Hewlett-Packard (NYSE:HP) CEO Leo Apotheker laid out a master plan this week that had a heavy dose of cloudspeak, WebOS and software. How credible is the plan?
Now that a few days have gone by, it’s worth doing a credibility check on the strategy and assess whether HP has the chops to turn its 30,000 foot view into real execution.
On Sunday, I previewed the HP meeting. The hot topics going into the meeting were:
- The PC business and Apple envy
Following the meeting it’s worth expanding that list by one topic to include cloud computing.
The overall message from the HP meeting boils down to the following:
- HP intends to be a cloud platform and SaaS player.
- The company has a lot of software intellectual property that hasn’t bubbled up to become products.
- Apotheker thinks HP can be an analytics player.
- HP is going to force feed WebOS with its distribution.
- The company still values its consumer business and doesn’t intend to be “a junior player” in the tablet market.
Now for the reality check. Following HP’s meeting and all the cloud chatter there were two responses from observers. The skeptical crowd said that HP was cloudwashing the same old stack it has been trying to sell. As for HP’s plans to become an app market for consumer and enterprise apps, critics said that any freshly minted MBA could have spun Apotheker’s strategy.
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The folks who were more constructive about HP said that the company was delivering a broad strategy and could fill in details later. Apotheker said that HP’s cloud strategy—including an app market launch—would become more evident in 2011 and 2012. These observers also thought HP could become a credible cloud platform provider.
Here’s a look at the big issues for HP and whether the company’s strategy day clarified anything.
Software. Going into the HP Summit it was clear that the company would talk about building and buying a software business. Analysts were expecting a mix of open source and SaaS.
Instead, HP talked a lot about analytics. “Analytics is a huge space that is poorly served today,” said Apotheker. After his keynote and Q&A session, Apotheker told me HP would attack analytics via SaaS, on-premise and appliances. The timeline: 12 months. Apotheker noted that a host of HPers spend their days on analytics.
More importantly, HP didn’t talk about reinventing the wheel. HP has no interest in competing with Oracle (NYSE:ORCL) and SAP. The Oracle relationship will revolve around coopetition. Apotheker hinted that SAP and HP will become tighter. That outcome isn’t much of a surprise since HP now has a bevy of SAP veterans—including Apotheker—running around the executive suite. Related: HP to go software shopping: Here’s the potential hit list
Cowen analyst Peter Goldmacher said:
From the perspective of a software investor, HP has decided to leave the high end of the enterprise to IBM and Oracle in favor of a broad based platform strategy designed to create a variety of low cost cloud computing alternatives focused on connectivity to a myriad of end points including PCs, mobile devices and printers. While the company intends to continue to compete aggressively at the high end of the server market, it explicitly stated it has no intention of owning transactional apps or purchasing legacy software franchises. This comment is sure to dampen much of the take out discussion in Enterprise Software. We believe HP’s platform will appeal to the broadest spectrum of users and use cases possible. While going after the low end user will open up new markets, the creation of a low cost “build/test/deploy” platform with enterprise chops will definitely matter to Oracle and IBM over time. Execution is a lot harder than vision, but the vision is compelling.
Credibility check: HP’s software plans were credible and logical. HP outlined a high level software vision that made sense because it didn’t involve disrupting existing software giants. In addition, it’s quite believable that HP has software intellectual property that hasn’t been turned into products. The analytics execution remains to be seen, but the vision works.
Cloud computing. Much of HP’s software strategy revolves around cloud computing. HP’s software path includes creating app markets for the consumer and enterprise. HP also aims to be a platform as a service for non-mission critical workloads. Why could this strategy work?
- Oracle and IBM won’t go there into the platform as a service thing.
- HP has the infrastructure to be a credible platform.
- HP has the CIO relationships to be an enterprise class platform.
Why HP’s strategy won’t work?
- Apotheker didn’t divulge much detail on the strategy.
- It’s unclear whether HP can establish an app market place.
- HP’s strategy may just be cloudwashing.
