By John "Scooter" Morris, Ph.D.
COMMENTARY--Like many others, the announcement that Hewlett Packard and Compaq intended to merge initially caught me by surprise. As a member of the technical advisory committees for both HP and Compaq, however, I felt that it was my responsibility to think about the implications of the merger, and what the benefits could be if the merger were executed successfully. I thought pretty hard about this from the standpoint of a customer of both companies and sent a series of recommendations to my colleagues at HP and Compaq. In writing these recommendations, I began to see that significant customer benefits could arise from the successful melding of HP and Compaq. The following is a synopsis of these recommendations and realizations.
I see many more synergies than Wall Street does, and a lot more in the way of offsetting strengths and weaknesses than the media are reporting. There are certainly some sticky issues, but I believe that this is a tractable merger with substantial benefits for both HP and Compaq customers if things are handled right. The strengths of the combined companies offer customers a significant partner for their IT needs, with the market position and global strength necessary to cover the emerging and future IT landscape.
Some no brainers
HP is the clear market leader for printing and imaging, while Compaq really has nothing in this area, so don't mess with success. The printing and imaging division of HP should be left essentially untouched.
In software, HP brings a very successful product in HP OpenView and a very impressive e-business suite. Clearly, the new organization should be built around these successful groups. One good way to shore up support for the Alpha, Tru64, and OpenVMS would be to leverage this software. This would also demonstrate the commitment of the new organization to follow through with the end-of-life timeframes for Alpha articulated by Compaq.
In PC's, the Compaq brand is valuable, particularly to the consumer. Adopt it, perhaps as a sub-brand, and use it to help you market in the spaces where it matters. Similarly, on the handheld front, don't loose the momentum the iPAQ line has, just adopt it (quickly) and make it HP iPAQ.
In storage, Compaq's StorageWorks line is much more complete, and has definitely won the hearts of the bulk of the marketplace. HP's HDS alliance provides some high-end storage, but nothing like the complete picture that StorageWorks offers. The easy thing to do here, is to simply adopt StorageWorks as the HP line of storage products and to add support for the high-end HP arrays, re-branded as StorageWorks products. HP also can leverage their OpenView suite and storage management software to further enhance the StorageWorks product line. This is one of the plums in the merger so don't mess with it.
Servers
In servers, it becomes a little more complicated because of the variety. As far as technologies, bring in customers of both to tell you what they like and don't like about each company's products. Be objective. Ask them first, "What is good about Compaq's industry-standard servers?" Then ask, "What is good about HP's industry standard servers?" Lastly ask, "Where would you like to see improvements in each?" Then, the technology adoption matrix should become clear. This is an area where Compaq has a dominant market position. As with PCs, leverage the Compaq brand to leverage the position. In this space, I think that the Proliant sub-brand probably represents the real asset. An easy transition would be to leverage the Proliant name recognition and just make it HP Proliant.
In enterprise-class servers the real question is about operating systems. In system architectures, HP and Compaq both have a history of designing excellent enterprise-level servers. Frankly, HP has the reputation of designing servers that have sacrificed performance for quality, and Compaq has the reputation of designing state-of-the-art servers, even if there are some glitches on initial release. Keeping in mind that the competition at this end of the marketplace is Sun and IBM, the new line of IA-64 servers must combine high performance, state-of-the-art technology, and extremely high quality. Said another way, the best from both. HP already has IA-64 based designs, but Compaq has demonstrated some excellent engineering in their backplane switches. The similarities between the Superdome and Wildfire architectures point out opportunities for collaboration between the two teams that are very exciting.
Operating systems
In the UNIX space, each company brings an excellent enterprise-class UNIX to the merger, HP/UX and Tru64 Unix. I think there is a lot to be gained from this merger in making changes to both of these OSes. We work with both operating systems, and I see that both have value, but there is great power and customer benefit in migrating towards a single, merged UNIX OS that makes sense to both customers. This is an excellent opportunity to provide an IA-64 UNIX that represents to best of HP/UX and Tru64. Here are some of the key features that I would include in the merged Unix:
* To begin with, each company has a Linux strategy in place. It's clear that Linux is winning substantial mind-share at this point in time, and the companies will want to quickly align their approach here to capitalize on growing customer interest. The companies should consider migrating their UNIX offerings to a Linux API set, as well as the adopting the most common Linux tools. That said, I am absolutely not proposing that the combined company use the Linux API exclusively, as their existing UNIX operating systems offers functionality not available in Linux at this time.
