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What sort of considerations do corporations take into account to market and package big ticket software. This analysis of some public HP practices will cast light into the B2B software industry marketing MO.
Jordhy Vladimir Ledesma UID - 5380-69651 B2B Marketing in the Software Industry: Marketing HP Software 1. Introduction The term software industry started appearing in print since the 1960s. The pioneers of this industry were IBM and UNIVAC, with Digital Equipment Corporation a close thirdi. The industry has grown exponentially and expanded into many subsectors: infrastructure, middleware, security, enterprise, utilities, games, applications, etc. The most recent revolution in the software industry might very well be the “app phenomena”. Driven by the introduction of the iPhone and the iPad, thousands of software vendors have started to create (or port) applications to a closed ecosystem that powers mobile computers. HP started investing in the software industry in late 1991, with the acquisition of ABB CADE (a small computer programming shopii), then it acquired EEsof in 1993, Security Force Software in 1999, etc. At the beginning, these acquisitions were aimed at enriching HP’s hardware ecosystem; but soon, the company began acquiring pure software industry players. The most recent example of this trend is Autonomy Corporation, acquired by HP in August 2011 (for 10.2 billion dollars). A public list of acquisitions and key HP people can be found at crunchbase.comiii. Such a list indicates close to 40 billion dollars in acquisitions of which roughly fifty percent (taking into account Autonomy, EDS and other smaller players) where devoted to the software/IT services industry. It is therefore very clear, that HP is gearing its guns toward the software industry and will soon follow the steps of IBM, Apple, Suniv and DECv. The many changes in HP’s board and executive roster point to a clear strategic shift for the whole company. Recently, Meg Whitman (who became prominent in the tech industry after growing eBay from a nimble startup to a multibillion dollar powerhouse) appointment as HP’s newest CEO joins the series of events that signal HP’s transition into the software/services field. However, of all the tech firms that have exercised this crossover, HP is the most associated to hardware, and particularly, to engineering. Bill Hewlett and Dave Packard (two engineers) founded HP in 1939, at a garage in Palo Alto, California. At its core, HP still maintains an engineer-centric culture that extends throughout the corporation and has allowed it to become the number one personal computer manufacturer in the planet. The purpose of this paper is to analyze whether and how can HP penetrate the software/services industry and become an important player while retooling its brand for such a purpose. We’ll analyze several industry players, a handful of B2B strategies and tools as well as key customer demographics and markets.
2. Industry 2.1 Key Players According to Price Waterhouse Coopersvi, the software industry is very fragmented; with players that span different geographies (Asia is 20% of the market, Europe 36% an America is 44%), segments (gaming, desktop tools, enterprise software, networking, etc.) and key delivery strategies (SaaS, cloud computing, client-server, mobile, etc.)vii. According to Pwc, Hewlett-Packard is currently the seventh player in this industry with software revenues that add up to approximately 3 billion dollars. The other top players that act in markets where HP competes are: Microsoft, IBM, Oracle, SAP, EMC (including VMware), Computer Associates and Apple. Another company included in Pwc but not currently a top player (mainly due to the lack of maintenance an licensing fees) is Google. 1. Microsoft
Microsoft, founded in 1975 by Bill Gates and Paul Allen, is a veteran software company, best known for its Microsoft Windows operating system and the Microsoft Office suite of productivity software. Starting in 1980 Microsoft formed a partnership with IBM allowing Microsoft to sell its software package with the computers IBM manufactured. Microsoft is widely used by professionals worldwide and largely dominates the American corporate market. Additionally, the company has ventured into hardware with consumer products such as the Zune and Xbox. Microsoft has made a presence on the Web with the MSN Internet portal and Bing Search Engine. viii
IBM, acronym for International Business Machines, is a multinational computer technology and consulting corporation. The company is one of the few information technology companies with a continuous history dating back to the 19th century. IBM manufactures and sells computer hardware and software, and offers infrastructure services, hosting services, and consulting services in areas ranging from mainframe computers to nanotechnology. ix
Oracle Corporation is an American multinational computer technology corporation that specializes in developing and marketing hardware systems and enterprise software products – particularly database management systems. Headquartered in 500 Oracle Parkway, Redwood Shores, Redwood City, California, United States and employing approximately 108,000 people worldwide as of 31 May 2011, it has enlarged its share of the software market through organic growth and through a number of high-profile acquisitions. By 2007 Oracle had the third-largest software revenue, after Microsoft and IBM. x
