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        Mark Smith's Analyst Perspectives

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        HP’s New World Order according to Leo Apotheker

        The new CEO of Hewlett-Packard, Leo Apotheker, has unveiled his vision of the future in the consumer and enterprise markets. His announcement carried some suspense after interviews in which he said “HP has lost its soul” and added that he will “get rid of cynics” inside HP who try to undercut his mission. Now Leo has defined what his company calls Everybody On, which is described as “seamless, secure, context-aware experiences for a connected world.” He intends that HP will reposition itself in providing a new generation of cloud services to interconnect its software and technology assets. HP of course is no small technology provider, with over $125 billion in revenue and a predominantly legacy and acquired software business worth over $6 billion. I want to provide some analysis of HP’s announcements in the context of what I see as the coming business technology innovations of this decade. My view overlaps with the HP vision. HP is expanding the territory of its business,  focusing less on the enterprise software business of database, middleware and applications and more on the management and security of cloud services and software.

        Cloud computing is where Leo’s HP is articulating its mission of bringing together an interconnected market of consumers and the enterprise. HP plans to further the interconnectivity of its computers, servers and printers using the webOS technology it acquired from Palm. This approach is smarter than leaving it to Microsoft or any other provider for a mobile operating system. HP has been expanding its cloud computing efforts in an “open cloud marketplace” that will be accessible from its technologies whether printers and standard computers or new mobile devices including the HP TouchPad tablet and Palm Pre smartphone. The primitives of these services can be found on its latest generation of printers and accessed via the Internet; you also can access a range of services as I have done personally through my HP 8500, which is a pretty good piece of engineering.

        HP’s cloud marketplace will access services that HP has been arming itself to build from public, private and hybrid (combined) clouds and its own software, technology and services. HP will need to provide more software assets there to make it attractive for developers who want to build and deploy in its cloud services and marketplace. I expect this will require more acquisitions, as HP is not known for quick development cycles and timely updates of software to meet new markets; it shares these challenges with other very large peers like IBM, Oracle and Microsoft. The wrapper for its cloud computing efforts is where HP has some of its strongest assets, including management and security, and transformation services to migrate or adapt to new cloud-based software services. Another strength is its ability to manage these computing environments in a data center or grid. Also HP is coming to market with the HP CloudSystem, an appliance to build and manage software on a single platform. HP was quick to talk as well about its Cloud Maps to ease integration of software from Microsoft, Oracle, SAP, SAS and other vendors that operate on its servers and software. The Cloud Maps put a brand on what it has been doing for some time to help software operate on its servers, but now the management software is more tightly integrated with the computing and storage aspects of the appliance. HP also sees itself providing a cloud environment for personal and team computing; this could be promising if the service is as easy to use as what our firm has with Egnyte for cloud-based file sharing and servers for secure access to information along with systems backup.

        On the mobility side, HP seriously intends to become a major player in the tablet and smartphone markets. Its life-saving acquisition of Palm in 2010 was widely questioned because, having led early on in the PDA market, Palm had struggled to insert itself into the new markets. But HP has been working hard to leverage these assets and their experience for a new generation of tablets called HP TouchPad and a smartphone called HP Pre3. HP has worked to make them secure and enterprise-ready on webOS but integrated into with Microsoft Exchange server and managed for both enterprise and consumer markets. It has done a great job with multitasking of applications, use of Adobe Flash and interconnectivity of the two smartphone and tablet technologies, which I would love to have with my Apple iPhone and iPad. But let’s remember that practically speaking, neither the best technology nor ones that address the gaps of others are what make a market; that is driven by the marketing and ecosystem of applications and developers that already exist. In this case it also requires a consumer mindset, and this is a very difficult market to penetrate with the strengths of Apple, Android, RIM and even Microsoft. I think Leo will have to build a new consumer and marketing team that will approach its task completely differently than HP has done before. Just because you can sell printers and notebooks to consumers does not provide a free ride in the mobile space as Dell and even Microsoft have seen.

