IBM Escalates Long-Standing War with HP

Michael Vizard

Trash talking between vendor isn't all that new, but we rarely get to see a vendor convincingly back up those claims.


An internal memo penned by Al Zollar, IBM general manager for Tivoli Software, claims that IBM has displaced Hewlett-Packard software in 180 head-to-head engagements in the past year, contributing to a 240 percent increase in revenue for IBM's Tivoli group. In contrast, Zollar points out that the HP Software group reported a 16 percent decline in revenue in the fourth quarter.


When it comes to software, the comparisons between HP and IBM are not necessarily apples-to-apples. IBM has a much bigger portfolio, while most of HP's software revenue comes from systems management. But clearly, IBM has a special focus on a campaign to surround and contain HP software by bundling as much software into a deal as possible. In addition, IBM is more aggressive about pushing into cloud computing using its software portfolio as a base.


HP, of course, is not likely to take this lying down. The question is: Just how will HP respond? It is not the only company that needs or wants to expand its software portfolio. Every time HP gets near a software acquisition, it has to think long and hard about not only about IBM outbidding for it, but also what Oracle and SAP might do.


Traditionally, HP has been able to count on a vast army of software partners to thwart IBM. But many of those key partners have been acquired in recent years, and now Oracle, a key HP software partner, will be pushing Sun hardware as an alternative to HP.


IBM is already at war with Oracle, and has enlisted SAP as a key ally in that battle at HP's expense. IBM has also gained share in the server space at HP's expense. So the big question now is: Does HP have the wherewithal to withstand a major escalation of the long-standing trench war between the two companies now that HP is showing signs of weakness on several key fronts?



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Dec 9, 2009 11:08 AM Paul Burns Paul Burns  says:

Mike has posed an interesting question: 'Does HP have the wherewithal to withstand a major escalation of the long-standing trench war now that HP is showing signs of weakness on several key fronts?'  Unfortunately it also seems to be a troubling question for HP.

At one time HP's OpenView brand practically defined the network and systems management software market (A book should probably be written on the rise and fall of that once great brand alone). Several years ago, after several mediocre attempts to reinvigorate HP's software business, HP's current CEO, Mark Hurd, brought in Tom Hogan. It was under Hogan's watch that the OpenView brand was ultimately ditched and replaced with 'HP Software' terminology. The idea was to dramatically expand HP's software offerings, including going beyond the traditional network and systems management software provided by OpenView. HP Software was to be a catch-all for the many different software businesses in which HP was to participate. That dream has yet to fully pan out.

By some measures, Hogan has done a fine job with HP Software. That is, if one only looks at the management software group. For instance, there has been large overall revenue and profit growth during his tenure. This came after he inherited a business unit that had spectacularly failed in a number of software acquisitions prior to his arrival. He made the bold move of acquiring Opsware for over $1.5B dollars (yes that is Billion). But the ROI on that investment remains in question. A great asset, but purchased at an extraordinarily high premium. It certainly hasn't been enough to avoid the 16% Q4 revenue decline mentioned by Mike and noted by IBM. A big problem for HP is that companies like IBM are doing a stellar job. Fine versus spectacular is a big difference.

To net it out a bit, IBM Software, including its Tivoli brand which contains its network and systems management software, is operating at a completely different point the space / time continuum of software businesses than HP Software. HP has spent most of the last 5 years rebuilding what was OpenView. Meanwhile, IBM Tivoli was working from a solid profit and software portfolio base. For IBM it was NOT about returning to profitability. It was about expanding into new markets, with new technologies and acquiring more world-class customers. IBM has used acquisitions of software companies as well. However, a difference seems to be that IBM acquires and then invests. HP has been acquiring and then trimming costs.

IBM has been strengthening its industry vertical focus for several years. HP has talked about its intentions there. IBM has a massive software portfolio across which its various software brands can share the costs of developing vertical industry expertise. HP Software just isn't there yet. IBM Global Services (GTS and GBS) is a huge pull for IBM Tivoli software.  HP has done some business group alignment in hopes of pulling through more software through its services group (which now includes EDS, a good thing). These two business entities (HP Software versus IBM Tivoli) are at two completely different levels of maturity. HP indeed has many strong management software offerings in the HP Software group, and all is not lost for them. However, as to whether HP Software is set to withstand a major escalation by an IBM Tivoli, the answer, I believe, is not without some real pain. 180 losses to IBM in a year is surely not a lot of fun.

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Dec 20, 2009 4:04 AM RemovetheHurd RemovetheHurd  says: in response to Paul Burns

The EDS acquisition at HP has gone scandalously wrong as HP execs have chosen the short term path to maximise bonuses. The result was the decimation of the EDS culture and the loss of the best employees. 2010 will be peppered with EDS customers leaving HP as they default on existing contracts.

Whilst Mark Hurd is in charge, buy HP shares at your peril.

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Jun 8, 2010 7:10 AM Logicalis HP Software Logicalis HP Software  says:

This battle seems to never end.

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