As market leader in enterprise application software, SAP (NYSE: SAP) helps companies of all sizes and industries run better. From back office to boardroom, warehouse to storefront, desktop to mobile device - SAP empowers people and organizations to work together more efficiently and use business insight more effectively to stay ahead of the competition. SAP applications and services enable more than 172,000 customers
(includes customers from the acquisition of Sybase) to operate profitably, adapt continuously, and grow sustainably. xi
EMC is a manufacturer of software and systems for information management and storage. EMC produces a range of enterprise storage products, including hardware disk arrays and storage management software. Its flagship product, the Symmetrix, is the foundation of storage networks in many large data centers. xii
6. Computer Associates
CA, Inc., together with its subsidiaries, engages in the design, development, marketing, licensing, and support of information technology (IT) management software products that operate on a range of hardware platforms and operating systems. The company has a portfolio of software products and services that address its customers needs for mainframe and distributed environments, spanning IT governance, IT management, and IT security. It focuses on various areas that include infrastructure management, project and portfolio management, security management, service management, application performance management, and data center automation and virtualization. CA, Inc. offers Enterprise IT Management (EITM) software for organizations to manage IT in computing environments, which include people, information, processes, systems, networks, and applications, as well as databases from a Web service to the mainframe to a virtualized cloud, regardless of the hardware or software customers they are using. The company licenses its products principally to IT service providers, financial services companies, governmental agencies, retailers, manufacturers, educational institutions, and healthcare institutions worldwide through direct sales force, as well as indirectly through systems integrators, managed service providers, technology partners, EITM value-added resellers, original equipment manufacturers, and distribution and volume partners. xiii
Started by Steve Jobs, Steve Wozniak, and Ronald Wayne, Apple has expanded from computers to consumer electronics over the last 30 years, officially changing their name from Apple Computer, Inc. to Apple, Inc. in January 2007. Among the key offerings from Apple’s product line are: Pro line laptops (MacBook Pro) and desktops (Mac Pro), consumer line laptops (MacBook) and desktops (iMac), servers (Xserve), Apple TV, the Mac OS X and Mac OS X Server operating systems, the iPod (offered with up to 120 GB of storage with the iPod classic or with web browsing and touch screen controls with the iPod touch), and the iPhone (now available for sale in over 80 countries). xiv
Google provides search and advertising services, which together aim to organize and monetize the world’s information. In addition to its dominant search engine, it offers a plethora of online tools and platforms including: Gmail, Maps and YouTube. Most of its Web-based products are free, funded by Google’s highly integrated online advertising
platforms AdWords and AdSense. Google promotes the idea that advertising should be highly targeted and relevant to users thus providing them with a rich source of information. Google has also made strong moves into the web-based apps space with acquisitions of Jotspot (documents), 2Web Technologies (spreadsheets) and Zenter (presentations). The company has also made a splash with the acquisitions of YouTube, DoubleClick and Feedburner. In 1996, Stanford graduate students Sergey Brin and Larry Page famously started the search company in a Stanford dorm room. The two eventually moved the company to a Menlo Park garage, which the company quickly outgrew. Sun Microsystems founder Andy Bechtolsheim was the company’s first investor with other notable investors including Ron Conway, John Doerr, Mike Moritz and Ram Shriram. xv
HP creates new possibilities for technology to have a meaningful impact on people, businesses, governments and society. The world’s largest technology company, HP brings together a portfolio that spans printing, personal computing, software, services and IT infrastructure at the convergence of the cloud and connectivity, creating seamless, secure, context-aware experiences for a connected world. More information about HP (NYSE: HPQ) is available at http://www.hp.com/.xvi
2.2 Industry Summary Due to the high fragmentation of the industry, and to incorporate smaller players into our analysis, it would be in our best interest to list the most important industry companies in terms of their go to market strategy. This will allow us to identify new niches and unexplored customer segments for HP. An initial industry summary is shown in Table 1.
