ISG Software Research Analyst Perspectives

No one has seemed to notice that in the last several months, Hewlett-Packard has quietly made changes to its participation in the enterprise software market; this will significantly change HP’s value for CIOs and IT organizations in regards to business intelligence (BI) technologies. Essentially, the change is this: The company has decided to leave the BI market, which includes analytics and data warehousing software. It will do this by shutting down its marketing, sales and product efforts with HP Neoview and related technologies. This major shift comes in the middle of HP’s executive transition from Mark Hurd as CEO to Leo Apotheker. This is a puzzling decision as HP had been building a seasoned sales organization in BI and focus on analytics across industries. I wrote recently about the relationship between the HP CEO scandal and its dedication to enterprise software, noting that it was neither funding that area for growth nor making acquisitions, which it has done in other areas. I also wrote that HP had an opportunity to advance HP Neoview (See: “HP Perseveres in Data Warehousing with Neoview”) but that doing so would require investments in marketing and the completeness of the product offering for analytics and solutions. HP had begun to address the latter issue by reselling Informatica although it was not taking steps to acquire software companies as its competitors are doing. Now the whole landscape is changing: As the stakes for capturing customer commitment increase, HP appears to have no clear replacement strategy or enhanced offering for its current customers or prospects for BI solutions. I have to wonder why HP would shut down its business intelligence operation when the demand for this type of enterprise software is increasing and its three main global competitors – IBM, Oracle and SAP – are moving aggressively to capture more of the market. Each of them is enhancing its software, combining it with hardware in appliances and growing through acquisitions. IBM just held a global software analyst summit conference outlining its continued investments and growth, and SAP’s analyst summit is coming up this week; both vendors feature prominently places on their agendas presentations outlining the new era they envision for analytics, business intelligence and information management technologies. To answer to my own question, I think that HP’s leadership truly does not understand the software technology markets, and this has hindered its ability to make significant progress in the last three years. As I have pointed out, the software organization has been flailing about to understand the importance of a clear strategy in this area and recently replaced Tom Hogan the company’s head of software with Bill Veghte from Microsoft; and he reports to Executive VP Ann Livermore, who all have no experience in business intelligence and related software markets. HP has a history of acquiring software companies but then not allowing executives from the acquisition to play substantive roles in moving forward. To put it bluntly, HP could have taken a much stronger position in broader enterprise software, business intelligence and information management markets, but ineffective leadership has prevented it from doing that. HP hasn’t been able to expand much beyond some acquired assets and its core presence in IT management software or what it calls business technology optimization (BTO) that was acquired with Mercury Interactive. That acquisition has yielded for billions of dollars in revenue for HP, but the rest of its software portfolio nonetheless has struggled and continues to struggle to gain traction. I am on record about these challenges (See: “HP Takes Technology Portfolio to the Clouds with New Growth Strategy”), as well as HP’s slow pace in advancing its core IT management software and a lack of synergy between its cloud computing and business intelligence efforts. In 2008 (See: “HP Software Advances and Transforms”)) I commented on its use of bizarre acronyms and terms to describe its approach and its misunderstanding of the buyer and supplier markets. For many years HP has been using terms that IT buyers do not understand such as “information optimization”; technobabble does not help any company gain market share let alone credibility. It wasn’t always this way. Back in the late 1990s HP innovated with a technology called HP Information Warehouse that provided large-scale data warehousing and analytic capabilities before most other vendors were addressing this need. Its introduction of HP Neoview reinvigorated the Tandem NonStop SQL technology for analytics and data warehousing. CEO Mark Hurd and CIO Randy Mott, who came from Dell in 2005, advocated using Neoview internally to develop an information management and BI strategy that would help reduce its own costs to keep the lights on. Mott and Hurd had a long relationship and agreed on the HP Neoview strategy, but with Mark gone it appears that the new leadership has decided to drop this strategy – without having a replacement for it. In recent years HP has made significant investments in consulting services with its major acquisition of EDS and, earlier of BI and data warehouse specialist Knightsbridge; these could be applied to strengthen its position in the emerging analytics market which utilizes BI and information management technologies to address business needs. Also HP’s services team and its outsourcing programs could be used as a strategic asset with which to compete against IBM. Now that it is devaluing its own software assets. HP will have to take an approach similar to Accenture’s, adding value to someone else’s