Will The Channel Get To Play In HP’s Cloud?6:36 PM EST Tue. Jun. 01, 2010
Will Hewlett-Packard’s solution provider partners find their businesses lifted up by HP’s ambitious data center consolidation strategy and cloud computing build-out, or will the tech giant’s multi-year initiative lead to channel turbulence?
That’s the billion-dollar question following Tuesday’s news that Palo Alto, Calif.-based HP will be investing that amount in its Enterprise Services unit’s consolidation of data center operations run by the former Electronic Data Systems, while also slashing 9,000 jobs in the process.
Solution providers like Nth Generation Computing’s Mark Gonzalez believe that the EDS infrastructure consolidation and automated services push will eventually result in opportunities for HP channel partners to participate in the selling of HP cloud services to SMB and mid-market customers.
When and how this is going to happen is more up in the air, said Gonzalez, president of the San Diego-based solution provider and HP partner.
“We had a meeting with the EDS folks, where this type of utility would be hosted, at the Americas Partner Conference [in late April],” he said. “It was clear that they were still trying to get their arms around how this might play out with the channel.
“The good news is that they’re obviously thinking about it because they mentioned it during the conference.”
HP’s official statement about its Enterprise Services restructuring plan is that it’s a two-pronged strategy for cutting costs and drumming up new business through automated service delivery -- the second part of which could be read as a cloud initiative, even if HP seems to be playing down that trendy buzzword.
The consolidation part of the plan includes outfitting the surviving data centers with HP’s full suite of Converged Infrastructure server, storage and networking products with HP management software running the show. That multi-year initiative would drive down legacy costs associated with EDS’ sprawling data center assets and deliver eventual savings of between $500 million and $700 million, according to HP.
And HP has considerable recent experience with such cost-cutting moves. The EDS data center consolidation would follow HP’s reduction over the past several years of the number of internal data centers it uses to provide networking services for its own employees. During that period, HP pared 85 global data centers down to just six in three locations.
That led to a dramatic 60 percent reduction in energy consumption and brought the number of applications HP uses itself from 6,000 to 1,500.
But another big part of what HP is calling “Phase Two” of its integration of EDS involves ramping up HP Enterprise Services’ ability to deliver what sounds a heck of a lot like cloud products and services.
"Certainly, the cloud aspects of it are important," said Ann Livermore, head of HP Enterprise Business, during a Tuesday conference call. "We think the next 10 years are going to be about who can automate the delivery of services.”
HP’s cloud initiatives are still in their infancy both from an industry and an HP perspective, said Gonzalez. The solution provider said that eventually, HP will map out a path for its partners to sell its cloud services to SMBs and mid-market customers, with mid-sized businesses the most likely early targets.
However, for now, Nth is working with San Diego-based Nirvanix to offer cloud storage to a handful of larger customers. “So far they seem happy,” he said. “I still think that this is in the ‘early adopter’ phase.”
Next: Direct First, Channels Later
HP CEO Mark Hurd is on record as saying that HP is committed to including its distribution channel in future cloud services offerings, even if “[t]he historical, old EDS, which is now a part of HP Enterprise Services, has historically been very focused on the biggest customers on the planet” via a direct sales structure.
“But we think with our channel partners, there are many services that we can build that our channel partners can offer from us,” the Hurd said in an interview earlier this year.
What will the mechanics of all this look like? Hurd pointed to data back-up, remote database synchronization and packaging excess data center capacity as potential services that channel partners might be able to sell for HP under the framework of a cloud computing portfolio.
Hurd reprised those comments more recently at the Americas Partner Conference in Las Vegas, telling partners that it was likely that HP "would build cloud capability later in the year" and "very likely put it through the channel."
Hurd’s recent comments on the integration of the former EDS into the traditionally channel-focused sales structure at HP hold promise for partners, particularly around their inclusion in cloud initiatives. “When we go look at our ability to provide services in the cloud -- that's a term I like to be cautious with -- and you break that down into more fundamental services, like backing up a data center, synchronizing databases remotely, etc., etc., etc. -- we think we can build that capability as a service capability from HP,” he said.
