| BUSINESSWEEK ONLINE : MAY 31, 1999 ISSUE | ||||||||
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| INFORMATION TECHNOLOGY
HP: No Longer Lost in Cyberspace? Already, investors are applauding the company's Net strategy By rights, the mid-'90s Internet explosion should have been manna from heaven for Hewlett-Packard Co. One of the largest users of the Net, it was also a leading supplier of the powerful computers that connect the Net. And unlike competitors, HP sells millions of printers, PCs, scanners, and other devices--the on- and off-ramps to cyberspace. But instead of a cyberboost, HP (HWP) has downshifted from 20%-plus revenue growth in the mid-1990s to around 10% in the past two years. While rivals Sun Microsystems and IBM (IBM) have roared to prominence, HP has been an Internet underachiever. ''Customers were getting a picture of the future from Sun and others, but not from us,'' says HP CEO Lewis E. Platt. It's time to listen up. On May 18, HP laid out a sweeping Internet strategy, dubbed E-services, that it expects will change completely what the Web can do for businesses. The plan allows companies to rent software over the Net and use a new technology that will make it simple to scour the Web for almost any service--say, a database that will provide the best price on a widget or the cheapest place to lease extra computing power to support a big online promotion. How confident is Platt of his new game plan? Enough so that the effort will be backed by a $100 million ad budget--more than quadruple previous Net-related spending. To bolster the strategy, HP has invested more than $200 million in a dozen Net-related companies since November. HP already is starting to bask in a dot-com glow. Combined with the Mar. 2 news that HP would spin off its $8 billion test-and-measurement arm, the E-services thrust has triggered a 44% rise in HP shares, to 95. And on May 17, the Palo Alto giant announced a 34% increase in second-quarter profits, to $918 million, on 3% revenue growth--along with news that it expects double-digit sales growth through the end of the year, thanks to resurgent Asian sales and new computers and printers. At the center of HP's E-services scheme is a technology dubbed e-speak. HP hopes the software, to be available free via the Web to developers when it's finished early next year, will emerge as an industry standard, like Sun's Java and Jini technologies. How does the e-speak software work? Basically, it provides a common way to describe Net services. Just as companies use the arcane HTML programming language to create and describe the content on Web pages, HP hopes Web developers will use e-speak when creating online services. That way companies or individuals can use e-speak programs to search the Web for e-speak-enabled services, much as they use search engines to find Web sites. SINGLE SEARCH. The payoff? Businesses and consumers can quickly find or create services to meet a particular need. HP says it has talked with Home Depot (HD), for example, about using e-speak to create a Web site for building contractors to do everything related to a particular job. Rather than launch separate searches to order parts, arrange shipping to the job site, and find specialists--say, a carpenter with expertise in Renaissance design--all those services could be arranged with one simple request placed at Home Depot's site. But what's really cool is e-speak's ability to meld various services to solve one-of-a-kind problems on the fly. Let's say that carpenter lives in Italy. E-speak could search the Net for e-speak-compatible Italian-to-English translation services, and then for the cheapest text-to-speech service to zip E-mail to a contractor's cell phone. ''This is good stuff,'' says Forrester Research Inc. analyst Matthew M. Nordan. ''E-speak helps Web sites talk to each other.'' HP has other ideas for E-services. It believes that many companies, rather than fork over millions of dollars to buy hardware and hire the techies and consultants to run these jobs, will want to outsource them to service providers, which will take care of them over the Net for a monthly fee. Forrester Research Inc. expects this market to grow from $90 million in 1998 to $10.1 billion in 2001. And HP hopes to get a chunk of it. Ann Livermore, CEO of HP's $15 billion enterprise computing unit, thinks that outsourcing could account for 40% of her unit's sales within three years. ''It's the next logical evolution of the Net,'' says Livermore. That's why HP is going about outsourcing in two ways: by handling the outsourcing itself via huge server farms set up in Atlanta and Toronto and by selling computers to other companies that will get the outsourcing deals. To tie up tomorrow's E-service biggies, HP is buying equity stakes or agreeing to forgo up-front payment for its computers in exchange for a cut of monthly revenues. Take HP's agreement with Qwest Communications International Inc. and SAP (SAP). HP will kick in $500 million worth of technology to the three-way partnership, which will charge medium-size companies a few hundred dollars a month to run SAP's software over Qwest's network. That saves them from having to set up their own in-house operations. By taking a share of the monthly revenues, HP says it will break even over the three-year deal but could bring in as much as $1 billion if Qwest meets its growth plans. One reason: As part of the agreement, Qwest must buy 95% of its Windows computers and 75% of its powerful UNIX servers from HP. ON THE PROWL. And HP isn't limiting its investments to service providers. It will invest $100 million in BEA Systems Inc. to develop software to help companies put their internal systems online, and $35 million in BroadVision Inc. (BVSN), which makes software to personalize Web sites. HP has invested $10 million in Security First, which makes E-commerce technology for banks, and $6 million in viaLink Co., which has an E-commerce site where packaged-goods companies can buy and sell merchandise. Then, there are outright acquisitions, like travel-portal company Openskies.com. Now, HP is on the lookout to buy consulting and service outfits, say executives. Why should hot Net companies want to partner with HP? One advantage is HP's focus on reliability, a must if companies are going to trust their most critical business systems to cyberspace. HP already guarantees 99.999% reliability--that's just five minutes of downtime a year--for certain commonly used applications. Now it's working with partners including Oracle (ORCL), Cisco Systems (CSCO), and Qwest (QWST) to offer that same guarantee for systems working over the Net. ''If I could get a guarantee of 99.999% uptime, I'd jump on it,'' says Nancy Fagin, CEO of Digex Inc., a leading supplier of back-office applications that customers rent over the Internet. ''I've asked my engineers to investigate bringing in HP.'' That's a start. But HP still has to overcome a lot of obstacles on the Net--including its reputation as a laggard on the vision thing. According to a recent survey by Merrill Lynch & Co., just 20% of 50 chief information officers polled believe HP is the company that can get them onto the Net--well behind IBM, Microsoft, and Sun. Snipes Anil Gadre, a Sun vice-president of marketing: ''We feel like we're halfway to the moon, and they're trying to gas up the rocket ship. O.K., so welcome to the Internet Age, HP--five years late!'' What's more, E-services will require vast amounts of consulting and support, an area where HP is weak. While it is partnering with traditional service companies such as Andersen Consulting and hot E-commerce boutiques like Sapient (SAPE), almost 16,000 of its 24,000 field service staff are computer-repair people. HP also must prove it can rally industry support for its technology. While 19 software partners, including Oracle and PeopleSoft Inc., will support e-speak, analysts question whether HP can garner the backing of hundreds of thousands of programmers, as Sun has done for its Java programming language. Yahoo! Inc. CEO Tim Koogle says his company will take a wait-and-see approach. ''It's a complicated vision,'' he says. Adds Lew Wilks, a vice-president at Qwest: ''[E-speak] is potentially huge, but the proof isn't in the labs but in the marketplace.'' Even with these challenges, HP's bold, if delayed, Net thrust has energized the company. ''Everyone here knows we're a great company,'' says Nick Earle, marketing chief of HP's enterprise computing unit. ''But we're tired of watching other companies have all the fun.'' The bottom line for computer rivals: The days of having HP to kick around in cyberspace may be nearing an end. By Peter Burrows in Palo Alto, Calif. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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