing descends from this.
- Healthcare claims processingMedicare and Medicaid administration for state programmes, and commercial insurance processing - unglamorous, enormous, and for a decade the largest part of the business.
- Banking and transaction networksAmong the systems that let cash machines interoperate between institutions, which is the kind of infrastructure nobody notices until it stops.
- Systems integration and applicationsThe later portfolio, competing with the consultancies as the market matured and the distinction between running systems and building them eroded.
Key innovations
- The long-term fixed-price contractThe industry sold short engagements; EDS sold multi-year commitments at a fixed price. That transferred the risk of running the systems from the customer to the supplier, which is precisely what made the offer attractive and precisely what made it hard to price. Every managed service contract since has been an argument about the same transfer.
- Selling the operation rather than the equipmentThe proposition was that a company's computing was somebody else's core business and not its own. That idea is now so ordinary that cloud providers assume it, and it was strange enough in 1962 that the largest computer company in the world declined to pursue it.
- Renting capacity instead of owning itBuying time on other organisations' underused machines is the same economic logic that later sold virtualisation and then cloud: capacity is expensive to own and cheap to share, and somebody has to be the one aggregating it.
- Government as an anchor customerWinning the administration of new public programmes gave the company scale, predictability and a reference no commercial customer could match. It is the strategy behind a great many of the services firms that followed, and it ties a business's fortunes to legislation rather than to markets.
Main markets
Large corporations and government, in that order at first and then increasingly the reverse. Healthcare administration, insurance, banking and eventually automotive under GM - by 2007 it was a $22B business employing 136,000 people worldwide.
Its competitors became the systems integrators and consultancies, and eventually the cloud providers, who sell the same proposition with the labour removed.
Analyst standing
- Assessed in its time as the definitive outsourcing firm, and the reference against which every later services company was measured - which is a position no successor entity has occupied since.
- The longer verdict is that the model outlived the company. EDS invented the arrangement, was bought by a customer, spun back out, absorbed by a hardware manufacturer and merged into a successor that no longer carries the name - while the practice it created became the default way large organisations buy computing.
This company no longer trades under this name. Now part of DXC Technology.