* Second, one of the less-publicized aspects to this merger is the best-in-class cluster capabilities that Compaq brings to the table, TruCluster. HP/UX should capitalize on it as soon as possible to offer increased functionality to their user base. TruCluster, coupled with the associated filesystem, Advfs, offers significant benefits in terms of reliability and scalability without the usual increase in management costs. This is also one of the plums of the acquisition, so HP should move quickly to take advantage of it. On the marketing front, don't change the name -- TruClusters have enough press and mind-share associated with them that changing the name would not provide benefit.
* This also provides an opportunity for HP to begin cleaning up the compilation environment in HP/UX. HP has done an excellent job of guaranteeing backwards compatibility from release to release over the last several years. This compatibility has come at the cost of a more complex compilation and shared library environment. The new, merged UNIX should be a full 64-bit UNIX by default. A 32-bit compatibility package could be added as an optional component for those applications that required, but it should not be there by default.
* Other, technical issues should be addressed on the basis of their technical points and the overall architecture of the kernel. Choose one base, either HP/UX or Tru64 and decide area by area (e.g. VM, IPC, NFS implementation, Network stack, etc.) which one is technically superior. If there is no difference, adopt the one from the native kernel.
ISV support
With respect to ISVs, as hard as it is, they are the key to market share. There is opportunity in the leverage of this new organization, and its resources, if necessary, to maintain (and increase) ISV support for both HP/UX, Tru64, and where appropriate OpenVMS. If Tru64 moves up on the porting list as a result of this merger, HP will build loyalty on the part of Tru64 customers.
In particular, there is an opportunity to focus on Peoplesoft, SAP, Oracle, and the other major ISV's in the UNIX space. Compaq, in particular, has had an excellent partnership with Oracle, as evidenced by the Huron initiative and Oracle 9i/RAC. This level of partnership should be encouraged and expanded to include the new, merged company.
Marketing
In marketing, each company has tremendous strengths, and blind spots. HP markets to the CIO, Compaq markets to the system administrator/engineer. Compaq has been extraordinarily successful marketing to the high-performance technical computing marketplace; HP has been very successful marketing to the enterprise marketplace. HP has convinced the enterprise that the "HP Way" means stability for their needs. This gives CIOs lots of confidence. Add Alpha and TruClusters to the portfolio and you have a very strong combination for both customers.
Sales
In sales, don't underestimate the importance of the new sales organization for success of this merger. Allow customers to have significant input into both who and what they prefer to deal with. For some customers, it will be easy, for others it will not. In any case, involve them and make sure customers know that the new organization cares about them, whether they are a Compaq customer or an HP customer.
This merger has the potential of creating a company that has the No. 1 market position in PCs, Enterprise Systems Management Software, Imaging, Intel Servers, Storage, and high performance technical computing. It may also be No. 1 in handhelds, or close to it. It will have a substantial services organization, and tremendous presence in the marketplace. It will have the depth and breadth to be a partner for all of the IT needs of most of its customers.
All of this assumes, of course that the merged company retains its current customers. How? HP must communicate with customers, soon and often. Customers need to have the confidence that anything they buy or invest in today will carry them through an evolutionary process into the future. Announce all migration plans as soon as possible. Give customers, ISVs, and developers the feeling that they have lots of advance warning, and give them the opportunity for input. Shoring up customer confidence as quickly as possible will be absolutely a critical success factor to this merger.
Some final thoughts
A lot has been written about this merger since I wrote my initial analysis. I remain very upbeat about the customer benefits of HP and Compaq merging. Much of the press has focused on shareholder value and the short-term impact of the merger on the shareholders. In the long term, however, customer value and shareholder value are related. While there are clearly limits, customer benefit should result in shareholder value over the long term. I have no idea whether HP and Compaq will adopt any of the recommendations outlined above, but I do believe that this outlines a path forward that will significantly improve the market strength of both companies and will result in significant benefit to the customers. As a customer, I hope this merger is consummated.
Dr. Morris is a Distinguished Systems Architect at Genentech, Inc., and a member of the Compaq Enterprise Computing Unix Advisory Council and the HP Technology Advisory Board.