Table 1. Industry Summary Company Top 3 Key Geographies Top Key Markets Marketing Channels Key Competitive
Advantages HP US, Europe, China Consumer, Enterprise,
Infrastructure Online, TV, Channel Partners
Market share, technology
Microsoft US, China, India Operating Systems, Infrastructure, Consumer
Sales force, Online, Partners
Market share, partner ecosystem
IBM US, Europe, China Integration, Middleware, Consulting
Sales force, Partners Industry expertise, technology
Oracle US, China, India Infrastructure Sales force, Partners Technology, Vendor ecosystem
SAP Europe, Americas, China Enterprise, Consulting, Integration
Partners, Sales force Technology, Market share, Industry Intelligence
EMC US, Europe, China Infrastructure, Middleware Partners, Sales force Technology, Vendor ecosystem
CA Americas, Europe, India Infrastructure, Middleware, Enterprise
Sales force, Online, TV Industry expertise, technology
Apple US, Europe, China Consumer, Mobile Online, TV, Stores Technology, Content Provider Partnerships
Google Americas, Europe, India Consumer, Mobile, Operating Systems
Online, TV Technology, Market Share
Startups - Niche Markets Search Engines, Social Media
Source: Created by Paper Author
The market is obviously fragmented and complex, with new players coming in every quarter. However some things are very clear from looking at Table 1: A. Market share is a key enabler of sales in the industry (customers prefer to buy software solutions from hardware manufacturers to simplify integrations), B. As the player gets bigger, technology become less relevant to drive the sale and instead gets replace by integration or industry knowledge and C. Channel partners are key in maintaining a leadership position in the industry. 2.3 Industry Trends In the HP Americas Partner Conference (APC), Léo Apotheker (HP’s previous CEO) showcased the corporation’s revamped go-to-market strategy: “To arm our partners with complete, end-to-end solutions to meet the customer demands of today and tomorrow”xvii. An unclear statement that aims to position the corporation as a one-stop shop for its customers IT need. “As the convergence of cloud and connectivity continues to redefine the technology landscape, HP and our channel partners are well-positioned to capitalize on this tremendous market opportunity,”xviii said Apotheker, who addressed partners in March, 2011. This convergence is the key industry dynamic that HP is concerned with, and has communicated in numerous public events. Other industry trends include a growing concern for China and India, the “consumerization” of technologyxix and the rise of tablets and mobile devices. Given these trends, HP’s B2B marketing strategy should adapt to include more partners in key geographic areas, tools and services that allow for new product demonstration, tighter integration with traditional computer stores (to serve the small business buyer), a different branding message that should now include software solutions and different software delivery methods (cloud, client-server, etc.) to cater key client needs. 3. Product Roster HP sells more software products than hardware solutions. Yet HP is widely known as a computer manufacturer. For small businesses and home office buyers, HP resells software from Adobe, Trendmicro, Microsoft, and others. In the enterprise field, however, Hewlett-Packard makes its own software solutionsxx. For example, the HP Database Archiving Softwarexxi promises to “reduce costs, boost performance, enable compliance and application retirement” and competes with solutions from Oracle, Microsoft, IBM and EMC. As with most of HP’s software solution we might instantly notice a lack of product branding, a very specialized product offering (instead of perhaps the mega products that Microsoft, IBM or Oracle sell), and several other details that surfaced from our company analysis: a very technically driven sales process, different price point for each channel partner (depending on sales volume), a complete disconnect from every other HP product (due to rapid acquisition timelines) and lack of comparables in the product’s sales copy (who’s the competition, who is this product for, what the targeted client size, etc.). The HP Softwarexxii division employees 14,000 professionals and has been formed thru the acquisition of 15 software companies. HP Software sells three categories of software: IT performance management, IT management software and information management software.
