You Don’t Know HP….Yet

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

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 this issue because the 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 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.

Converging Giants: Microsoft Dynamics lines up against SAP, Oracle, and

I’ve just come back the Microsoft Dynamics’ Convergence conference, where the news about Dynamics’ progress in the enterprise software space can be summed up in the following manner: The company’s two flagship products, AX and Dynamics CRM, have reached a functional level that basically places them on par with the best of their respective categories.

This leveling effect gives Microsoft the honor of not only being in elite company comparable in many ways to SAP, Oracle, and, but also effectively takes technology and functionality off the table with respect to its three largest competitors, at least today. This means that in all but the very largest enterprises –where only Dynamics CRM plays – Microsoft will win and lose deals based on the quality of its partner channel and their ability to provide support for local and micro-verticalized extensions of the Dynamics product line. The idea that Dynamics needs to play catch-up with its bigger brethren is no longer on the table.

That’s good enough for now, but in a couple of years the playing field will be even more different, and with that difference an important potential advantage will shift to Microsoft.  Dynamics’ promise – laid out in keynotes and one-on-one meetings over the course of the conference  – to fully support on-demand, on-premise, and hybrid deployments of AX, CRM, as well as GP and NAV, means that, starting approximately in 2013, only Microsoft will be able to offer pretty much any possible deployment model of its software from a single code-base.

This is an important distinction that may be hard for its competitors to deal with. The ability to offer customers the choice of running their deployments on premise, in the cloud, as a managed service, or as a hybridized mix of the above won’t be something that SAP, Oracle, or will be able to do across their core products – never in the case of Oracle and, and not for a while in the case of SAP.

While each of Microsoft’s competitors has plans for a varying mix of on-premise and on-demand products, the breadth of choice they can and will offer will be much less clean. Oracle’s Fusion will be deployable in a similar fashion to AX, with two powerful limitations: there are no plans to sell Fusion as a suite, nor will it in the conceivable future have the broad industry coverage that Oracle’s eBusiness Suite offers (or AX, for that matter.) There’s also the question of when Oracle will actually release Fusion into general availability – the official word is that there is no official word on when, leading to considerable speculation about the company’s commitment to what was to be its flagship, post-acquisition binge product.

The impact on will be harder to gauge: the on-demand market leader has tremendous momentum as the original go-to company for on-demand CRM, and its pure play strategy will appeal to on-demand purists. But as multi-mode deployment options gain ground, it will be harder for to insist that on-demand is the only way to offer rapid deployment and a means to shift the CRM budget from capex to opex.

SAP has a much broader shot at competing with Dynamics’ vision, though its Business ByDesign and forthcoming Sales On-demand have no on-premise deployment model, nor do any of the on-demand products under development at SAP that I am aware of. The larger Business Suite may someday become available in the cloud, but plans for such an eventuality have not been shared publicly. In short, SAP, which I believe has much a more solid cloud strategy than Oracle, will not be supporting the level of deployment choice that Microsoft has in mind.

There are many who think this breadth of deployment options is not as strategic as Microsoft or I believe – there’s a pretty formidable cast of pundits who believe this level of choice is either unnecessary or heretical or both. Time will tell, but I’m in the camp that believes that customers will prefer the multi-mode option for many of their deployments if given that option, and Microsoft’s plans to offer a supreme breadth of options is the right one for the foreseeable future.

And that choice effectively starts now – or rather later this year with the full release of AX 2012. Microsoft has promised that this version, while not the Azure-ready, dual-mode version that offers multi-mode deployment out of the box, will be readily upgradeable to the multi-mode version when it’s available, effectively allowing customers to buy an on-premise ERP system today and have the option to move it to on-demand at the next revision cycle. For the customer who prefers to sit on the fence and keep his or her options open, AX 2012 is looking good.

This in no way wipes Business ByDesign’s prospects off the map, nor does it obviate the fact that SAP has a strong product set for the mid-market – All-in-One, Business One for the on-premise customer, and Business ByDesign for the on-demand customer – that compete well against Dynamics. There is still considerable customer choice for SAP’s prospects – multi-mode deployments are possible, though from different code bases. And SAP’s willingness to put fight aggressively with its direct sales approach against Dynamics’ partner-driven model is a distinct advantage that one day Microsoft will have to do something about other than take the hit and live to fight another day.

