From hardware to software: Can HP make the move?

By Zatni Arbi

SINGAPORE (JP): If you read Business Week, Fortune, Forbes and the like, you must be familiar with the name Carly Fiorina.

She replaced Lewis E. Platt at the helm of Hewlett-Packard (HP) in July of 1999. Since Day One she has been introducing a number of drastic changes -- Business Week even called them radical -- to the 83,000-employee company. The company clearly is still undergoing the "reform" pain, and investors have been worried.

According to the cover story of Business Week's Feb. 19 issue, HP's stock price dropped from US$45 at the time of CEO-ship transfer to $36 on Feb. 6, 2001.

HP, as we have come to know, is strongly associated with hardware, especially printers. Their laser and inkjet printers have been among the top selling on the market. In the PC area, it has been selling Pavilions, which have also been very popular among home-PC buyers.

There are also PCs for the business environment -- the Brios, the Vectras and the Kayak workstations. HP is also known for its UNIX servers, which compete with IBM's and Sun Microsystems's UNIX servers.

Besides, there is also a wide range of scanners as well as other end-user products. Then there are also consumables -- such as laser toners, ink cartridges and special paper. With thousands of products, it is hard to imagine HP is also a software vendor.

However, that was exactly the announcement -- or, more precisely, reemphasis -- that HP wanted to impart to journalists from the Asia-Pacific region, including India and China, in Singapore last week.

"HP Software is a US$2 billion company," said Steve Au-Yeung, general manager, HP Software Solutions Organization for the Asia Pacific. "In fact, we are the number five software company in the world," he said in his opening remarks to the media gathering.

Despite its image of a hardware company, HP is by no means a new player in the software industry. Although HP's Software Division was started in 1998, HP OpenView, for example, had been there long before Carly Fiorina became CEO. OpenView is a very widely used set of systems and networks monitoring and management tools. Clearly, the decision to put one of its feet in the software industry was not one of Carly's brainchildren.

But the reemphasis on providing solutions for the Internet, which has been dubbed e-services, emerged not long after Carly became CEO.

In Indonesia, HP has already built a sizable customer base -- particularly for its OpenView software. Although the impact of a monetary and other crises in this country did slow the business, maintenance has been a steady source of revenue for this company.

Netaction

In the past, when providing solutions to customers who needed to build their business on the Web, HP had to work with the leaders in e-commerce infrastructure technologies, such as IBM and Sun Microsystems.

IBM has its Websphere, while Sun Microsystems and Netscape have its IPlanet.

"Then we felt that we needed to have more control over our own destiny," said Au-Yeung. One of the first major steps was to acquire Bluestone, which is known for its focus on middleware.

Bluestone started as a UNIX consulting company in 1989, but it then became a software developer in 1994. In 1996, it released the first version of its application server, followed by its XML server in 1999.

For those of you who are not familiar with XML (eXtensible Markup Language), it is the type of data-and-document standard that allows different systems on the Web to communicate with each other and prompt actions in the other system.

Middleware, as the name already indicates, is a set of software that sits between the operating system and the application. However, as businesses are moving into the Web, Bluestone has a more up-to-date and more descriptive name.

"Let us call it the Internet Operating Environment," suggested Rob Nishi from HP Middleware Division.

The products of HP Bluestone, as the company is now called, have been integrated into a new suite that HP calls Netaction. Netaction is a platform independent, Java and XML-capable suite of products that can be used to build, integrate and deploy Web services. Basically, both Netaction and OpenView are the two product offerings in HP's software portfolio.

HP also introduced a new model for charging the use of the two products. HP calls this ASP-style arrangement the Commercial Utility Pricing (CUP) program, and it enables its service provider partners to offer services to end users without a high entry cost.

In addition to service providers, such as telecom companies (which account for 50 percent of HP Software Organization's customers), the two products are targeted to corporate customers. The strategy, according to Au-Yeung, is to continue providing information appliances and all the necessary technologies for an "always-on" infrastructure, and to work with partners.

In a sense, saying that HP is on a transition path from a hardware to a software company would be misleading. Business Week says that its printer and other imaging products accounted for more than 60 percent of its sales and 75 percent of its profits. HP is not likely to abandon these segments, although profitability may have become razor-thin.

And, honestly, as end-user customers, we would like to see great products such as CD-Writers, scanners and printers to continue to come out from this company, which we have come to trust.

However, given the fact that selling PCs and printers will no longer be sufficient to sustain company growth, the move to providing software and services to the growing world of e- services is a perfectly logical one. What the company is doing at the moment is an attempt to become a leading technology provider, like Sun Microsystems, and a strong service provider, like IBM.

It is obviously going to require a tremendous amount of hard work, because HP does not have the culture to support the service business that it wishes to expand (it would have been different if its attempt to acquire PriceWaterhouseCoopers had been successful). The task is also monumental, as HP is currently in the process of a complex and profound organizational overhaul.

Even more challenging is the fact that its main competitors in the e-business software and service sectors -- IBM, Sun Microsystems and BEA -- are already ahead in the game, and these leaders are not standing still. (zatni@cbn.net.id)