Hewlett-Packard plays catch-up

Hewlett-Packard (HWP), seen as an Internet laggard even by some of its own managers, is readying a new initiative to raise its Net profile and give crucial resellers of its hardware an Internet story to sell.

Its new Net Now initiative will include software bundles and alliances with major resellers, but focus on marketing activities and naming high-profile Web sites running on HP hardware.

HP is not the only hardware company to see resellers as its ticket onto the Net. Top PC maker Compaq Computer (CPQ) sells almost exclusively through channel partners, and with its announcement yesterday that it will put several million marketing dollars behind Santa Cruz Operation's (SCOC) Unix for Intel-based machines, it joins HP in pushing both PCs and Unix.

Unix hardware vendor Sun Microsystems (SUNW) likewise relies on its reseller channel, and Unix workstation rivals Digital Equipment (DEC) and Silicon Graphics (SGI) have a better Internet buzz than HP.

The economics for relying on resellers to reach smaller accounts are simple: HP's high-priced direct sales force costs too much for small sales.

As it struggles to play catch-up on the Net, HP is delivering some substance, too. In June, it closed its $1.29 billion purchase of payment firm VeriFone. Though VeriFone's revenues are predominantly from retail card-swipe machines that authorize purchases in the physical world, HP bought VeriFone to jump start its Internet commerce story.

"We were slow...[to catch] the first wave of the Internet," said HP's Glenn Osaka, the general manager of HP's enterprise computing unit who helped negotiate the VeriFone acquisition, in an interview last month. "We think commerce is the next wave and it's bigger, so it's incumbent on us to turn on a dime."

Osaka, HP's point man on e-commerce, and his organization have been the chief drivers of HP's Internet strategy so far. Selling direct to large companies, his group has stressed security (HP's Praesidium offering) and intranets, viewing the Net as an extension of existing corporate networks. This builds on HP's strengths as an enterprise computing vendor.

Last month Osaka's group announced a deal to let AT&T to pitch nearly 15,000 HP resellers to sell AT&T's Web hosting and e-commerce services--the same channel HP hopes will energize for its own hardware sales.

"It's a channel play," Osaka said at the time, defending an alliance with little else to offer. "By integrating with AT&T, HP strengthens its relationships with resellers."

The most visible pieces of HP's reseller-oriented strategy to date are the AT&T deal, a pact this month with Internet consulting firm USWeb, and a June partnership with "push" software vendor BackWeb.

BackWeb, which optimized its push technology for HP hardware, is working with HP resellers in the financial, legal, government, and education markets--efforts that have already paid off in sales in the U.S. and Europe, a spokeswoman said. USWeb is expected to move its Web hosting operations onto HP hardware, with future twists expected.

HP is also close to announcing a deal with Internet directory InfoSpace, which runs its well-trafficked Web site on HP's Intel-based hardware. "HP has done a great job of optimizing for Windows NT," said Naveen Jain, InfoSpace founder-president and a Microsoft alumnus. "It runs better on HP hardware than on any clone."

But Greg Mihran, director of Internet business development for HP's new channels group, has bigger plans.

"We want to do what Sun has done successfully with its 'Powered by Sun strategy," said Mihran, acknowledging that Sun still stands for the Internet in many minds.

InfoSpace's Jain agrees. He defined HP's problem like this: "When people think of the Internet, they think of Silicon Graphics and Sun."

Resellers, Mihran notes, now account for about half of HP's hardware sales, with the remainder split between retailers (for PCs and printers) and direct sales (for HP's workstations and large servers). That makes the reseller initiative critically important.

HP faces the hardware vendor's quandary: "As products move to the commodity space, we are trying to differentiate our technology," Mihran said. "HP believes there's big opportunity to move our technology into the Internet space more aggressively."

Harry Fenik, a vice president at consulting firm Zona Research who is working with Mihran on HP's reseller strategy, notes that HP's late conversion to Internet religion is no surprise, given its mammoth size.

"This is typical HP. It's rarely at the bleeding edge of anything. They can step back, see how to play something in their world," he said. "They've let the guys out front take the beating--and beat up on each other."

In addition to pushing its Unix workstations and Windows NT-based Net Servers, HP hopes to drag its PC printers into its Internet play too. Under consideration is a plan to brand the whole Internet initiative with the HP Unix machine Domain name.

"We see a significant revenue opportunity in small to medium businesses, and we see that market primarily serviced by resellers who are anxious to bring in their own consultative expertise," said Mihran. "HP has never excelled at providing a broad portfolio of software and services."