HP - will they ever understand Software Business?

HP choose to not sell it's Identity Management products any more. A surprise, for sure - at least at first look. On the other hand: HP had in 2006 revenues of 91,6 billion US$ - but only 1,3 bill US$ in software revenue. And that was a major increase, compared to 2005. With other words: HP is even today anything but a software company. Unlike Microsoft, CA, Oracle, it is first of all a box shipper, a hardware company. Even Services had only 17% of revenue in 2006 - compare it to IBM, and it is obvious that anything besides computers, printers, cameras is a pretty small part of their business.

Nevertheless I believe that the decision of HP is short-sighted. Identity Management is a growing business (By the way: Not being successful in significantly increasing markets is also a art of itself...). And Identity Management is relevant to HPs Security Service Business as well as to their BTO strategy. Besides this, HP has had some pretty interesting technical features especially around Federation. And they have some good guys in their Identity Business, to name Archie Reed and Jason Rouault.

Anyhow, they have decided to leave the Identity Management market to others, and from what I hear from the competition these others seem to be quite lucky with this even while they hadn't to compete that much which HP. But I'd like to focus on two other aspects:

Some thoughts about the reasons why HP failed.
Some thoughts about why giving up the own Identity Management products might be an even bigger failure.

From what we observed in the market, HP wasn't as active as others - and HP was, in the combination of pretty high license fees combined with a large amount of services, not really competitive in pricing, at least in most cases. That's often the problem with companies where software is just an add-on to something else, be it services or hardware. Sun had been struggling with their primary focus on selling expensive hardware but they seem to have learned their lesson. HP obviously didn't. So, in fact, HP failed in the Identity Management market because they are no real software company. Besides this, their entry is mainly from the system administration level, due to their OpenView history. And that's far away from where the budgets are. IBM's entries to customers, for example, are much closer to the budgets in many cases.

But, to discuss the second aspect, the much more important question is about the implications for other areas of HP's business. For outsourcing, the lack of own Identity Management is a problem. It makes it more difficult to provide efficient solutions which provide the economics of scale to HP's outsourcing business. And it is a hurdle for own "managed identity services".

For the service business, e.g. implementation projects, HP now can choose among different vendors. That might help them to offer the most appropriate solution to the customer. But the business around their own IAM is gone. And as well there is the question about competence when HP does Identity Management only occasionally in the future.

But the biggest problem arises for BTO. I've discussed the relationship of BSM (which is the usual term for what HP claims to be BTO) sometimes (here and here). And for me, it is obvious, that you need IAM in this context to really have services acting in the context of identities. That's the basis for secure services and it is the basis for accounting, leading to an ERP for IT. Giving up it's own products and competency in this field is, from my perspective, a severe strategic mistake of HP, because it shortens their ability to become a vital competitor in this market.

Thus, it seems to me that HP has, very short-sighted, given away some of it's opportunities in the software market. And it might end up with a even weaker software business for HP overall, because they have without doubt weakened their strategic potential in the BSM market.