HP + Microsoft = More Questions than Answers

When I heard Mark Hurd (HP CEO) and Steve Ballmer (Microsoft CEO) were to speak on a teleconference last week announcing a major partnership between the two companies – involving cloud computing no less – I jumped right on the call. After all, Microsoft is doing some exciting work with its Windows Azure platform. And, conversely, HP has been lacking major strategic announcements in the cloud realm. So I figured an alignment between these two industry giants had the potential to be very significant. But I ended up disappointed. I even decided not to write about this partnership because of its yawn factor and because it was heavy on cloud-washing.

Since then, I’ve been stunned to hear and read certain reactions to the news by vendors, analysts, members of the press and bloggers. As usual, some reactions were positive, some negative, and some just acknowledged the lack of content. But what really got to me was that some of the reactions just didn’t make logical sense - and, worse, some had bought in to cloud computing capabilities that don't even exist. That was what led to my new found motivation to address (and perhaps argue with) a few points from the announcement:

Investment: Sorry, but a $250M incremental investment over a 3-year time span by two of the largest companies in the world is just not that big. It is only about $84M per year, and is split by the two companies. According to Yahoo! Finance, on January 15, 2010 HP had $13.3B in cash and Microsoft had $33.5B. Together that is $46.8B. Yet an $84M per year incremental investment is less than 2/10ths of one percent of these companies total cash. WOW - not a lot!! I didn’t hear Mark Hurd on the phone when HP spent $1.5B (yes, billion) acquiring Opsware a couple years back. But for a $42M incremental investment per year (assuming HP & Microsoft invest equally), we get both Hurd and Ballmer. This was the sort of announcement where the Hurd / Ballmer participation was a large portion of the news. Their presence certainly increased the marketing and sales value of the partnership. But it did nothing to deliver more value to their respective or combined customers. Also, don’t forget that the $42M each must be shared among sales, marketing and engineering. How much new product will we really get from this? We won't get much engineering, even for product integration and testing, with the amount of money remaining for engineering groups. On the positive side, these are two companies with tremendous intellectual property and technical assets. They *do* have the potential to jointly develop some ground breaking capabilities. Now *that* will be news; it just hasn't happened yet!

Cloud computing spin: Microsoft, with Azure, really has something to talk about when it comes to cloud computing. I consider Azure a very big deal and expect it to be quite successful over time. However, the contribution of HP (or even the combo of HP + Microsoft through this deal) does not really seem to offer much new beyond Azure for cloud computing. Sure, HP will get to supply more datacenter hardware for Azure. But how does that help IT customers? How does that provide better cloud computing capabilities? HP received some cloud computing visibility simply by standing next to Microsoft. But these companies have not done enough to clarify what will actually be delivered.

More cloud computing spin: eWeek had an article with the following quote: “The hardware, virtualization, management layer, app model—that needs to be an integrated stack, and it’s on that we’re focusing a technical collaboration." This is a pretty nice sound bite and there were others too. But content-wise they seem to be simply pointing at some of the changing nature of IT; changes that are driven by cloud computing. But they are not saying exactly what they are going to do. Further, the “infrastructure to applications” message they are using does not strike my fancy. Oracle can "almost" get away with that sort of story where they are, through the Sun acquisition, going to focus on bringing hardware and applications together in an integrated stack. BUT, when coming at this from the cloud computing perspective, it is much more productive to think about (and work toward) the *de-coupling* of tight stacks of hardware and software, not further locking them together. Microsoft wants people to develop on Azure and will then force them to run the resulting applications on Azure infrastructure (I’m a fan of Azure in many respects, but this is not one of them). And now HP will have (per their implications) a higher percentage of HP hardware running Azure. That is NOT what people are seeking with cloud computing. Instead, they want to run their software on many types of underlying infrastructure – physical, virtual and cloud (and from different vendors and service providers). The “infrastructure to applications” message not only falls flat on the cloud audience, it is mis-aligned with much of the value of cloud computing.

Software: HP and Microsoft have managed to confuse the heck out of the market with their management software offerings. I actually heard multiple people interpreting the announcement as the demise of HP’s Business Technology Optimization software (formerly known as OpenView and including software from acquisitions such as Peregrine, Mercury and Opsware). HP is certainly not exiting the management software business, yet several people I spoke with believed they were. Did HP, which did $2.4B revenue for fiscal '09 in BTO, somehow let their hardware groups (which already sell software that competes with the BTO software) strike a deal with Microsoft independently? That is what it looks like. Either way, they totally botched the message. Customers are now asking whether to purchase Microsoft, HP BTO, or other HP management software like that in the Systems Insight Manager (SIM) family. They are also asking, what is the upgrade path from any given entry point? Where are the overlaps between offerings and vendors? What is integrated and what is not? It looks like a huge mess to them. And, don’t forget, the respective sales teams have to engage with customers and somehow not step on each other’s toes or create more customer confusion than the announcement already has. It is confusing as to why there did not seem to be a voice from HP BTO in the HP + Microsoft announcement. This is a loss for HP BTO and a win for BMC, CA and IBM.

Specific offerings: I believe HP + Microsoft will probably improve their sales with a couple of more or less point offerings like pre-packaged solutions for email, database etc. They can run that stuff through HP's server + software channel without a lot of cost and make it very easy to purchase. This will probably be a good thing for customers – those who want to purchase these integrated hardware software stacks. But, please, let’s not try to call it cloud computing. HP and Microsoft certainly have the ability and some reasonable potential to deliver increased value to customers through this alliance. Personally, I hope they do more together in the area of cloud computing. But, for now, it is a bit more wait and see.

Engineering collaboration: Another quote from eWeek: "joint engineering work will result in Microsoft applications, such as the SQL Server database or Exchange collaboration software, running faster and better on HP's x86-based ProLiant servers than on other OEMs’ systems." Sheesh. More blathering in response to Oracle + Sun. Plus, I'm just not buying this. At least Oracle + Sun has proprietary hardware on the bottom through Sun (so it is far less of a direct competitive attach on other hardware vendors). But in the x86 market, what is the idea? For Microsoft to make all their other close hardware partners angry at preferential treatment to HP? I don’t think they’ll do this. And if they do, I fully expect other x86 hardware providers to raise bloody hell and take other competitive actions in response.

Overall, both companies are strong and will benefit from this announcement (even though this announcement also hurts them). And customers will benefit too, so long as HP and Microsoft following through on integration and joint engineering. However, I'm definitely not impressed with this partnership from a cloud computing perspective. It is still a yawn in that regard, and the cloud computing angle was incredibly mis-used. And the messages on the software front have confused many customers. And we are still waiting for a really meaningful, strategic announcement on cloud computing from HP. Unfortunately, this announcement has generated more questions than answers.