This brank of HP also provides consulting, Software as a service, cloud computing solutions, education and support services. HP sales mainly IT management products (this will change after the Autonomy acquisition, which will bring the company to middleware sales) via product centers. This highly complex distribution can be seen in Table 2:
Table 2. HP’s IT Management Software Product Centers Product Center Key Products Acquired
Thru Main Purpose of the Products
HP Application Security Center
DevInspect, Assessment Platform, QAInspect and WebInspect
- Protect hardware from hackers, viruses and malware
HP Business Availability Center
Business Service Level Management Software, Business Process Monitor, Business Process Insight, Discovery and Dependency Mapping, End User Management Problem Isolation, HP SiteScope, System Availability Management, TransactionVision and HP Universal CMDB
- Ensure a high availability in datacenters
HP Business Service Automation
- - Ease IT management
HP Data Center Automation Center
Business Service Automation Essentials, Network Automation, Server Automation, Service Automation Reporter, Service Automation Visualizer, Storage Essentials, Operations Orchestration and Release Control software
- Aid in datacenter growth, software updates and maintenance
HP Network Management Center
Network Node Manager, Performance Insight, Report Pack for Cisco Wireless LAN Pack, Report Pack for Radius Call Detail v 1.3., and HP TeMIP Software
Compaq Manage complex networking environments
HP Operations Center Discovery and Dependency Mapping, GlancePlus Pak, Operations Dashboard, Operations Manager Dependency Mapping Automation, HP Operations Manager i 8.0, Operations Smart Plug-ins, Performance Manager, Reporter, SiteScope, and HP Universal CMDB
Opsware Manage Operations in complex datacenters (as opposed to managing stand alone serves)
HP Performance Center Center Management for Performance Center, HP Diagnostics, HP LoadRunner Monitors, and HP LoadRunner
HP Project and Portfolio Management Center (PPM)
HP Deployment Management module, Discovery and Dependency Mapping software, PPM Demand Management module, PPM Financial Management module, PPM Portfolio Management module, PPM Program Management module, PPM Project Management module, PPM Resource Management module, and PPM Time Management module
Mercury Manage IT related projects, Datacenter and software visualization solutions
HP Quality Center HP Business Process Testing, Center Management for Quality Center software, Change Impact Testing for SAP Applications, HP Functional Testing software, QuickTest Professional, Requirements Management module, Service Test Management module for SOA, Service Test and HP WinRunner software
- Aid in software and hardware testing across different platforms
HP SOA Service-oriented architecture Center
SOA Governance Interoperability Framework, SOA Policy Enforcer, SOA Registry Foundation, SOA Systinet and HP Universal CMDB software
HP Service Management Center
Asset Manager, HP Connect-It software, DecisionCenter, HP Client Automation
Software to manage client computes across a network
Software and Service Manager software
HP Business Service Management 9.0
Portfolio of service management software tools that provide the IT department with end-to-end monitoring of services in the data center and the underlying infrastructure
Aids in cloud computing management as well as SaaS management
HP Application Lifecycle Management
HP ALM 11.0 Centralized application management platform for automating applications within and across teams
HP Software Cloud Portfolio
HP Cloud Discovery Workshop, HP Cloud Roadmap Service, HP Cloud Design Service and HP Service Management Consulting Services
Manage the entire lifecycle of the cloud, both public and private, as well traditional IT delivery.
Source: Created by Paper Author 4. Branding From looking at Table 2, and reviewing the list of acquisitions, we realize that (as e-Week magazine says) HP has become a true software organizationxxiii. This needs to be reflected in a new branding effort as well as in more consistent product naming and packaging offerings. The “Product Center” grouping is useful in communicating the practical application of HP’s software products but could still be much simpler. 5. Customer Segmentation After branding has been dealt with, HP should retool its business customer segmentation charter. HP contacts 42 million customers each monthxxiv, mostly thru channel partners. Most of these partners use solutions provided by HP to segment and contact these customers. The first level of segmentation of these customers is hardware/software, after customers are segmented by geography, industry, size and longevity. Later in this report, we’ll voice our recommendations for customer segmentation. 6. Channels HP sells software primarily via channel partners. This is not to be confused with their hardware practice (with uses conventional channels as means of branding/sales). For HP Software, the channel partner is the only means of acquiring software solutions. This affects the company in a very subtle way: end-customers experience HP Software solely thru third parties, thereby digesting a perhaps diluted marketing message.
