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HP's Software Transformation Cloudy without Consumer Channel to Market

By September 25, 2011Article

HP’s plans to jettison its Personal Systems business in order to focus its corporate efforts on building its enterprise software presence runs the risk of overlooking the most important trend transforming the tech marketplace today — the consumerization of IT.

Rather than recognizing that business end users are increasingly driving corporate IT procurement decisions from the bottom up, HP’s “bet the farm” software strategy assumes that the only way the company can become a bigger player in the enterprise software market is by giving up its greatest competitive advantage — its PC business.

There is no question that software makes the world go round today, and HP has to do a better job of developing and delivering relevant software to remain competitive in today’s rapidly changing marketplace.

Marc Andreessen published a brilliant commentary in the Wall Street Journal this past Saturday showing how software is “eating” everything in sight and disrupting every industry in its path. He openly admits in his column that as a member of HP’s board of directors he believes these trends have made it imperative for the company to adopt a bold new software strategy and forfeit its PC business in the process.

Some would see this as a classic case of the “Innovator’s Dilemma,” having to cannibalize a company’s current strengths to better position itself for the future.

Yet, HP must also overcome unprecedented challenges to succeed in a changing software industry as well. Being a successful software vendor today requires an entirely new repertoire of skills that go far beyond smart programming and global brand equity.

Today’s software leaders are a new breed of cloud-based, Software-as-a-Service (SaaS) providers. Their applications are designed and delivered differently. They are packaged, priced and promoted differently. And, the revenue streams and profit margins are recognized and generated differently.

While HP has plenty of existing software products in its corporate portfolio which should be migrated to a SaaS platform, moving in this direction can be a nightmare which few legacy software vendors have successfully traversed, and none at HP’s level. Microsoft’s travails have been widely reported and, despite its bold “all-in” efforts, the company still experienced embarrassing Office 365 and Online CRM service outages last week.

Although HP has EDS and the rest of its enterprise outsourcing services at its disposal, it still lacks the expertise and agility to deliver reliable and economical Infrastructure-as-a-Service (IaaS) capabilities that can support a competitive set of SaaS solutions.

And undertaking a software buying binge, starting with its Autonomy acquisition, isn’t going to overcome its internal barriers to success. Most acquisitions fail to achieve their business objectives because of technical and cultural integration issues, and Autonomy brings few new SaaS/cloud development or delivery skills to the table.

HP appears to be modeling its strategy on IBM’s decision to unload its PC business to Lenovo. IBM now boasts that a majority of its revenues and the bulk of its profits are derived from software and services. However, IBM has had limited success in the SaaS/cloud world because it lacks an important channel to market — end-user devices that give IBM access to today’s most important corporate procurement decision makers — business end users.

HP’s decision to dump its market-leading PC business may also seem reasonable given the fact that smartphone and tablet sales are exploding while PCs and laptops appear to be in decline. But it is important to note that most business users still rely on laptops and desktops as their primary method for using business apps and aren’t going to give them up entirely anytime soon. And, even if today’s trends result in a fundamental realignment of the mix of end-user devices utilized by corporate workers, HP’s Personal Systems Group (PSG) is still in the best position to respond to these changing requirements, and tap its vast universe of channel partners to satisfy its customers’ end-user computing needs.

HP’s plans also ignore the key driver of Apple’s growing success in the corporate world, end-user adoption of iPhones and iPads, which often leads to corporate adoption of PowerBooks and iMacs.

While Andreessen and others might suggest that Apple’s success has been driven by software, much of the software that has made Apple successful has been created by a growing population of third-party developers. And Apple would not have been as successful if it hadn’t produced innovative end-user devices that captured the attention and the imagination of consumers.

By throwing aside its PC business, HP is not only giving up an important product business, it appears to be walking away from increasingly powerful corporate end users and risks alienating one the largest networks of third-party channel partners in the tech industry, which will make it even more difficult for HP to succeed in the software business in the future.

Jeffrey Kaplan is the Managing Director of THINKstrategies and Founder of the Cloud
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