HP is scheduled to report earnings tonight after the US markets close, and in keeping with my practice with Cisco, I’m going to focus today on what HP should be doing, uncluttered by the way the numbers fall. Again as with Cisco, I may blog a bit about what actually happened.
HP is an IT company, to no one’s surprise, and so it’s falling victim to the general malady of IT—too little growth in the benefit case to drive sufficient revenue and profit growth. You need to fuel purchasing through benefits, and when you can’t claim many more you can’t buy much more. The only exception is the consumer space, where benefits are less financially tangible, and even there HP and the industry has issues.
In the consumer space, HP was at one time a leader in hand-held technology but they were anemic in how they pursued it because they were afraid it would undermine the HP PC position, which was more profitable overall. There was a time when HP had the only portable device worth having, and look at them now. They also followed the Microsoft lead in defending rather than attacking, and fell victim to the smartphone and tablet craze. What can HP do about that? That’s the first question.
Then we have the business space. HP has both network equipment and servers, which should give it a leg up on competition. It had that advantage up until Cisco brought out UCS, but it was never really able to exploit it because like many companies, HP is a bunch of silo business units who compete with each other for internal management favor as much (or more) as they compete in the broad market with Cisco or IBM. Servers were once brand-buy items; you picked a name vendor if you were a big company. Now servers are almost commodities. Remember that NFV was targeting the running of network functions on “commercial off-the-shelf servers.” If there’s such a thing as COTS then HP and every server company has a challenge.
Is that challenge the cloud? HP should have a credible cloud story but their positioning of their cloud assets has been tentative, and I think that behind that is the same old issue of fear of overhanging your primary products’ sales. The market theory is that cloud computing is a cost-based substitution of hosted capacity for owned capacity. That would have to be a cost savings because there was less capacity needed in the cloud to do the same work—thus the cloud is a net loss of servers. Only that’s not true. Yes, IaaS is an economy of scale play, but IaaS isn’t the cloud market that matters. If you look at the cloud at the highest level, it could be the largest single source of new server deployment, and a net win. And how to get their cloud game going is HP’s second question.
I think that the answer to the two questions lies in recognizing that they’re one. “The cloud” is a nicely fuzzy term we’re using to paper over a true revolution in information technology, a revolution that focuses on what I’ve been calling point-of-activity empowerment. People with mobile devices want mobile-friendly information resources and information presentation. We weave portable stuff into our lives in very different ways than we weave in things that sit on our desk or in our living room. The differences allow us to build new dependencies, gain new benefits, and those new dependencies and benefits justify more spending. We will get more from the cloud, and we’ll pay more to get it. This is the real message of the cloud, and it’s the message that HP should have been crying from the rooftops for five years now. The good news is that so should everyone else in the cloud game, and they all dropped the ball. So HP still has a chance.
The perfect data center for this agile point-of-activity cloud is different from the typical corporate or even cloud data center. I’m not saying the differences are profound, but they’re more than enough to justify a differentiated positioning. The hardware design needs to be different but most importantly the software needs to be different. That’s where HP’s cloud strategy is failing. When I look at the advances to OpenStack that are in progress at some level, I see HP a bit player in driving the bus. HP should be moving heaven and earth to expand and extend OpenStack, but they should also be building a layer of “empowermentware” on top of open-source cloud technology to embody the new value proposition for the cloud.
The same can be said in the appliance space. The basic architecture of the PC has been around since the early 1980s, when nearly all PCs were running in splendid isolation. Even IBM had to play catch-up as others (remember the Irma Board?) provided early connectivity. What does a machine designed to be a thin client for an empowerment cloud look like? I doubt it looks like a laptop or even a tablet or smartphone. Things like wearable tech should be fitting into an architecture, an architecture that HP could have (and still could) define.
So here’s the net-net for HP. What happens to them tonight on their earnings call and tomorrow in the market is a side show. The important question is whether they are ready to go flat out toward the empowermentware goal, and then fit their hardware strategies to host empowerment tools and terminate empowerment flows. If they can do that, and quickly, they will emerge from this process a lot stronger. If they can’t then they are in for a slow decline. HP is a kind of consolidated entity—HP, Compaq, and DEC all contribute DNA to the current company. We’ll be looking for fragments of HP DNA in other companies if HP doesn’t move, and move now.