The purchase of Autonomy by HP shows breathtaking vision but the impact of Government tax policies (both US and UK) on the purchase should not be under-estimated. It is unlikely the purchase would have taken place but for the way the US tax system discourages companies from repatriating their overseas cash balances to reinvest at home with a marginal tax rate of 35%. Other world-class UK companies like Imagination Technologies and ARM are said to be at similar risk – at keast until such time as we sort out the risk/reward ratios on offer to entrepreneurs and risk investors. But the implications go wider
HP/EDS runs the world’s largest and most mature Open Source/Cloud operations after those of IBM. Autonomy provides engines that are set to transform not just the compliance and information processing operations of HP’s largest and most profitable customers in Financial services, Pharmaceuticals, Defence and Aerospace. The engines look set to transform the way such businesses organise R&D and run mainstream operations. The price reflects the shrinking revenue and profit streams HP would have faced had IBM or Oracle bought Autonomy and they had to play catch up while also bypassing the ARM IPR.
Whether HP can implement that vision successfully is to do with culture, leadership and implementation. The management teams of Ferranti and GEC had similar “vision” when they made the “terminal take-overs” that destroyed them. But Gerstner’s “vision” for IBM was successfully implemented. It made the business fit for the 21st Century, including the end of Pax Americana, as a global business, no longer dependent on the health of the US economy.
Meanwhile HP has thinkers who understand the nature of Cloud Computing a lot better than most and spinning-off the hardware operations avoids being distracted by the battles for consumer spend between Apple, Google/Motorola, Microsoft/Nokia/Samsung and their Japanese and Chinese competitors. It also reduces the risk of being caught in the cross-fire of the battles for content and advertising revenues.
The messages for those who wish to see Government policies that will help turn round the UK economy are mixed.
Autonomy is by no means the only such operations to have been spawned in Silicon Fen. It is, however, the very few to have achieved global scale before emigrating to Silicon Valley. In consequence it got a much better price for selling out. A bigger question is whether HP will continue to base world-class R&D in the UK or follow others in moving this to Brazil, China, India or whichever centre of intellectual excellence has the best conditions (including immigration policies and local life style) for assembling world-class teams. Recent UK announcements for enterprise zones need to be viewed in this light.
As Executive Chairman of the Conservative Technology Forum, one of the research topics I have been asked to consider is “Why is there no British Google?”. When the question was originally asked I would have pointed to three – and asked why they had stayed, not just why others had given up or sold up. One of the three was Autonomy. The others were ARM (arguably independent only because none of its major customers can afford to allow it to fall into the hands of a competitor) and Betfair (more “transactions” a day than all the stock exchanges of Europe added together). I would also have pointed to global businesses which do little, if any, business in the UK but were (at least until recently) based in London and would have liked to source more of their products and services from the rest of the UK provided ….
One of my colleagues in the Forum, an Associate Professor at one of the leading UK Business Schools, tasked one of his students to use the question as the basis for his Masters’ Dissertation and in a couple of weeks we will be fixing a date for him to present his findings to a political audience.
I look forward to seeing whether his findings are very different to those we found 25 years ago. The question then was “Why is there no British Apple?”. The answers were as unacceptable to those who believed their DTI-funded technology transfer/support programmes were “the answer” as they were to those who believed tax avoidance was a greater risk than economic stagnation. No-one was willing to take a cool look at the lessons from Acorn, Amstrad, the BBC Micro, Research Machines and Sinclair let alone the experiences of those who had already moved from Silicon Fen to Silicon Valley or were commuting between.