        With analytics HP has had some of its bumpiest roads. The controversial demise of HP Neoview that I covered in December that has irked many at HP wrecked the company’s reputation in the buyer community for data warehousing and analytics; many customers shipped the technology back and negotiated downward their consulting services bills. Part of the problem was that HP tried to make Neoview support very large volumes of data continuously and also provide privacy and security of the data, which in the end did not work in many customer configurations. According to my sources, Leo was unaware of the significant challenges and change of strategy that he inherited with Neoview, and the company finally announced the shut down of it on January 24. Since last September most of the talented people who knew the analytics and BI market have left the organization. This exodus was due to lack of leadership and commitment, and even Leo’s arrival did not restore their confidence in management. Now HP has a new strategy with the acquisition of Vertica, a company we assessed previously. The sudden acquisition of Vertica was a bit of a surprise and appears to be a back-room deal involving HP board chairman Ray Lane, who as a partner at Kleiner Perkins invested in Vertica. This deal orchestrated by Leo and Ray seems to be a fast maneuver to find a new analytics strategy for HP without a significant investment or a major shift to its portfolio and leadership strategy, which are desperately needed. It was clear that Leo is not getting all the facts, as he boldly claimed that Vertica has “limitless scaling” and “extreme compression” capabilities to support big-data analytics and is representing it as the next generation of business intelligence. Just as it recklessly positioned HP Neoview as able to solve any data problem, HP again is making promises that its technology has not been proven able to keep, in this case to handle the size and depth of very-large-scale data challenges. Vertica is in the classes of columnar technology, which my colleague has explained. Vertica has good technology and some customer adoption, but like Neoview it will play best with specific applications and uses and not across the entire market; it has to be prepared carefully to load and query to work efficiently. If HP believes it can engineer it to be more, it should look back at its last five years of evolving HP Neoview. A bolder step into the analytics and data management markets would have looked like Teradata’s acquisition of Aster Data that my colleague covered; something like that could have provided entry to the enterprise business markets. Or HP might have looked at the commercialization of the Hadoop open source technology for large-scale data through a company such as Cloudera. Of course this is not the only thing challenging HP – it will need integration and analytics tools to compete with IBM, Microsoft, Oracle, SAP and many others including Information Builders. HP sees Vertica as part of platform services in its overall software strategy, but Leo was showing it off in an appliance with what he called full-, half- and quarter-rack packaging. HP clearly is very early in understanding what it is buying with Vertica and not ready to position how it can be used; many organizations that bought and attempted to apply HP Neoview still have bad tastes in their mouths from wasting not only dollars but time, which is a more critical business asset, and are likely to be skeptical of the new approach.

        The collaboration and social media aspects of the consumer and enterprise markets include not only the likes of Twitter, Facebook and LinkedIn but also Salesforce Chatter, SuccessFactors CubeTree, Saba SocialLive, Jive Software and many others. HP did not communicate anything substantive in this area. It instead has focused on the need to get content on devices and platforms through digitization from print. HP sees itself driving the workflow of creation, authentication, storage and accessibility of information in a collaborative environment. This could work if it can be accessible across the variety of business mobility technologies beyond HP’s own and made part of the overall computing fabric.

        HP has been evolving its work in information management toward what it calls information optimization, which is based on content and records more than data. This I think puts HP at a disadvantage to IBM, Oracle and SAP, especially to IBM’s information governance focus. Despite this HP has begun to present a coherent set of methods and processes to manage the life cycle of information, which could help it play a more strategic role in enterprises. Using a partnering approach to database management systems (except for Vertica), HP will have to find a path for further expansion and interoperability. It also will need to find more progressive ways to access IT data and provide IT analytics that our research found to be great demand. Vendors such as Splunk, which I have assessed and Planview are addressing these issues. Splunk, for example, has been growing by making it simple to access, index, search and present IT data in meaningful metrics and information applications for IT and business.

