Hardware powerhouse HP shows its software side

In an effort to catch up with rivals IBM, Sun Microsystems and others, HP last week revamped its software strategy--consolidating dozens of products into two main packages--in an attempt to raise the profile of its $2 billion-a-year software business.

It's a bold effort aimed at boosting an overall slowing in the company's revenue growth. And it's a high-priority goal targeted by CEO Carly Fiorina.

There's just one problem: HP might as well stand for Hardware Products. Despite a strong history of innovation with printers, portable PCs and even digital cameras, HP's software history can be characterized as a string of nominal successes, at best.

"HP is hoping to preserve and extend its hardware and services sales by providing software infrastructure, but HP is coming into the game late," said Forrester Research analyst Frank Gillett. "This first attempt doesn't go far enough."

On the operating system side, HP has never managed to push its HP-UX Unix product as successfully as rival Sun Microsystems has pushed Solaris, or even as well as Red Hat, Caldera Systems and other companies have done with their flavors of Linux. Instead, HP has adopted a tactic used by IBM, Compaq Computer and other companies: Stay on Microsoft's good side by pushing Windows, while attempting somewhat half-heartedly to sell your own operating system.

Beyond operating systems, HP has enjoyed even more meager success in its attempts to sell middleware, such as its now-defunct OpenPix printing software and VerSecure encryption software. Even in the rare cases in which HP was first to market, as it was with its E-speak Web-services software, it quickly lost mindshare and marketshare to competitors.

In short, the old questions about HP still linger: Can a long-standing hardware powerhouse come up with enough software smarts to take on Microsoft, IBM, Sun, Oracle and others?

Oracle executives say they see HP as a future competitor, but not as an immediate one.

"They're looking at Sun, thinking Sun is moving into software, so we'd better do likewise," said Jeremy Burton, Oracle's senior vice president of product and services marketing. "Those hardware guys are trying to morph themselves into software companies, and it's a huge cultural shift--and it's hard to pull off."

Software as supplement
HP can't afford another failure. Software, as well as storage and consulting services, are seen as potential growth areas to compensate for harder times in HP's core product lines: PCs, servers and printers. The company hopes to emulate the strategies of competitors IBM and Sun, which use their array of software products to drive sales of their high-end computers.

Although HP has a $2 billion software business, those sales make up only 4 percent of overall revenue. In contrast, IBM's software group, a $13 billion-a-year business, comprises about 15 percent of Big Blue's overall revenue. And Sun says it reaps more than $1 billion out of its yearly $15.7 billion in revenue from software sales.

Analysts say HP's announcement last week of its Netaction Internet software bundle, designed to act as a back-end environment for Web services, was a good first move. But despite a recent acquisition of Bluestone Software, which gave the company vital e-business software technology, analysts--and even HP executives--admit that the company still lacks key products.

Meanwhile, Sun has stepped up its efforts in software in recent years, developing the Java software programming language, buying software development tools, and selling its iPlanet e-business software, which was developed by the Sun-America Online alliance. IBM, meanwhile, has launched an armada of services initiatives and has led a mainstream charge into Linux and open-source software.

HP executives, however, remain optimistic. The company has a software strategy in place, and now it's time make it a reality, said Bill Russell, vice president of HP's software solutions organization.

HP, which created a standalone software group 14 months ago, condensed its software families into two main packages last week: HP Openview software, used to manage and monitor the health of businesses' computer systems, and its newly minted Netaction e-business infrastructure software.

Netaction includes Bluestone's application server, software that handles e-business transactions between a user's Web browser and a company's back-end database. It also includes E-speak, which allows businesses to build Web services. It is a vision of computing in which people don't have to install software on their PCs or Net devices. Instead they can access the software through the Web, avoiding installation, maintenance and potential upgrade problems.

First-to-market advantage not enough
Though almost every software maker has recently announced a strategy for building Web services, analysts credit HP with coming out with the idea and the foundation software before its rivals.

On the other hand, analysts said HP's software family isn't as comprehensive as those provided by Microsoft, Oracle, IBM, Sun or BEA Systems. HP, they say, is missing two key products: software development tools used by programmers to write and test their applications, and integration software, technology that allows companies to link computing systems to exchange data and conduct business over the Web.

That's why HP's Russell, a 20-year HP employee who most recently revamped the company's server strategy, says improving efforts in software integration and development tools is a top priority. "You can anticipate some partnerships, some technology collaboration," he said, referring to integration software companies, such as Tibco and WebMethods.

In a conference call with financial analysts last week, HP Chief Executive Carly Fiorina stressed a similar message. She said she's "feeling quite good about our software strategy," but that the company needs to make sure business partners support HP's software products better.

"We continue to have work to do on building...ISV (independent software vendor) and system integrator relationships around (HP's software) to make sure we continue to drive acceptance in the market," Fiorina said. "Historically, that has been an area of weakness for us."

There are some signs that Fiorina's words are taking root within HP.

When HP began selling BroadVision software four years ago, BroadVision executives had to work individually with different HP divisions, such as software, hardware and consulting services, said Roger Goulart, BroadVision's vice president and general manager of platform alliances. But now HP's divisions are working together.

For example, HP used to have four salespeople calling the same potential customers. Now, HP has one person making the sales pitch.

HP's success relies on improving such business partnerships and marketing, analysts said.

"It's the same challenges Sun faces with mobilizing its iPlanet software. They have this mentality of manufacturing hardware and shipping it. But there's a different form of infrastructure to support software," said Doculabs analyst Jeetu Patel. "If you look at Microsoft, they have this formula of product assembly. They know exactly how to crank out products, package them, and launch them. HP doesn't have the formula for the software side that they have for printers."

HP's Russell, however, said the company understands its challenges. For example, when HP created its software division, Russell put former Bluestone Chief Executive Kevin Kilroy in charge of HP's Netaction group. Historically, HP has promoted executives from within.

"I put Kevin in charge. That's a nonstandard HP strategy," Russell said.

Hurwitz Group analyst Evan Quinn said HP's last big effort in software was about six years ago, when the company had software development tools for its Unix operating system and other technology. "They used to be far more aggressive in the market," Quinn said. "They remained strong in systems management with Openview, but they didn't treat software as a primary business."

Analyst Mike Gilpin of Giga Information Group said it's too soon to know whether HP can be a successful software company, but says it has potential.

"It's an open question. We don't know the answer yet," he said. "But bringing Bluestone into the fold helps. And the senior people in charge of the software product strategy have a good understanding of customer requirements."