Figure 1 – HP Software: Channel Partner Structure. Source: HP Software
6.1 Lead Generation Some lead generation is executed thru Google AdSense, conferences, Webcasts, etc. In this sense, HP has been very conservative in this regard, and, for this reason, its revenues are not a big multiple of that of its acquired software companies. However, by exploring economies of scope and scale, HP Software has reduced its client acquisition and management costs by 15%xxv. 6.2 Sales Conversion Software is HP’s most attractive item in the balance sheet. Margins obtain on software sales hover the 80% margin. HP has even been able to better Microsoft by having bigger revenues in the server and tools categoryxxvi (see Exhibit 15.3). A big area of improvement for HP Software might be to cut the sales cycle to make it close to Microsoft’s (which, perhaps due to brand or footprint, closes sales much faster). 7. Geographical Considerations A new trend in the consumer industry is for companies to target psychographics instead of geographies. In B2B marketing, this is (although much, much more slowly) becoming a trend, as analytics packages get better and information becomes more open and broadly available. Currently HP Software doesn’t target startups in any geography, so when these startups become public companies, HP has already lost them to open source solutions or the competition. 8. Product Launches HP caters to CIOs by assembling big conferences, online events and seminars. Several of these events have been the platform for product launches, but their impact (in our Internet era) is questionable. New product launches are not sharable on the social web and most of HP’s whitepapers are hidden in its website. By contrast, Dell’s hardware is more discoverable after a launch and Oracle software is much better presented on Oracle’s website. 10. Customer Relationship Management HP excels in this area. IT uses the most sophisticated CRM package on the planet and it runs one of the biggest Siebel implementations of the software industry. Only Oracle is superior to HP in this regard. 11. Some Conclusions On this paper we have explored the software industry and several of its nuances. Our analysis has been effective in casting light over the many misperceptions the general public has about HP. While being today mainly a software company, HP is still perceived as a hardware pure player with a side-business of selling software. This branding problem is hurting the firm and negatively affects the influence power of its sales force and partners. In 2011, HP Software sales grew 28 percent and operating margins were 27.7 percent. Licenses and services grew 33 percent and 36 percent, respectively. This came after a consolidation effort of HP’s product lines and services. Clearly, HP should continue simplifying its product roster and enriching the HP Software brand.
12. Some Recommendations For HP Software, our gamut of recommendations is very broad:
1. Better the HP Software brand by launching similar campaigns to IBM’s Smarter Planet, therefore enhancing the perception of HP as a value added software and solutions company.
2. Anticipate trends in the enterprise market and provide solutions for it as soon as possible. For instance, HP Software doesn’t sell any applications for the iPhone or iPad.
3. Retain the branding of previous products to elicit awareness of longtime customers (the branding of EDS’s, Mercury’s and Opsware’s products has been lost)
4. There’s a high disconnect between the profit margins of the hardware/software segments of HP (5% vs 20%). Given this scenario, it makes sense for the computer giant to retool its consumer business, sell it or use its software offering to increase its margins.
5. Product suites should be sold at a discount and maintained not only by channel partners but also by HP. This ensures better customer support and the attainment of even more usage and satisfaction metrics.
6. Newer corporate customers should be segmented by performance metrics (in the case of startups), because they don’t fit in the profile of the Fortune 500 but constitute an important market for HP (Google is one of HP’s biggest hard disk buyers).
7. For the purpose of B2B sales, HP should offer a comparison of their product versus that of the competition (borrowing from the competitor’s brand and providing instant recognition to HP’s products).
8. Reduction of the sales cycle should be a key managing indicator, and possibly a good metric to compensate partners.
9. New products, whitepapers and demos should be shareable over the social web.
10. Partners should have access to virtual servers to demonstrate all of HP’s software solutions and not just a few.
Hopefully, Meg Whitman, HP’s newest CEO, will conduct these and other recipes to make HP Software a better B2B citizen and restore the engineering spirit that made Hewlett-Packard the biggest computer manufacturer on the planet.