        In its professional services, HP has focused on multiyear IT outsourcing deals or providing private cloud environments for enterprises. The latter is a good place to look for the future as the demand by enterprises for most consulting services has not rebounded since the economic collapses over the last three years. This was also confirmed in our major new business analytics benchmark research  which shows that external consulting resources (7%) and outsourced IT resources (3%) seldom have responsibility to design and deploy analytics.

        This is not unexpected as enterprises and CIOs need to control their own destinies and have learned many lessons in recent years about why business units aren’t pleased with their current computing environments. My colleague said it well recently in “With IT Departments, Companies Get What They Deserve” in which he outlines why CIOs and IT need to be more engaged in the success of business. In many cases that means making information ready to help business processes operate more efficiently and applying analytics for making decisions. HP is focusing its communications with CIOs mostly on the cloud and is preparing to meet business needs for cloud-based services. The issue here is that the lines of business adopting public cloud business applications want to onboard and use them in quick implementations that do not require the debate and delays in meeting corporate IT standards and governance. This attitude challenges IT to manage data in applications spread all over, which my colleague describes as clouds raining corporate data. HP does have software to help with information enablement across both enterprise and cloud, as do Informatica, Pervasive, Jitterbit and the new SnapLogic, and can offer consulting services here.

        HP has software for application transformation, but it needs more than just application life cycle, virtualization, security and management to help enterprises adapt to cloud computing in a hybrid environment. HP is playing to its strength in management software but also will need to manage the valuable data underlying applications. Wisely, I think, Leo has made it clear that HP will not be acquiring a transactional application company (like SAP, his old company) to gain customers and maintenance dollars, instead focusing on the future computing environment; I believe this is the right approach if HP can fill its gaps.

        HP does have a lot to offer in what it calls security intelligence, to help organizations manage incidents, vulnerability and policies to ensure they build a safe, risk-free environment. This will definitely be an opportunity for HP to further its differentiation as it is has assets and an approach superior to those from IBM, Microsoft, Oracle and SAP.

        In life-cycle support of its products, both the consumer and enterprise markets have expectations of timely migration that makes technology faster and easier to use. Except for its hardware businesses, HP historically has had slow product release cycles, which has deterred some business organizations from using its software. Of course there are challenges in the complexity of software, but IT’s concern is simpler and faster iterations to its enterprise software. I am not convinced that HP yet understands this enough to actually change its culture and processes in this area.

        Leo has been under some serious scrutiny lately with his promoting of a new generation of directors on the HP board. It’s likely that significant change is required as the board hampered some of his predecessor’s growth strategies in favor of cost-reduction efforts. It will require some new leadership there and below to deliver the sort of change that Leo has promised. In particular its software and technology products organizations need to work together like never before and digest new acquisitions without losing the talent that made them worth buying in the first place. Leo has set the bar pretty low for what the industry including Wall Street should expect to ensure he gets some time to make necessary changes. It should help that his predecessor squeezed out the obvious waste in duplication of effort and costs that were required to begin the change.

        HP is embarked on a cultural and technological change that is overdue. Leo is going to push the organization to adapt and if necessary eliminate those who do not move fast enough to adjust to the new order. This is healthy but will have to be done while improving employee satisfaction to increase productivity and gain better throughput of its business processes. It won’t be enough to craft a fancy new marketing message around cloud computing; it will take a truly transformative approach that can deliver value to business customers in the short term. HP can do this eventually, but the question is whether it can communicate the roadmap for getting with clarity and substance that will be more convincing than the messages from its other top competitors. For me, it is too early to say. I will revisit this situation in three to four months and see if anything has improved, so stay tuned!


        Mark Smith – CEO & EVP Research


        Mark Smith
        Partner, Head of Software Research

        Mark Smith is the Partner, Head of Software Research at ISG and Ventana Research leading the global market agenda as a subject matter expert in digital business and enterprise software. Mark is a digital technology enthusiast using market research and insights to educate and inspire enterprises, software and service providers.


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