It sure sounded ambitious when in March HP unveiled a bundle of hardware, software and services that it said would help transform the data center into a more efficient and flexible entity.
Turns out that was only the tip of the ambition iceberg for HP. Perhaps spurred by recent news of Google's and IBM's intent to partner on a cloud computing initiative, HP announced that it is purchasing EDS, a company that can help it advance even further into the growing data center outsourcing business, for $13.9 billion.
Companies' interest in offloading their data centers to third parties is increasing, driven at least partly by their desire to run "greener" businesses. Data centers are notorious energy hogs. Companies can shave up to 40 percent off their energy costs by outsourcing IT and data center functions, according to IDC.
According to New York Times blogger Steve Lohr, data center outsourcing accounted for a healthy 55 percent of EDS' $22 billion in revenue in 2007. Says Sanford C. Bernstein analyst Rod Bourgeois:
There's a lot happening in the data center, and being in the middle of that is crucial for HP.
ZDNet's Dana Gardner agrees, noting that HP is one of the few companies positioned to offer what is a "missing link" in sweeping IT/business transformation efforts: the type of consulting and other capabilities that can help companies determine which elements of IT to offload to the clouds and which elements should remain in-house. Gardner writes:
Companies clearly need to innovate better, and that innovation must use and leverage technology far better than in the past, and at lower total cost over time. Yet IT departments are not designed (if they ever were designed) to innovate at speed or scale.
The HP/EDS combination of hardware, software, services and consulting in theory offers everything companies need to craft and execute this kind of a transformation strategy. Few other companies possess all of these capabilities. One that does, of course, is IBM -- the company HP appears to have in its sights.
IBM is the market leader in providing tech consulting services, reports MercuryNews.com, tallying an estimated $48.3 billion in business service revenues in 2006. HP had $16.5 billion in such revenues. Acquiring EDS, which had $21.3 billion in tech consulting revenues, brings it within reach of IBM. The deal also appears to yield the right kind of synergies, giving HP opportunities to sell more tech gear, including PCs and servers.
Still, there will be challenges. Three mentioned by Wall Street Journal blogger Ben Worthen: HP will have a tough time positioning itself as vendor agnostic, which could turn off some services customers. Both HP and EDS have been slower than rivals IBM and Accenture to add global staff to compete with Indian service providers like Wipro and Infosys. There is an obvious culture clash between a service-oriented company and one focused so strongly on products.