What the HP-Microsoft Deal Really Means

Those products--Exchange Server 2007, Office 2007, SharePoint Server 2007 and Windows Vista, along with Live Communications Server 2007--will require tremendous services and support for enterprise deployment. During the three-year term of the $300 million deal, Microsoft also plans to release Windows Server "Longhorn," another essential product supporting the others.

The deal's five areas of enterprise products and services focus--messaging and unified communications, collaboration and content management, business intelligence, business process integration and Microsoft core infrastructure--map against Microsoft's five new and upcoming products as well as standbys like SQL Server.

During yesterday's press conference call, Ann Livermore, executive vice president of HP's Technology Solutions Group, explained some of the core areas, starting with unified communications. "We'll focus this to our install base of Exchange customers," she said.

Unified communications, anchored by Communications Server 2007 and Exchange Server 2007, is a big investment area for Microsoft, which envisions a single platform for all data and voice communications. Competitively, the combined effort clearly targets IBM voice, data and messaging products. In fact, the overall deal puts Microsoft and HP, together, on collision course with IBM in the market for business process, communications and infrastructure software and supporting services.

HP's Microsoft Gamble
The services deal, for HP, is a big bet on Microsoft in the enterprise. While Livermore touted a more than 20-year partnership with Microsoft, most of that history stems from Compaq. Not that long ago, Microsoft and HP fiercely competed in the enterprise. But with HP's move away from RISC processors and its own operating systems, coupled with the Compaq acquisition, coziness with Microsoft has increased.

The bet isn't just about doing business but running the business. "You'll see HP, ourselves, as a corporation implementing these solutions inside of HP, making HP one of the model companies of being able to have better access to information, better decision making, anytime, anywhere," Livermore said during the conference call.

The question: how much of the financial commitment, if any, is for HP internal acquisition of Microsoft software? I agree that HP would be in a stronger position to sell and service something it uses.

I met with David Booth, senior vice president of HP's Technology Solutions Group, following Microsoft's Office 2007 and Windows Vista launches for businesses last month. He emphasized the importance for services supporting enterprise testing and deployment of Microsoft's new products.

As Booth rightly noted, HP has a long development "partner relationship with Microsoft," and he praised Microsoft's multi-language support with Windows Vista, which he said "plays well with HP's global reach."

The global reach will be even more important to Microsoft, which wants to gain more enterprise traction in emerging markets and pull more upgrade sales from businesses already using products like Exchange Server, Office and Windows.

Booth made one off-the-cuff comment at the time that makes more sense in context of yesterday's announcement. "I think Microsoft fully understands what the adoption curve will be. Microsoft is a very smart company," he said. Executives at Booth's level know what's going on even when they can't say. There are reasons, related to the enterprise testing and deployment, why the HP-Microsoft deal is for three years.

Microsoft needs this deal, in some ways much more than HP. Except for a few large, key accounts (where the likes of Bill Gates is account manager), Microsoft has no dedicated sales force--and certainly no real services. The company depends on the channel for the bulk of sales and services. Microsoft's 2007 release cycle is all about the enterprise and business processes, from communications to intelligence. The solutions, software licensing and support will be more complex than any other Microsoft release cycle. So, services will be essential to Microsoft and its customers. Competitively, Microsoft's push into IBM's space comes without supporting services--for which Big Blue provides its customers--unless another company pitches in. The only real choice is HP.