HP Zeros In on Services

Hewlett-Packard Co.'s proposed acquisition of PricewaterhouseCoopers LLC (PwC) is seen as the sort of bold move the company needs to craft its image as a complete solutions provider and make up lost ground in the professional services business.

The strategy aims to put HP in a leadership position, offering what could prove to be a prevalent delivery model for everything from the most sophisticated of technical products to the most mundane of support services -- namely, an end-to-end business application framework.

The nascent ASP (application service provider) model has gained attention, if not widespread adoption, as one step toward allowing organizations to realize the benefits of up-to-the-minute enterprise and e-commerce technologies without the overhead of massive internal IT works.

But with hundreds of ASPs to choose from, some corporate customers now have multiple ASPs all separately hosting their applications with no way to integrate them. But with vendors such as HP and IBM and professional services/consulting companies such as PwC and KPMG all looking to host and integrate multiple applications, the dynamics of the ASP world could be very different during the next few years.

"People are starting to realize that one application from one vendor is not the best way to go," said Dwight Davis, vice president and service director at Summit Strategies, in Kirkland, Wash. "So the trend is integrating the applications, much as it has been [done] internally at companies, where EAI [enterprise application integration] became a lucrative area for products and services."

Meanwhile, an array of small, well-capitalized firms has emerged as managed service providers capable of delivering similar types of services. One, start-up Loudcloud, counts Marc Andreessen among its founders.

Loudcloud this week will unveil a service for ASPs that will allow them to take advantage of a common set of back-end software services. Initial customers include Nike and Encyclopedia Britannica's online entity.

Some observers see two distinct trends emerging among users looking for ASPs: Some want ASPs that can offer soup to nuts packages, and others want different services from across the expanding universe of ASPs.

Companies such as Jamcracker, USInternetworking, and Corio, for example, offer ERP (enterprise resource planning), CRM (customer relationship management), and e-business applications and are promising to offer services integrated with one another.

The Sunnyvale, Calif.-based Jamcracker helps customers outsource applications. Instead of dealing with a variety of ASPs, for instance, a customer can go directly to Jamcracker, which has established ties to a variety of ASPs and allows customers to choose only the applications they need. Jamcracker also integrates the applications on the back end.

"Jamcracker brought about a new way of looking at the aggregation of services," said Bill Martorelli, an analyst at Hurwitz Group, in Framingham, Mass. "But HP set the table for that change when they started talking about e-services."

Martorelli does not believe any one company has solved this problem yet, but expects "significant convergence" because customers will need it if they ever intend to actually rely on hosted services.

Since the dawning of the e-commerce age, HP has tried to position itself as a full solutions provider to the Fortune 500 class of companies. But it has lacked a deep services organization to accompany its otherwise solid lineup of server hardware and software products.

Although the company has tried to grow that organization internally, along the lines of an IBM, and to expand it through acquisitions -- witness the failed attempt to buy Ernst & Young earlier this year -- it has only fallen further behind IBM's now US$35 billion Global Services organization.

E-commerce services are key to HP's efforts to remain one of the top three computer companies in the world.

"The trouble in HP's life right now is that time is running out for them if they hope to be a total solutions provider," said Anna Danilenko, an analyst at IDC's Consulting Group, in Framingham, Mass.

Although HP has a solid infrastructure to offer corporate customers looking to implement mission-critical e-business, the business aspect of that tale is suspect, according to observers. With e-commerce driving corporate IT departments and business groups inextricably together, HP needs a better business story to tell, they note.

HP has already outlined a number of its E-services offerings, including plans for managed network and desktop management services, and created an E-Speak application integration architecture. A merger would allow HP to disseminate its E-services suite via the system integration skills of PwC.

"In the near future, a company that wants to be successful in e-business had better be telling a business-oriented infrastructure story and also have the expertise to make it happen," said Peter Burris, an analyst at Meta Group, in Stamford, Conn. "With PwC [HP] can more likely do that."

HP's plans for E-services are similar in concept to what Microsoft has outlined for Microsoft.NET, in that IT organizations will be able to tap in to software components and services hosted on data centers run by Microsoft and its partners.

IBM has also outlined a wide-ranging framework using its WebSphere and related technologies and partnered with a variety of companies to create a base of more than 50 data centers that will be capable of deploying IBM software services by next spring.

Through the proposed acquisition, HP would gain access to about 10,000 consultants in over 30 countries.

