I came to HPE Discover 2017 with fairly low expectations. I was there to talk to customers about their agile and DevOps transformations, rather than for the formal analyst program. In case you haven’t been following the news in September a newco will be formed in what HPE is calling a “spin merge” with Micro Focus, based in Newbury in the UK, to create the world’s seventh largest pure play software company. Seventh might not seem a great target, but it has the benefit of being a clear position in the market, which HP isn’t trying to hide from. Once the merger is completed, we can expect more acquisitions as the company looks to grow aggressively and move up that pecking order.
I spent two days in sessions with customers, and they seemed very calm about the transition with an expectation that their investments would be protected, maintenance contracts supported, and new functionality delivered as promised. I spoke to one customer that signed a $15m software deal with HP in late 2016, and though concerned before the event kicked off, left a great deal more confident about next steps.
Partners I talked to were also in good spirits about the transaction. One reseller said he expected the deal to be good for his business because the HPE newco would be focusing entirely on software, rather than being confused about what to sell, and when. Companies like HP that make the majority of their revenues from hardware can find it hard to focus on software. The kind of salesperson used to selling 15 servers are not the same as the kind that appreciate the longer sales cycles of enterprise software sales. Getting corporate attention in marketing and strategy is also pretty hard when you’re only a small portion of overall sales.
The new executive team for the new co makes sense. I don’t know the GMs running security and data so well, but Raffi Margoliat and Tom Goguen, running application delivery management and IT Ops management respectively clearly both have a zest for what they’re doing. New global VP of Sales and Marketing Sue Barsamian seems pretty clear on go to market and narratives.
What really changed the game was Chris Hsu, who will be CEO. He did a bang-up job of kicking off the event on day one. His story was crisp, the strategy was clear and he did an excellent job of being forward looking while not trying to hide the fact many of the assets of the combined company are very much legacy assets. Legacy assets with really good cashflow. He was unapologetic about the fact that Cobol would be a significant revenue stream in the new business, and Micro Focus has done a phenomenal job recently of driving up revenues and share price from 2011-2016 – comparable with the performance of Amazon, Facebook or Microsoft in that time frame.
To be honest the Micro Focus portfolio is a bit of a grab bag and contains a bit of a pick and mix of legacy assets – Borland, Attachmate, Serena Software to name three. Micro Focus been pursuing the classic portfolio approach to growth. It also has some intriguing more modern assets too – it owns Suse, the enterprise Linux distribution company, for example, so there is some interesting technical leadership there. IBM doesn’t own a distro, HPE will.
From a competitive perspective, while it didn’t mention it by name, HP is clearly planning to compete aggressively with Splunk, and likely Cloudera, in the market for log analysis and security incident management. The company plans to use its Vertica column oriented database, with a Kafka based ingestion engine running on top of it, to compete in big data-related markets.
The newco is going to have to execute near flawlessly to make a significant impact as a progressive software company. It is making a multicloud play for now, but that may partly reflect the parent company’s push for a hybrid IT strategy. A new software company launched would almost certainly be SaaS only if not SaaS first, and would make a bet on a particular cloud provider. We may yet see the newco chose a cloud partner for its SaaS plays. On the other hand, HPE’s enterprise customers are indeed the kind of companies that expect hybrid and multicloud support, in terms of their deployment options.
It will be hard to avoid the desire to become yet another “new CA”, serially buying companies but not being seen for organic innovation.
But if you read Stephen’s The Software Paradox, which makes the case it’s becoming ever harder to sell software even as software eats the world it’s clear challenges are going to be very real. Cloud generally and SaaS specifically are the new convenient consumption models of choice. People want to pay for services, not software. Selling traditional on prem software also prevent the creation of new data aggregation oriented business models.
I don’t want to be overly positive about HPE’s future, but I came away with a far more positive view after a couple of days in Vegas, and I know for sure that many of HPE’s major customers felt the same way.
Disclosure: HP is a client. Paid T&E.