“But we can take it to market through our channel. And so I want to make sure I'm clear ... that our services [expansion] does not mean that there isn't an opportunity for our channel partners. I think quite the opposite.”
Expanding enterprise-class service offerings into the HP partner channel, “isn’t something that will happen overnight,” said Charles King, principal analyst at Pund-IT.
“In the short term, I expect that HP will focus most of its attention and energy on enterprises to which it can sell direct. Those are the highest margin customers and the ones it wants to compete for, against IBM and others,” King said.
“The channel offers the most logical and effective means HP has for engaging with mid-market and smaller businesses, so developing channel programs for those customers makes sense over the long term.”
King said that on the automated services front, HP’s “closest comparable competitor would probably be IBM, which is actively expanding its hosted cloud infrastructure offerings.”
“If the industry truly is headed toward cloud-based hosted service offerings, this is a critical transition for HP. Off hand, I expect that EDS assets comprise a sizable portion of the infrastructure being upgraded -- mainly because HP completed a sizable upgrade of its own data centers fairly recently,” he said.
“If that’s correct, it suggests that HP has largely completed the organizational part of the EDS integration and is now beginning the operational integration process.”
Next: Clouds On The Horizon?
Another industry analyst, Annex Research principal Bob Djurdjevic, took a much more negative view of HP’s billion-dollar investment pledge, going so far as to call it a “red herring” to “cover for the cutback of 9,000 jobs.”
“This is an EDS-related job reduction,” the analyst said, adding, “HP competitors like IBM and Accenture have already been doing [automated, consolidated data center services], not just talking about it, but doing it for years.”
But most solution providers were much more optimistic than Djurdjevic about HP’s strategic sense, if cautiously so.
Partners shouldn’t read too much into HP’s proposed shakeup of its Enterprise Services operations, said Dave Butler, president of Enterprise Computing Solutions, a Mission Viejo, Calif.-based solution provider and HP partner.
“My impression is, this is not a new opportunity or a declining opportunity for us to work with HP,” Butler said. “It’s more of a consolidation in organizations.”
HP currently has two services organizations, Butler said. These include Technical Services (TS), which includes things like break-fix and support, and Enterprise Services (ES), which includes managed services and outsourcing. HP’s TS arm has traditionally been more involved in working with partners, while ES has worked with partners on a deal-by-deal basis, he said.
Butler confirmed other partners’ accounts about the effort HP made at the Americas Partner Conference to strategize with partners about getting more involved in services. This week’s big consolidation news won’t impact partners right away, he said, but it could in the future.
“This is more about how HP brings in EDS,” he said. “Now the question is how to get partners more involved. With EDS, the opportunity to work with ES could be even bigger than it is now with TS.”
HP has not really reached out to its partner base in terms of how to work with the vendor on offering cloud services, but the opportunity is there, Butler said.
“A lot of companies with private label services are coming to market working with partners,” he said. “HP needs to be competitive with them. Maybe HP margins will be lower, but it does have the ‘HP’ brand. The company would have to make sure the brand has value. If it does, I don’t mind a smaller margin.”
Joe Burke, vice president of worldwide services for Arrow Enterprise Computing Solutions, said cloud computing vendors and the distribution channel were a natural fit.
“It looked to me like they were mainly talking more about integrating EDS, taking bigger steps to get more operationally efficient,” Burke said of this week’s HP announcement. “There was some mention about a greater cloud and a greater service offering as the market changes the way IT delivery takes place.
“When it comes to cloud providers, I believe they’ll have different routes to market. I firmly believe that distribution can be one of their routes to market, for reach and for economics, delivery, logistics and capability.
"It reminds me of when the Internet took off and everyone assumed it would dis-intermediate distribution. That’s not going to happen. Cloud services will have different routes to market, just like hardware or software or anything else.”
Steve Burke and Scott Campbell contributed to this article.