It’s been a little more than a month since HP’s new CEO, Léo Apotheker, stood up in front of financial and industry analysts and laid bare his plans for the new HP he inherited from the muck and mire of Mark Hurd’s untimely departure. In that month the economy has continued its recovery, and HP’s stock price has failed to follow suit. Meanwhile, pundits have been decrying the new strategy, second guessing key appointments, continuing to speculate that HP wants to buy SAP, and otherwise conducting themselves as if Léo’s HP is doomed, new ideas and new leadership notwithstanding.
This is more than just healthy skepticism, there’s a lot about the new HP that isn’t reflected in the consensus opinions of both the punditocracy and the market. On the assumption that a little clarity might enlighten and inform, here’s my take on why, if I were to break my golden rule and buy tech stocks (my golden rule involves, among other goals, staying far away from SEC investigations), HP would be the one to buy.
First and foremost, the assets of HP are beyond compare in many domains (it’s number one in printers, in PCs, and in servers), but the domain that makes the most sense moving forward is the convergence of the enterprise and consumer markets. As this convergence gains strength, there are only two technology companies that have a brand that is equally strong in both domains: HP and another company you might have written off lately, Microsoft. Not Apple (though it’s emerging as the anti-establishment enterprise brand), not IBM, not Oracle, not SAP, not Google, not Salesforce.com.
And not, perish the thought, Amazon, which gave me rare bragging rights as a pundit by performing as I predicted two years ago when it proved unable to provide enterprise-class service to its cloud customers. More on this delicious example of schadenfreude in a moment.
While brand isn’t everything in all markets, at the convergence of the enterprise and consumer markets, brand power is what will win the day. Having a brand that commands respect and positive opinions will be an absolute requirement for the company that wants to tap into the power behind that convergence.
This is why the recent appointment of a new CMO, Marty Homlish, is so important to HP. When I first met Marty, shortly after he assumed the role at SAP ten years ago, he forthrightly admitted he didn’t know the enterprise software market, having been at Sony for 15 years. Today, not only can Marty no longer make the same claim, but those 15 years at Sony, instead of serving as a self-effacing liability, are now a key asset in the role he gets to play at the new HP. This is a rare opportunity to build a rare convergence around a single brand, and Marty is one of the few marketing execs who can legitimately claim to know both sides of the opportunity equally well.
This convergence of consumer and enterprise is huge, one of those only-a-few-times-in-a-generation inflection points. The trend is dictating software and hardware design, development, and go-to-market strategies, business model and business processes change, and consumer and enterprise user behavior: staying on top of a trend that is moving this fast and making these many waves is non-trivial, and indeed have a foot in both camps is a distinct advantage.
Adding Adult Supervision to the Consumer/Enterprise Convergence
Being a little old school, particularly on the enterprise side, represents another key advantage. HP today, is uniquely positioned to capitalize on the because this convergence requires some adult supervision that is lacking on the consumer side: The anti-establishment Apple play in the enterprise, along with the enterprise play coming from the Google/Android gang, poses some massive problems in terms of IT security and standards. Same with the use of social collaboration tools, and on-demand services like Gmail and Amazon’s EC2. As these consumer devices and services proliferate in the enterprise, how a company can be sure that its IP isn’t leaking out the door, or its employees aren’t violating SARBOX, HIPAA, EU privacy regulations, etc. etc, or its service levels are unserviceable, becomes a major problem that the likes of Apple, Amazon, and Google can’t understand and won’t solve.
Long-standing enterprise-savvy players like HP get it, and know how to provide grown-up service and support for these nascent technologies. And while this convergence is so new that we don’t even know what the processes that drive the convergence necessarily are or will be, HP’s position of enterprise strength, as well as excellence in key consumer endpoints like PCs, laptops, and printers, gives it much better street cred than its erstwhile enterprise or consumer competitors in terms of making the convergence a safe, serviceable, and profitable enterprise.
The cloud has a similar need for adult supervision, as Amazon has so starkly shown us, in the form of managing the convergence of customer choice and technological progress. This is more than just a matter of SLAs: “End of software” cloud companies like Salesforce.com like to enforce on-demand orthodoxy (Thou shalt be on-demand and multi-tenant or be damned to eternal technological obsolescence) despite serious and important differences in customers’ business and security requirements. HP’s strategy for the cloud – a strategy, admittedly, that needs to be fully realized before it can be fully judged – is to eschew imposing technological or business model orthodoxy in favor of support whatever deployment modality the customer requires. On-premise, on-demand, managed service, hybrid: It’s up to the customer, not the interpretations of technology trends by charismatic entrepreneurs, that make the most sense for the market.
