15 September 2014 Posted by Paul Burns
HP stirred up plenty of discussion late last week by announcing its plans to acquire Eucalyptus, a company that sells open source software for building and managing private clouds. The announcement also stated that Martin Mickos, CEO of Eucalyptus, will join HP as the new senior vice president and general manager of the HP Cloud organization. While the acquisition is certainly meant to bolster HP’s cloud initiatives, many questions remain, particularly since HP already has an open source cloud management platform product in its Helion line of cloud offerings.
Questions
There are always questions immediately after an acquisition. In this case, some of the questions are embarrassingly basic, leaving us to wonder why HP couldn’t articulate a better – or at least clearer – strategy.
- On various Helion product pages, HP indicates interest in keeping its OpenStack-based cloud management platform close to the OpenStack trunk. So, will HP contribute Eucalyptus code that supports AWS APIs back to OpenStack community? If instead HP keeps the AWS API capabilities to itself, it would make HP’s OpenStack distribution a bit more valuable, at least to companies that want AWS compatibly. At the same time, I expect the OpenStack community to add AWS API support over time and diminish much of the unique value HP gains through Eucalyptus IP.
- What will happen to the relationship that Eucalyptus had with AWS? Will Amazon still support the use of its APIs in a cloud platform offered by a competitor? On a related note, would HP consider trying to add AWS compatibility to its own public cloud? And what would AWS have to say about that?
- What will happen to Eucalyptus customers? Will they be supported on the Eucalyptus platform and get new versions with enhancements over time? Will they be migrated to Helion? Questions about product longevity plague small software companies, often preventing enterprises from adopting them. Yet, HP is also quick to end-of-life its early products that don’t quickly gain traction. The company’s Touchpad tablet was on the market for less than 60 days.
- Is HP going to have competing offerings? Both a Helion cloud platform and Eucalyptus cloud platform? Or will they be merged? HP did not do a good job communicating the fate of its early cloud platform, Cloud OS, when Helion was announced. For now we will all have to keep wondering how the Helion and Eucalyptus platforms will evolve.
Beyond these open questions, there are also some insights that can be made.
Comments
- First, take a look back at the blog, HP Helion: The Good, The Bad and the Ugly. In the last bullet point of this blog I wrote, “HP continually changes its cloud strategy. A steady stream of leaders and VPs with cloud computing in their titles seems to make cloud strategy announcements, only to be overturned by other cloud strategy announcements months down the road.” With this acquisition, including a new leader for its cloud organization, HP is still stuck in the same pattern.
- HP is starting off on the wrong foot with this acquisition. As quoted in VentureBeat, Bill Hilf, Senior Vice President of HP Helion Cloud Project Management, said, “There’s going to be a lot of strategic discussion we have to have about that — how and what makes the most sense over time.” This is a classic HP strategy with software acquisitions. Buy the company and then figure out what to do with it. It hasn’t worked well in the past and is not likely to this time. By the way, I’m not just talking about Autonomy. Remember the many other software acquisitions that failed for HP: Consera, Vertica Systems, Bluestone, Talking Blocks, etc.
- HP also has a poor track record in integrating acquisitions. Expect employees to move on once their retention bonuses are achieved. Given the very small revenue and limited IP from this acquisition, it appears to have the traits of an acqui-hire, buying the company to hire its employees. While this can work for some companies, I don’t expect it to work well over the long term for HP.
- The AWS API compatibility that HP gains is not really a huge leap forward. It doesn’t suddenly give HP or its Helion OpenStack distribution the same functionality that AWS offers. Any potential gain here depends on what HP actually does with the API compatibility.
- HP continues to emphasize private clouds – and to some degree hybrid clouds – while deemphasizing its public cloud. According to a recent GigaOM article, Bill Hilf said, “… at least for enterprise workloads, most of them over the next few years will be on-prem clouds or hosted private clouds. That’s the sweet spot we target….” He also told VentureBeat, “We’re not going to try to have you bet just on our public cloud.” Unfortunately, there is massive competition for private cloud software from the likes of RedHat, Nebula, Canonical, Metacloud, Piston, Mirantis, Citrix, Cloudscaling, OnApp, Univa, and many more. HP hasn’t done anything yet to demonstrate it will be a winner in this segment, and the Eucalyptus acquisition doesn’t change that.
- HP, like many old guard tech companies, has grown biased toward acquisitions vs. internal development. While the acquisition price is not known, it is unlikely to be cost effective compared to the price of internal development of AWS compatible APIs.
- While accounts of Mickos as a leader seem quite positive, I expect him (and most anyone in his shoes) to struggle with huge political battles inside HP. His reporting to Whitman is a good thing, but not enough to give him magic powers to beat down HP’s multi-billion dollar hardware and services business leaders when they go on the attack. Overall, HP is desperate to maintain its existing revenue streams. If Mickos attempts to make decisions that optimize the success of cloud computing at the expense of hardware revenue streams, he will quickly come under fire.
Conclusions
HP faces the classic Innovator’s Dilemma, as wonderfully articulated in Clayton Christensen’s book The Innovator’s Dilemma. It can’t seem to succeed with internal innovation, so it acquires. Yet, it can’t seem to succeed with acquisitions either. When it comes to cloud computing, HP’s strategy is less clear now than it was before.
HP is turning heads, but the question still remains whether the acquisition is enough to invigorate its lackluster momentum. In terms of gain, HP gets talented and experienced cloud platform development staff. It also gets an “OK” product – conceptually great in the form of open source and AWS compatibility, but weak in terms of adoption. On the other hand, HP is not likely to gain substantial revenue or customer growth, and it will spend “quite a bit” to acquire, integrate and retain (for now) the employees. In the end, I expect this acquisition to be a net loss for HP.
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