15. Appendix 15.1 The Software Industry
15.2 Top 30 Software Vendors
15.3 Microsoft’s Profitability by Software Segment
15.4 About HP Software (Source - HP’s 2011 10K)
HP Software is a leading provider of enterprise and service-provider software and services. Our portfolio consists of: Enterprise IT management software. Enterprise IT management solutions, including support and professional services, allow customers to manage IT infrastructure, operations, applications, IT services, and business processes. These solutions also include tools to automate data center operations and processes. We market them as the HP business technology optimization suite, and we deliver them in the form of traditional software licenses and, in some cases, via a software-as-a-service distribution model. Information management and business intelligence solutions. Our information management and business intelligence solutions include information data strategy, enterprise data warehousing, data integration, data protection, archiving, compliance, e-discovery and records management products. These solutions enable businesses to extract more value from their structured and unstructured information. Communications and media solutions. Our communications and media industry solutions address the creation, delivery and management of consumer and enterprise communications services, with offerings in service delivery infrastructure and applications, real-time business support systems, next-generation operations support systems and digital media. These solutions enable operators, media companies, and network equipment providers to drive incremental revenue, enable new business models and reduce infrastructure costs.
i Wikipedia: Retrieved on Nov 20 2011 -‐ http://en.wikipedia.org/wiki/Software_industry ii Thomson Reuters: Hewlett-‐Packard Co acquires ABB CADE Intl GmbH,ABB CADE AG from ABB Corp
http://www.alacrastore.com/storecontent/Thomson_M&A/Hewlett_Packard_Co_acquires_ABB_CADE_Intl_GmbH_ABB_CADE_AG_from_ABB_Corp-‐227950040 iii Crunchbase -‐ Hewlett-‐Packard: http://www.crunchbase.com/company/hewlett-‐packard iv Sun Microsystems was a systems solution provider that created the Solaris Operating System. Sun was acquired by Oracle
Corporation for 7.4 billion dollars in 2009. v DEC = Digital Equipment Corporation. The very first microcomputer manufacturer, that later penetrated the software
industry with their famous search engine Altavista. vi Pwc: Global 100 Software Leaders: Key players & market trends. http://www.pwc.co.za/en/publications/global-‐software-‐leaders.jhtml
vii See the glossary on the appendix. viii Extracted from Crunchbase -‐ About Microsoft: http://www.crunchbase.com/company/microsoft ix Extracted from Crunchbase -‐ About IBM: http://www.crunchbase.com/company/ibm x Extracted from Wikipedia – Oracle Corporation: https://en.wikipedia.org/wiki/Oracle_Corporation xi From Crunchbase -‐ SAP -‐ http://www.crunchbase.com/company/sap xii Crunbase – EMC: http://www.crunchbase.com/company/emc xiii Crunchbase – Computer Associates: http://www.crunchbase.com/company/ca-‐2 xiv Crunchbase -‐ Apple: http://www.crunchbase.com/company/apple xv Crunchbase -‐ Google -‐ http://www.crunchbase.com/company/google xvi From Hewlett Packard’s website -‐ http://www8.hp.com/us/en/hp-‐information/index.html xvii HP Defines Go-‐to-‐market Strategy for Connected World at Americas Partners Conference -‐
http://www.hp.com/hpinfo/newsroom/press/2011/110328xb.html xviii See the previous reference. xix See reference VI and Pwc notes on the key software industry trends xx HP’s Enterprise Software solution roster: http://www8.hp.com/us/en/software/enterprise-‐software.html -‐ tab=3 xxi HP Database Archiving software -‐
http://www8.hp.com/us/en/software/software-‐product.html?compURI=tcm:245-‐936970&pageTitle=database-‐archiving-‐software -‐ tab=1 xxii See Appendix 15.4 xxiii Why HP is serious about software: http://www.eweek.com/c/a/IT-‐Infrastructure/HP-‐Is-‐Serious-‐About-‐Software-‐25-‐Reasons-‐Why-‐585952/ xxiv Oracle: HP and Siebel Case Study: http://www.scribd.com/doc/38022675/hp-‐siebel-‐casestudy xxv See reference XXIV. xxvi See HP’s most recent 10K http://h30261.www3.hp.com/phoenix.zhtml?c=71087&p=irol-‐reportsAnnual