Wells Fargo analyst Jason Maynard summed up the HP Summit as a meeting that was “mostly cloud washing with a side of $7 in earnings per share in fiscal 2014.”
HP’s aspiration is to be the platform for cloud and connectivity from the consumer to the SMB to the enterprise. In practical terms, this means the CloudSystem hardware solution for public and private clouds along with a new Amazon-like public cloud offering for storage and compute in late 2011.
Credibility check: The jury is still out on HP’s cloud strategy. It’s quite possible that HP can offer these services and gain traction. However, we just don’t know enough about the cloud computing tactics to make much of a call. We’ll await further information about the cloud effort. HP’s CloudSystem is an integrated bundle of hardware and software for data centers.
WebOS: The big news out of the HP Summit was that the WebOS would aim to be on 100 million devices. Given that HP’s shipments of printers and PCs were well above 100 million in 2010, that figure is easy to hit. HP can put the WebOS on every printer and PC and have distribution. Related: HP’s WebOS target: 100 million devices
What remains to be seen is whether an army of WebOS printers and PCs creates an ecosystem. The sweet spot for developers is mobile. HP doesn’t have the smartphones or tablets to give the WebOS mass distribution. You can create distribution for WebOS, but it’s unclear whether developers can create apps that can take advantage of the PC, printer, tablet, smartphone connections.
Credibility check: The WebOS will get distribution simply because of HP’s will. I’m doubtful that developers will follow. There are only so many platforms for developers to chase and the WebOS is clearly playing from behind.
Services: Apotheker didn’t spend a lot of time on HP’s services unit. And the presentation from services chief Ann Livermore and Tom Hogan, enterprise sales chief, sounded very familiar. In a nutshell, services will target verticals and focus on application projects and value added offerings.
The bottom line for HP is that services has its sales challenges. HP will hire more sales people and focus on verticals.
Credibility check: HP Services will continue to chug along, but don’t expect a high growth business. It remains to be seen whether HP’s services magic fix is more sales folks.
Innovation. Apotheker gave a few plugs for HP Labs, but he can’t reverse years of starving R&D in a few months. At Apotheker’s press conference, he said:
As I have said numerous times, R&D is not just measured in dollars. It’s about effectiveness as well and it’s about the effectiveness of the entire R&D process from the innovation point to bringing it to market.
I indicated early on that we need to get a little bit better in that. I believe that what you have seen today, looking at some of the technology around vertical, demonstrates the capability that HP really has. And when you put our team work together, in this case with what is still today a partner vertical, we can actually make things happen really quickly.
You will see much more of this coming out of HP in the future. We will focus on driving a lot of innovation straight into the market in a significantly more effective manner. This being said, in this fiscal year we are actually investing more into R&D; our R&D expense grows faster than our revenues. And we wanted to do this explicitly as there are many technologies that we really want to capture.
Credibility check: Wake me up when HP doubles its R&D spending from 2.5 percent of revenue to 5 percent.
Tablets and Apple envy. Despite a lot of speculation about ditching the PC business, Apotheker was very clear that the consumer business matters. In fact, the consumer-enterprise continuum is only getting tighter. Apotheker said the consumer market is an innovation source for the enterprise.
The big question is whether HP can deliver a credible No. 2 option to Apple’s iPad. The plan here is to go enterprise with HP tablets and target key verticals such as healthcare. In other words, HP and Dell (NASDAQ:DELL) have roughly the same tablet plan. Dell, however, has Android and HP may be able to use the WebOS stack to deliver some goodies specifically for businesses.
On the consumer side, HP tablets have a shot. Sure, HP is playing from behind, but the WebOS is a nice system that works well on a tablet. In addition, Android Honeycomb has been buggy. If HP can get its TouchPad to market quickly it has a puncher’s chance to become a distant No. 2. Simply put, no Apple rival has stepped up to the plate yet with anything stellar. HP has a limited window to strike on the consumer front.
Credibility check: HP’s tablet plan is solid, but it doesn’t have a lot of time to screw around with its enterprise efforts given Research in Motion’s PlayBook is coming.