HP, Microsoft Bet $250 Million On Cloud, Promise Sales Boost For Channel Partners

By D.H. Kass

January 19, 2010

Microsoft Corp. and Hewlett Packard Co. said that they will invest some $250 million over the next three years to advance an orchestrated engineering, sales and marketing joint venture that crosses the data center from infrastructure to application and offers tangible rewards for channel partners.

The two companies intend to offer solutions framed on a “next generation infrastructure-to-application model,” aimed at hastening the pace of implementation, simplifying IT management and dropping costs by automating previously manual processes.

The partnership, which adds on to an existing arrangement the two vendors have maintained for more than 20 years, outlines an “engineering roadmap” that HP and Microsoft will use to guide new projects, including data management machines, pre-packaged application solutions, virtualization offerings and integrated management tools.

With a technological goal to optimize how the physical infrastructure—servers, network, storage—and applications work together, the vendors have kicked started the undertaking by deploying Microsoft’s SQL Server database on HP hardware, available to channel partners to sell.

“We’re talking about optimizing machine capability around SQL Server,” said HP chief executive Mark Hurd.

“We’re talking about packaging that up from an availability perspective, from a performance perspective, being able to align logistics capability around it, being able to align our implementation capability, our service capability, we’re talking about bringing 11,000 [service] people and optimizing that benefit to customers,” he said.

Dave Donatelli, HP executive vice president and general manager, enterprise servers and networking, said that the agreement spans the breadth of HP’s customer base.

“The agreement is targeted at all facets of our business from the enterprise customer all the way through the medium-sized business through what we call our SMB customer as well,” he said.

HP and Microsoft’s tighter pairing is particularly important for the resulting benefits the vendors suggest will come to channel partners.

Each said that shorter sales cycles resulting from applications bundles and “all-inclusive packages,” financing options from HP, dedicated field resources and worldwide, jointly-funded marketing campaigns will serve to boost channel partner revenue.

“Thirty-two thousand channel partners, more dedicated sales reps all bringing these technologies to market,” said Donatelli.

Agreement more than an extension

Both Hurd and Steve Ballmer, Microsoft chairman and chief executive, contended that the endeavor was not merely an extension of their long-term relationship but rather a more profound association that covered sales, marketing, services and channel partners.

“Microsoft has best of breed solutions for virtualization and management of Microsoft environments, and HP has been a leader in heterogeneous environments, and really stitching those things together has been kind of a desire for a long time,” Ballmer said.

“The cloud is the driving force behind this deal at this time,” he said.

Hurd said that the current investment by the two companies did not fully reflect the multi-layered nature of their association.

“So we’re going to invest not $250 million, I want to make sure I’m clear with this, but $250 million of incremental dollars unique to this program. Already there are hundreds of millions of dollars spent between Microsoft and HP every year, bringing solutions for our customers,” Hurd said.

“This is $250 million incremental dollars, alignment between engineering teams, services teams, go-to-market teams, all with the desire to make things simpler and easier for our customers, get the deeper levels of integration to optimize machine capability with software capability.”

In stressing the call-to-arms service aspect of the agreement, Hurd dismissed the notion that the application bundles central to the vendors’ effort resembled those compiled in the past.

“There’s a difference between a bundle and the opportunity now on how deep it get integrated, and how much true engineering work gets done,” he said.

“Now, we’re talking about 11,000 [service] people, pre-testing, pre-loading, lining up logistics and maybe it’s the scale that we need to get across in the messaging, because this is, to my knowledge, actually, the biggest alignment of infrastructure we’ve ever put behind any kind of enterprise offer that we’ve had,” he said.

HP’s and Microsoft’s sales teams, service professionals and channel partners will assume responsibility for selling the data center’s offerings, including Microsoft’s Azure cloud computing platform.

“In terms of our working together in areas like Windows Azure, we have been working very closely together,” said Bob Muglia, Microsoft president of server and tools business.

“That includes Microsoft purchasing HP hardware for our Windows Azure environment and it also includes work together to help customers think about how they will take advantage of the next generation cloud applications,” he said.

Ballmer shrugged off suggestions that a tighter bond between the two companies might threaten relationships Microsoft maintains with other vendors, specifically, Dell and IBM.

“We don’t have a lot going on with IBM, so let me set the record straight, we’re driving ahead aggressively with Hewlett-Packard,” he said.

Technology collaboration key to agreement, analysts say

In assessment the two companies’ investment in the venture, analysts Charles King, president of Pund-IT Inc. and Merv Adrian, IT Market Strategy founder, in a report said that “while a quarter of a billion dollars spent over three years is hardly chump change, it does qualify as small potatoes for a pair of companies whose combined annual revenues are well north of $150 billion.”

King and Adrian said that rather than the investment, the “technology collaboration is more interesting, since it will occur at a fundamental code level.”

HP’s and Microsoft’s collaboration may not be as fruitful for channel partners as the companies seem to believe it will, King and Adrian said.

“In the SMB market, the value-add is often the degree to which [channel] partners handle installation and integration,” they said.

HP and Microsoft “seemed to imply that much of this business might go to HP’s services organization in the more simplified world of fully integrated SKUs offered as a single purchase,” they said.

“The specific focus of the announcement on Exchange and SQL Server deployments strikes directly at the heart of two of the most lucrative solutions offered by Microsoft’s channel partners, and suggests that many may find themselves increasing competing with HP.”