Analysts: HP blew chance at software leadership

Analysts: HP blew chance at software leadership

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

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

HP has sought to downplay the news, saying speculation about its middleware plans is premature. However, industry sources have said HP is trying to sell off all or part of its middleware business, with plans to rely instead on partnerships with vendors such as BEA Systems and Microsoft to provide the middleware for IT 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 that has become a focus for much of the development work happening around Web-based computing.

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 opened the doors to HP Labs to show how technologies such as e-Speak could be used to link people, computers and even objects in a distributed computing model.

In October 2000 HP announced plans to acquire Bluestone Software for an estimated $US470 million, which became its Netaction product line. But while Sun, Microsoft and IBM worked hard to build out their software platforms for Web services, HP let slip its early advantage, industry analysts said.

HP's missteps can be traced to the time of its Bluestone acquisition, said Shawn Willett, an analyst with Current Analysis. While IBM and BEA solidified commanding leads with their application servers, HP's product never gained traction among customers and the company never built on its acquisition. For example, it never took steps to build or acquire an integration server, which would have strengthened its middleware hand.

Late last year HP said it would begin offering its application server for free with other product bundles, charging instead for more advanced features and add-on products. An employee with HP's middleware division said it was the first part of a five or six-step strategy, but the company became preoccupied with the merger with Compaq and never took the further steps.

Aside from middleware, HP is not without its strengths in software, analysts note. 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 HP says its OpenCall software is also profitable.

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 leverage 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 downsides, analysts said.

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

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.

"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 in fact throwing their middleware on the [acquisition] market, then I'm curious as to how they are going to become a full solutions provider."

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