tools. However, such an approach requires leadership, and many of the veterans from Knightsbridge and EDS have moved on to other organizations that are committed to succeed in this market. HP’s decision to bail out of BI will please IBM (See: “IBM Brings Business Analytics and Information Management to Center Stage”) and Oracle (See: “Oracle Expands its Playbook at OpenWorld”). Under Mark Hurd HP was beginning to make inroads in successfully presenting solutions to CIOs. Now of course he is with Oracle (See: “Oracle Hopes Mark Hurd Brings New Herd of Business“) and is likely to use his previous experience at Teradata to build up Oracle Exadata and its BI and analytics offerings as the Fusion line brings new potential to its customer base. Having just consulting services and hardware to offer, HP will be less able to offer integrated solutions to IT and business executives. In addition, since IBM and Oracle have their own hardware, storage, services and software products, there is little reason for them to partner with HP moving forward. SAP, which unveiled a new strategic initiative on business analytics across industries and lines of business (See: “SAP Unveils Next Generation of Business Analytics”), likewise now has one less competitive threat. (I wonder whether HP might opt to resell SAP’s entire line of analytics and BI software in order to have a complete package to offer.) Even Teradata has a more integrated solution than HP (See: “Teradata Advances Analytics across the Board”); at one time I thought that Hurd as CEO of HP might even manage an acquisition through his relationship with Teradata. Leo Apotheker took the helm as HP’s CEO in November and must make some serious decisions about what to do next since his software executive team has apparently created a disaster with its recent changes instead of waiting until his arrival. A seasoned software executive and previous CEO of SAP, he understands enterprise software better than most executives but has little to work with as the kernel of HP’s offering appears to be dried up. Leo was in my opinion unfairly pushed out of SAP. With HP he is in another difficult position as he must run the entire company but needs to find trusted leadership for the software organization to address the deteriorating situation. That leadership will have to come from outside of HP; the tactic of internal promotion with individual external hires has not worked. HP also faces an issue here of losing good people: In the last 60 days a number of people from its BI solutions group have left, and others are in the process of leaving. HP’s culture is difficult to change, and its software organization is not likely to get past its current leadership issues without a series of bold strategic moves. Just hiring new software leadership won’t change the culture, but it could produce a more sound approach to the market. Beyond that, what is needed can be described in one word: acquisitions. IBM, Oracle and SAP all had to acquire new technology and talent to break out of internal cultural and product stagnation and establish a foundation on which to grow. IBM acquired Ascential, Cognos, SPSS, Netezza and others. Oracle came up with Hyperion, Siebel and others, and SAP with Business Objects, Sybase and others. All these are part of a massive preparation for the next wave of information technology spending, which will focus on the information itself. For HP, which made little investment in this segment despite having the most cash of the four, not many software vendors remain as potential acquisitions. And those that are left are successful and so will require a premium to acquire. One of the key software stacks in the analytics market, which not coincidentally has some of the most vocal and satisfied customers, belong to MicroStrategy, Teradata and Informatica. I recently saw firsthand a slew of customers using their products to business advantage in our 2010 Ventana Research Leadership Awards. Other possible choices include Actuate, Information Builders and QlikView, as well as Tibco and Pervasive. But maybe HP chooses not to put a priority on increasing revenue and margins in this sector and would rather sit it out, or do something on a large scale, like acquire SAP or Infor, whose new CEO is Charles Phillips, until recently the co-President of Oracle. It short it looks like anything is possible, as 2010 has been a year of transition for senior software executives across the industry. But HP should not delay for long, as the market for acquisitions continues to be active and HP could be left out, in the worst case becoming a legacy technology provider in the new decade. If you are currently using HP’s BI software and services, this is a moment to reassess your options. With its withdrawal from this market, you could end up having to write off your existing investments. Don’t underestimate the value of having integrated technology for specific business needs. I would also move cautiously in considering committing more resources and efforts. I advise you to start to think about plans for BI and broader analytics beyond HP; these tools are too important to your processes and decision-making to wait for HP to straighten out its business approach and leadership. For HP, I wish you good luck. If you need help understanding the BI, analytics and other markets, why the past predicts the future and why you are missing out on the one of the largest software opportunities in history, give me a call and I will be happy to help. Let me know your thoughts or come and collaborate with me on Facebook, LinkedIn and Twitter. Regards, Mark Smith - CEO & EVP Research

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