The bottom line is that Dynamics has really hit its stride on the technology front, and now it needs to worry about how to compete in the channel. The above-mentioned problem with going indirect against competitors like SAP and Oracle that deploy direct sales forces against Dynamics in the upper mid-market and lower echelons of the large enterprise market will someday need to be addressed head-on, in my opinion. There are already Microsoft teams that call on large accounts, and then bring in partners to actually do the work of closing the deal. That may need to change as the capabilities of AX 2012 and beyond make it clear that Microsoft can play a stronger role at the top end of the market. At which point it may need a top end sales strategy to match its technical prowess. That’s the price to pay for growing up so well.

Microsoft Dynamics makes manufacturing a game, sort of….

During his keynote at this week’s Convergence customer showcase, Microsoft Dynamics chief Kirill Tatarinov demoed the use of Microsoft’s Kinect interactive gaming system as an interface to the company’s AX ERP system. It was a relatively lackluster demo as far as Kinect goes – no wild gyrations, or dislocating motions, no funky music or funky moves. Not exactly hyperkinetic on the AX side either. But by the time the quick demo was over, Microsoft had set another stake in the ground as both an innovator and a company that can create synergies out of its historically disparate business units. And the cause of gamifying the enterprise was furthered once more.

The demo was a simple simulation of a shop-floor environment where a gloved worker uses hand gestures to manipulate a kanban system by pulling down menus and exposing underlying data in the kanban system. I would have made the demo a little more exciting – I honestly imagine real workers would be tempted to liven up their Kinect sessions with a little more pizzazz than we saw on stage – but the outright functionality of the Kinect-driven user experience was undeniably cool.

Does this mean that Dynamics ERP is becoming a game? Not really – the use of Kinect absent any specific game mechanics means that no real games were created in the process of making the demo. But two observations on the ensuing gamification of the shop floor: the first is that, assuming that the enormous uptake of Kinect since its inception will continue apace, it will be hard for anyone to look at this user experience and not see the gaming components that Kinect could potentially bring on board.  “Hey kids, mom uses a Kinect at work too” will actually add some unavoidable gaming cachet to the boring, old-school shop floor we have come to know and (wrongfully) vilify.

The temptation – make that the imperative – to gamify the shop floor won’t be far behind. That’s the second effect: Kinect’s presence on the shop floor will make it virtually essential that some game mechanics be added to Dynamics ERP. It was hard (at least for me) to look at the brief demo and not imagine  a little leader board pop-up that showed who was the best at making a manufacturing line lean, among myriad possibilities. That and a monthly dance contest on based on the Kinect Dance Connect game, which could do wonders for employee morale too. The ability to both improve shop floor interactions and employee engagement sounds like a win/win to me.

The interfaces for this new Kinect capability are coming out shortly, and my sense is that any customer that is looking at touch screen interfaces to their ERP or MES systems should welcome the touchless touchscreen that Kinect provides. The bonus of being set up to start the gamificaiton of the manufacturing shop floor should be tempting to any forward thinking company as well.

The fact that this breakthrough is coming to ERP via Microsoft’s gaming division is the kicker. Kirill’s number one goal when he took over four years ago was to up the value and visibility of Dynamics in the greater Microsoft. For the last few years the sell-through synergy between Dynamics and the rest of the Microsoft stack has been a vastly unheralded story. The fact that the Xbox division is working hand-in-glove (pun intended) with Dynamics is further testimony to the success of Kirill’s internal synergy strategy.

How far into gamifying Dynamics will Microsoft go? My guess is we’ll see more in the near term. Microsoft’s Bing group gets gamiificaiton as well, and was one of the key presenters at last fall’s Gamification summit. As the concept of gamifying the enterprise gains momentum, I expect to see Microsoft Dynamics, with the rest of Microsoft at its back, take a leadership position.

Les jeux sont faits.