HP vs. IBM: Competitors or Allies?: Page 2

Posted February 24, 2009

Rob Enderle

Rob Enderle

(Page 2 of 2)

This isn’t intended to belittle IBM’s hardware efforts, only to show that as a corporate entity, hardware isn’t at the core of IBM anymore. What is particularly ironic to me was that in the early 90s I was one of the folks in IBM that led a team and tried to spin out Software because we believed that only by doing so would software be successful. Our effort was killed. However, in effect, IBM has been largely transformed into the software company we envisioned and it actually worked out rather well.

IBM’s customer satisfaction, loyalty, and trust scores exceed Microsoft’s significantly in enterprises, suggesting that this combination of services and software may have been the better mix at least for that market. It also suggests that Microsoft’s decision not to go into services may have been a bad one.

As a result of this decision, IBM software and services likely represents Microsoft’s greatest enterprise competitive threat today.

Should HP follow IBM?

HP was ahead of IBM in revenue in 2008, $118B to $104B, but the more significant number is gross margin, and here IBM led HP $46B to $28B.

More important, during the downturn as we have already seen, software and services is more resilient and this would suggest, if you only looked at the numbers, that IBM was on a path HP should follow.

This would be a mistaken conclusion. IBM entered the decade with a software company second only to Microsoft and has a heavy software focus in their DNA. HP lacks a strong software core and were they to try to emulate IBM it would both take too long and probably fail miserably, because they lack enough of the critical competence.

In addition, the opportunity cost with partners like Microsoft would probably easily overwhelm, at least for the short term, the economic benefits. You only have to look at Sun, which tried a similar path, to see that the result would probably be a vastly smaller and weaker HP.

HP, at its core, is a hardware company; IBM had dual competencies. That gives both companies a different set of viable choices for the future. Software just isn’t one of HP’s viable choices at the moment.

An HP-IBM Alliance?

The only real conclusion to draw from this is that IBM and HP are now largely different companies at or near dominance in their chosen industries. It is just interesting to note that, increasingly, those chosen industries are not the same ones and this anticipates a future time when the two firms may find that a partnership would be more lucrative for both than their current competitive stance.

It is interesting to note that their overlap has dropped to about 29% (20% HP services + 9% IBM hardware; I don’t think financing counts) and should it drop below 20%, a partnership could become a reality. Right now the HP IPG unit and IBM software unit could easily partner with the other company.

In the end we have to occasionally take a fresh look at companies, much like we should with people who also change, and challenge initial impressions. Both change and, in this case, IBM and HP have changed so much they really are vastly different from each other today.

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Tags: services, Microsoft, IBM, HP

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