HP blew the chance of software leadership

Hewlett-Packard squandered a chance to become a leader in software used for automating business processes and other services over...

Hewlett-Packard squandered a chance to become a leader in software used for automating business processes and other services over the Internet. The failure was highlighted by HP's recent disclosure that it plans to stop developing its middleware products, industry analysts said.

HP said earlier this month that it planned to "retire" its middleware line, as part of an effort to make its software group profitable. Besides its family of Netaction software, which includes a J2EE (Java 2 Enterprise Edition) application server, a transaction server and developer tools, HP's middleware also includes e-Speak, a technology that lets devices such as printers share services over networks.

HP has sought to downplay speculation about its middleware plans, saying it will detail its software strategy at a customer event later this month. However, industry sources have said HP is trying to sell off all or part of its middleware business, and rely instead on partnerships with vendors such as BEA Systems and Microsoft to provide the middleware for systems that it sells to customers.

Whatever the strategy, many analysts agreed on one thing: HP blew an opportunity to stake out a leadership role in middleware, an increasingly important area of IT and a focus for much of the development work around Web-based computing.

Some analysts said a partnering strategy is the right course, while others said it raises questions about whether the new HP can achieve its goal of being a "complete provider" of enterprise IT solutions.

HP laid out a vision for using software to create Web-based services at least as early as Sun Microsystems, Microsoft and IBM. In 1999, it proudly opened the doors to HP Labs, its renowned research division, to unveil the CoolTown concept in which technologies such as e-Speak could be used to link people, computers and even objects in a distributed computing model.

In 2000, HP built on its vision when it acquired Bluestone Software for an estimated £320m, which became the company's Netaction product line. But while Sun, Microsoft and IBM worked hard to develop their software platforms for Web services, HP let slip its early advantage, industry analysts said.

"They had many of the key pieces early on and didn't execute or project a vision," said Dana Gardner, an analyst with Aberdeen Group.

"HP has shown some real leadership in terms of ideas, but they really have not executed," agreed Martin LaMonica, a senior analyst at Nucleus Research.

HP's problems can be traced to the time of its Bluestone acquisition, said Shawn Willett, of research organisation Current Analysis. While IBM and BEA solidified commanding leads with their application servers, HP never built on its acquisition.

The company's middleware ambitions once appeared substantial. In November 2000, a few weeks after announcing the Bluestone deal, HP chairman and chief executive officer Carly Fiorina took the stage at the Comdex trade show to declare that HP would be a leader in software for Internet-based computing.

"By adding Bluestone's XML-based Web application server and tools, we're creating the richest development environment for the services-based model that I'm talking about," she told the Comdex crowd. She also highlighted e-Speak and other HP software.

Unfortunately for HP, on the day that Fiorina touted the new software to the Comdex, the company also announced it had missed its financial targets for the quarter.

HP soon began work turning around unprofitable areas of its business, and apparently felt that making substantial investments in its money-losing middleware division was not the way to go, Willett and other analysts said.

Apart from middleware, HP has considerable strengths in software. Its HP-UX operating system survived the merger with Compaq and is being tuned for Intel's latest Itanium processors.

OpenView is among the most popular software for managing IT environments, and the company said its OpenCall software for the telecommunications industry is also profitable. The company is developing software for the emerging "grid computing" model, and HP Labs continues to experiment with new types of applications.

Nor will a middleware strategy based on partnerships necessarily hurt HP or its customers, some analysts said. For customers who favour Java, HP can offer an application server from BEA, while for Microsoft advocates it can exploit Compaq's close ties to the software giant to offer its .net products. HP could, potentially, benefit from the strategy, winning customers by positioning itself as a neutral vendor that favours neither software platform, Willett said.

However, HP's partnership strategy may also have a downside.

"If you're hawking your hardware with someone else's software, you lose an interesting part of the relationship with the customer," Aberdeen's Gardner said.

"Customers tend to choose software strategically and hardware based on cost, performance and availability, so if you've lost that relationship and it's your partner's software you're selling, then your partner may have a stronger relationship with the [customer] than you."

The partnering strategy also raises questions about the new HP's ability to live up to its own billing as a complete provider of IT systems for large corporations, he added.

"Part of the rationale [for the merger] was that they needed to combine forces in order to be a full solutions provider to the large enterprise and to compete with Sun, IBM and Microsoft," Gardner said. "If they are throwing their [middleware] on the [acquisition] market, then I'm curious how they are going to become a full solutions provider."

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