Cross-selling and Up-selling
With just these two issues – enterprise/consumer convergence, and the cloud – Léo’s chance for a quick upside are enormous, for one simple reason: if all Léo does is get HP’s famously disparate business units to work synergistically in terms of development, productization, marketing and sales, he’ll be able to engineer an enormous amount of growth for the company. Right now HP’s big three divisions – printers, PCs, and enterprise – are largely uncoordinated in every way. Cross-selling, much less cross-product development, has never been HP’s strong point, and, under Mark Hurd, compartmentalization became more of a virtue than ever before.
This is a key part of the Léo Apotheker strategy that is largely ignored today. Wall Street’s evaluation of HP has been very much at 1+1+1=3 equation, meaning the sum of the parts is equal to the whole: that’s the legacy of no upsell. If HP can start building a cross-sell/up-sell capability, there’s an enormous upside to be had without disrupting any cash cows. While that’s hardly simple and easy to do, Léo’s chops as a global sales executive are unassailable, and making this kind of shift at HP is very much within reach.
Palm is another undervalued and unappreciated asset. While there are many who think the mobile market is already sewn up (though by whom seems to change frequently – Nokia’s decision to go with Windows 7 Mobile apparently changed the game again) the fact that Palm’s WebOS will find its way into 100 million HP devices (pretty much any printer worth more than $100, and all its PCs, and of course, phones) means that mobility is about to mean something more than just a cool cell phone and a massive apps marketplace. (Though WebOS is cool too, as unheralded in the market as it is: the only multi-tasking OS is actually one of the best, most intuitive cell phone operating systems in the market.)
This multi-touch mobility strategy has many legs, including the aforementioned convergence opportunity, as well the analytics focus that Léo is planning on bringing to HP. The company strategy involves leapfrogging several well-worn domains in enterprise software, and analytics is one of them (the other two are core ERP and the relational database: HP won’t reject them, but they’re not part of its leading edge innovation strategy).
The Analytics Opportunity
The acquisition earlier this year of Vertica was clearly a defining moment in the strategy: next generation analytic tools and services that go beyond the old-style relational data warehouse/ BI tools approach that was already old and tired at the dawn of the 21st century. While there is much to be learned about the details of HP’s analytics strategy – it’s safe to assume that Vertica is just the first of many acquisitions – it’s clear that HP intends to take the analytics opportunity and do a much better job at driving value and controlling cost, and effectively cleaning up one of the most lard-heavy, and results and ROI-challenged, parts of the IT budget.
Marrying this next generation analytics approach to a ubiquitous mobility solution like WebOS is an important linchpin to the strategy: next-generation analytics depend on a analyzing significant amounts of data coming from myriad distributed devices and delivering the resulting information back to whatever endpoint the business user or consumer would prefer. With WebOS at all the endpoints – printers, PCs, laptops, tablets, phones – the collection of data and the delivery of information to anyone, anywhere becomes something HP could have a significant advantage in providing. Again – this a could be opportunity, one that HP still has to fully realize – but it’s potential as a game changer for the industry and for HP is huge.
Finally, there’s the services part of the HP business. This is the big question mark in Léo’s strategy: HP’s EDS unit will be able to provide a significant amount of support for the cloud services side of the business – the similarities between outsourcing and cloud services far exceed any differences – but there will have to be an acquisition or two if HP wants to build a high-level services offering that can take this strategy into the field and execute on it.
Talking the Talk
Which brings up the final reason why I’m bullish on HP. If I were to level an elevator-speech-length criticism at the old HP, it would be this: HP doesn’t have the market position that gives it a legitimate reason to directly engage at the C-level and at the business user level simultaneously. The old HP did well in the space in between these two sets of influencers, but the new HP has to do a much better job at expanding its conversations with the market to include the execs at the very top and the masses of business users everywhere else. The convergence requires it, the cloud requires it, next-generation analytics requires it, and driving synergy in sales and services require it.
Léo Apotheker’s new strategy positions HP right where it needs to be. If he can make this strategy a reality, it will be one of the great turnaround stories in technology. And stock price and critics notwithstanding, so far, so good.