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HP, MS prep for intranet showdown

HP and Microsoft form a new alliance that they hope will prepare them to battle Netscape Communications and other vendors for control of corporate intranets.

Top executives from Microsoft (MSFT) and Hewlett-Packard (HWP) today shook hands on a broad new alliance that they hope will prepare them for a looming showdown with Netscape Communications and other vendors for control of corporate intranets.

The world's largest software publisher and one of the world's largest PC makers today announced sweeping new initiatives to integrate several of their propriety products, license and sell other pieces of their offerings, and develop new products and services geared at cutting the cost of owning and operating large computer networks.

Microsoft chairman Bill Gates traveled to HP's Palo Alto, California, headquarters this morning to set the deal in motion. The two companies had been working on the joint strategy for nearly a year.

Principally, Microsoft will get a credible new independent provider of support and services that large corporations can tap to help them deploy the Windows NT operating system. HP has also renewed support for the NetPC initiative, which the company helped to develop. HP CEO Lewis Platt said today that the company will start delivering its Net Vectra PC series of NetPCs in the second quarter. The machines will cost less than $1,000, he said.

With the deal, Microsoft has signed up a powerful ally. HP is expected to stand together with the Redmond, Washington, software developer and slug it out with other industry heavyweights, not only over cost of ownership issues, but in the raging debate over whose technologies should be adopted as Internet standards.

The alliance comes as Microsoft and its cohort in the PC marketplace, Intel, are preparing for the advent of network computers, stripped-down machines being championed by a handful of Microsoft competitors, including Sun Microsystems, IBM, and Oracle.

Lower cost of ownership and easier, centralized administration have been two of the biggest selling points for NCs.

Microsoft and Intel have responded with plans for a NetPC, a simpler kind of PC that would be administered centrally to reduce the time and cost of upkeep, and by launching their own PC cost-cutting initiatives.

The Microsoft-HP alliance seeks to reduce the costs involved in deploying NT systems singularly and in mixed networks combining HP and Microsoft software.

To cut costs, the companies will combine HP's OpenView system and network management software with Microsoft's Systems Management Server software to help network administrators trim the amount of time needed to manage networks.

HP also plans to roll out new cost-cutting tools and services already in use in-house at HP. The unspecified tools have reduced HP's internal desktop computing costs by $200 million a year, the companies said.

HP will also help Microsoft open a jointly staffed Enterprise Solutions Center at its Redmond, Washington, headquarters to work on improving NT server applications running on HP's NetServer systems. The company will also expand its education services for Microsoft's NT and BackOffice software, as well as launch new NT consulting services.

They will also jointly develop Microsoft common messaging, calendaring, and directory synchronization for HP OpenMail and Microsoft Exchange Server.

Microsoft, which virtually owns the desktop operating system market with its Windows software, has been converting a significant number of corporate customers to the Windows NT operating system in the last couple of years. However, developing the kind of round-the-clock service and support that large corporations expect has impeded the software giant's continued advance into this lucrative marketplace.

By adding HP to Microsoft's list of supporters, the company will add support and service from one of the world's largest computer makers with a tested record of supporting corporate systems. Microsoft also has a long-standing relationship with Digital Equipment and has recently signed up the accounting and consulting firm Ernst & Young to provide support for setting up large corporate networks running on NT.

"Microsoft has been fighting a two-year battle for credibility in the enterprise server market. Mostly, the problem is with service and support," said Forrester Research analyst Eric Brown, noting that the announcement with HP is no departure for Microsoft, which has traditionally farmed out such concerns to business partners.

"HP has good credibility in this area," he added.

HP's decision to throw its lot with Microsoft has much wider implications than service agreements, according to Brown.

"When they buy into NT, they buy into a whole raft of products[made by Microsoft,]" he said.

The HP alliance may siphon off some business from Digital, some observers said. Yet Digital's vice president of corporate alliances, Robert Bismuth, thinks it will actually stimulate the already booming business in NT.

"The HP announcement is only going to benefit us because it amounts to another big computer company saying that NT is a legitimate operating system" for enterprise-class computing, he said. Bismuth penned his company's original alliance with Microsoft.

Digital, which has been working closely with Microsoft on the NT platform for about five years, has seen revenues for desktops and servers running on NT grow to more than 35 percent of its business, Bismuth said. He added his company held about 15 percent of the NT marketplace in 1996, according to figures provided by Microsoft.