PwC is a privately held company and is not required to disclose its consulting revenues; however, several analysts last week put that number in the $4 billion to $5 billion range.

But perhaps the biggest advantage PwC offers HP is direct access to CEOs and CIOs with whom PwC has long-standing and trusted relationships. Some observers think HP can leverage those relationships to win not only some generous service contracts but also some new business for its other products.

"What sets PwC apart are its strategic relationships with senior executives. [PwC] are already influencing IT and business strategies. What is important is that HP knows it can't mess this one up," said Allie Young, an analyst at Gartner, in Stamford, Conn.

If the proposed merger is completed, the successful integration of the two companies' services strategies and their corporate cultures could prove difficult.

Many of PwC's experts ponder higher-level concerns, such as the issues of implementing mission-critical applications; they are less likely to focus on the nuts-and-bolts aspects of running a data center, something many of HP's customers need.

"PwC's experts are some of the best and brightest. [They are] not guys who would be happy wandering into a data center to see if a tape backup runs well. With PwC we are talking about guys who drink cognac and not coffee," Meta Group's Burris said.

What might help ease the transition is PwC's recent merger with Coopers & Lybrand and the lessons learned about melding two large global entities.

In both companies' favor is the relative lack of overlap in their respective strategies, which means they can hit the ground running sooner. But the human aspect of things could prove trickier, according to some.

"Largely, the companies are complimentary, but it isn't going to be plug and play. The people nature of this [services] business, with its strong cultural affinities, will be difficult to smooth over," Gartner's Young said.

Loudcloud's ASP rumblings echo

Web infrastructure provider Loudcloud this week rolled out expanded services designed to manage Internet operations for ASPs (application service providers) and other businesses.

Loudcloud, started in October 1999 by Netscape co-founder Marc Andreessen and other Netscape executives, offers equipment, software, operational support, and Internet access for enterprises.

The Sunnyvale, Calif.-based start-up this week announced Instant ASP, a set of infrastructure services intended to help businesses shift software applications to an Internet-based service or hosted model.

Instant ASP offers a suite of management services for ASPs that includes billing, batch job scheduling, and customer monitoring.

The company also announced Rapid Restore, new technology that allows Loudcloud to tap in to standby servers in a live environment in the event of systems failures.

Loudcloud Chief Executive Officer Ben Horowitz touted the company's infrastructure network, which was expanded through an initiative called Global Connect.

Loudcloud, with 370 employees, nearly $200 in venture funding, and 30 customers, is aiming at a growing market to provide computing as a distributed service, according to Andreessen.

But Loudcloud faces stiff competition from the likes of Intira, MimEcon, and Logictier, and industry giants such as IBM, noted Joel Yaffe, an analyst at Giga Information Group, in Cambridge, Mass.

HP Community eyes change

Although a deal hadn't materialized early last week, chatter about the potential blockbuster acquisition of PricewaterhouseCoopers (PwC) by Hewlett-Packard sent a spark through the show floor of the HP World 2000 Conference, in Philadelphia.

HP executives at the customer and channel partner event declined to comment on a possible purchase.

But some attendees welcomed the prospect of a merger, citing flaws in HP's services record.

"There's no denying their products are top-notch," said Scott Zimmerman, software engineer at Pine Grove, Pa.-based Delta Solutions Group. "But as far as getting things repaired, we haven't had [HP services] people return our calls before."

A single point of contact for e-business development and technological issues would be an advantage, said Dave Largent, information services manager at Parker City, Ind.-based Townsend Tree, a field management company.

Some HP partners at HP World regarded the possible deal as a natural evolution.

"People who have general business problems have specific computing problems as well," said David Block, executive vice president and COO of Pleasanton, Calif.-based Nobix. "From the professional services side, I think this really legitimizes their effort and moves them into more of a total solutions vendor."

Yet for some, the transition might not be that simple. Coexisting with a slew of new services employees may bring about some initial "head butting," said Richard Israel, customer engineer at HP Service and Support in the Pittsburgh District.

"I've been with HP for 21 years. ... Things are changing," Israel said during the event. "From a customer standpoint, you now have a whole group of people walking in that don't know the 'HP way' of doing things. [And] it's going to be tough for us to have some new kids on the block tell us what to do."

For professional services company EDS, in Plano, Texas, another partner at the event, such a deal would not automatically strain EDS's ties with HP, according to Doug Frederick, president of information solutions.

Frederick pointed to EDS's legacy service relationship with IBM, in place despite clashes with IBM Global Services on many competitive deals.

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