Friday, July 27, 2007

HP Opens Wide for Wares, Part 2 - Neoware

When I saw that HP was acquiring Neoware, I wasn't too surprised, but I also wasn't aware of all the history, either. I knew Neoware was a leading thin client maker, I think number 2 or 3 with such others as Wyse (private), HP, Sun and iGel (private). What I didn't know was that Neoware used to be part of IBM, then they got out of that business. So, in addition to getting the Neoware technology, HP also picks up some formerly true blue accounts.

I wasn't surprised by HP's decision to buy Neoware because I have been saying for some time that Sun was about ten years too early in pronouncing that the Network is the Computer. From the time they made this announcement, it's taken a few things to actually make it become reality, namely ubiquitous broadband, SaaS, Internet APIs, open source, and the continued decrease in the relative price of processing power and storage. Now that each of these things has taken hold, computer users find ourselves in the situation of actually not needing an expensive computer for a great many tasks.

I'm not sure if it was Stephen O'Grady or David Berlind who said it first, but whoever it was, they said it well when they said that more and more, they live in their browser. Meaning, increasingly, the applications they use, such as word processing, blogging, email, research on the Internet, etc., they access via their web browser. I couldn't agree more. Developments like Google Apps and Gears make this all the more true and all the more accessible to more and more people.

Seeing this, HP was smart to jump on Neoware to position themselves as the leading provider of a broad line of Windows and Linux-based thin client solutions.

But I also think that, prior to HP's Neoware buy, broad enterprise adoption of thin clients faced one major obstacle - namely mindshare and marketshare with VARs. Without this, it seems to me, the road to wide scale enterprise adoption of thin clients would be long and slow. HP is very strong in the channel, and will have the capacity to fit their new Neowares right into their VAR go-to-market. Whether they will successfully execute on this is another question. Clearly, the more businesses spend on thin clients, the less they will spend on Pavilions and Presarios, so I would be very surprised if there isn't some internal product group jockeying going on.

I've seen first hand how this sort of political infighting can really screw up a vendor as they try to broaden their channel product line. It's non-trivial. To the extent they do this poorly, I would look for pure-play thin client makers like Wyse and iGel, and also Sun, which isn't a pure play but does have a strong thin client line up, to capitalize. Unfortunately for investors, there aren't any publicly-traded pure play's left. Sun would be the closest, but their Sunray line represents a small percent of the company's business.

Tuesday, July 24, 2007

HP Opens Wide for Wares

Yesterday HP picked up Opsware for $1.6 Billion and Neoware for $214 million. Here's my thinking on what the Opsware deal means for other IT automation providers (my company Emu Software included) and for the market in general. I'll write another entry about the Neoware one.

So, HP paid 15 times sales for Opsware, which is at least double the typical premium. Were they just feeling generous? I doubt it. Rather, it was probably a competitive situation. Who else might have also wanted opsware? I'd guess the list might include EMC, IBM, CA, EDS, who knows, maybe Google.

But that's not where the story ends IMHO. Oh no. Consider the impact of this deal on a company like EDS. I read a story today about how EDS competes with behemoths like IBM global services and HP for big IT outsourcing deals, and the EDS sales pitch goes like this. You don't have to get locked-in to one vendor (or fear getting locked-in) and you don't have to pick and choose best of breed from multiple vendors and do the integration yourself (and deal with no "single throat to choke") . Go with us and our EDS Agility Alliance, and get the best of both worlds - EDS serves as point for the service and the other vendors (little companies like Microsoft, Oracle, Sun and Dell) bring their technology expertise. So, what does this have to do with HP buying Opsware, you ask? Well, EDS was probably Opsware's first customer, and may well be its largest. In 2002 Mr. Andreessen sold the ASP part of Loudcloud to EDS for a reported $63.5 million, and EDS turned around and entered into a 3 year deal (since extended) with the part of Loudcloud that Marc kept, which he renamed Opsware. Basically, some smart Sys Admins at Loudcloud needed a way to more efficiently manage their data centers, and so they built Opsware, and Marc decided he'd rather be in the software business than in the application hosting business.

Alright, so, you're EDS, or you're a member of their Agility Alliance, and your sworn enemy is HP. Do you keep relying on HP Opsware for your data center automation? That would seem to me to be a fairly precarious situation. Now, something as central as Data Center Automation is not going to be replaced quickly, but if I'm EDS, I'm actively considering my options right now.

But the fun doesn't stop there. Nortel and Cisco, who I'll remind you compete with HP's Procurve products, both resell Opsware to their enterprise customers. Cisco, for their part, is announing their own Data Center optimization solution, what they're calling Data Center 3.0, this week. According to Chambers, "Because the network is uniquely positioned to be the platform for the data center, we are investing in innovations to help our customers transform their data centers for improved efficiency and increased business productivity."

I wonder if Opsware can contiue to grow its revenue at the same pace as part of HP with all these powerful companies that prevously were freinds are now, at least in part, competitors
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