Techaisle Blog

Hewlett Packard (NYSE: HPQ) announced yesterday that its board of directors has authorized the evaluation of strategic alternatives for its Personal Systems Group (PSG), including the exploration of the separation of its PC business into a separate company through a spin-off or other transaction.

The company intention seems set on implementing a plan to fundamentally transform its business to drive higher value solutions to enterprise, small and midsize business and public sector customers and went as far as describing the HP of the future “through a portfolio that spans printing, software, services, servers, storage and networking.”

The company has also announced a strategic withdrawal on WebOS and the prospect acquisition of Autonomy Corporation [Cambridge -UK], a data mining software company.

It seems that the company is aiming to get out of the commodity hardware business and focusing on becoming a software & solutions company. New CEO Leo Apothekar seems interested in transforming HP for the future but we think this is done without some fundamentals of the past.

Such a move will be pleasing to financial markets, since a possible withdrawal from PC business will undoubtedly ensure better financial ratios [YTD PSG represents 30% of segment total revenue and 16% of segment operating profits but is the lowest OP generating segment at 6%] but such a move is unlikely to create strategic advantage.

Whilst delivering higher value solutions is a key survival aim, less than 10 years ago, HP had paid $25 billion [Compaq Computers acquisition] to become the undisputed market leader worldwide. A new PC brand [and company] can be readily made, but the synergies sought then, and what the current HP can benefit from, will largely be lost in a new outfit.

A broad portfolio benefits SMBs

Techaisle research shows that SMBs rely heavily on the expertise of others with regards to the ICT needs. This support requirement takes many shapes and forms but single brand sourcing is a major aspect of this “peace of mind”. By spinning off the PC business, this powerful lever will be lost – with probable consequences also affecting other printing and networking businesses.

Channel Management Lock In

HP over the last two decades has built one of the best channel partner networks in the industry. Our research shows that these channel partners have been very loyal to HP, partly due to the brand, but also due to HP managers’ ability to capitalize on the range. By laying out partner business plans that neutralize competition, many IT vendors have simply been unable to attract sufficient interest on volume sales by resellers – locked in on a combination of bonuses and accelerators spanning the overall range, thus making it not worthwhile to really push other brands. Take away the PC share, and now the game is more open for all. Epson, Ricoh, Xerox, Lexmark all can have a stab at the mixed channels.

Spin-Off / Sell-Off?

For the reasons above, a spin-off would be tough but a sell-off might just end up being the stuff of nightmares.  There are not many suitors that have the interest and clout to take on such business and so the list is short – and we think all are likely to bite back.  Rumored Korean giant could benefit as much as HP did when they acquired Compaq, but Compaq was taken whole and no longer exists. Passing just the PSG business may well make the rest open for flanking strategies – and Korean ICT vendors are world master at that.

The Move to Services

When IBM spun off its PC business, it made sense because IBM already had all the IT stacks in place and its PC business was never really focused on consumers. Q3 filing of HP puts services almost as important to PCs and with the undergoing shift in computing mode [from client/server based to power everywhere] perhaps a refocus can be good – but Oracle, IBM, Fujitsu, Cisco and HP are all focusing on the software & services markets which will soon become very crowded again. This is, however, “a soon” and not “a now” – so profitability is still there.

Web OS

Power everywhere also demonstrates that HP can lose out. WebOS’ attempt to compete in the mobile OS world seems uncertain and the market is well set on the iOS, Android and WP7 triad. HP today also announced they will stop production of devices loading WebOS and that is a clear sign of loss of faith in this arena.

Concluding Remarks

Although based on our researched facts, we acknowledge that our analysis is limited by the lack of internal soft guidance on matters such as politics or personnel skills. To fully evaluate the risks, these are just as key ingredients but, structurally, either Spin-Off or Sell-Off of its PC business seems a very risky decision. HP’s strategy is a clear nod for IBM’s successful software and services strategy but then IBM was never so fully entrenched in the Consumer and Small Business Markets.

Finally, if a new PC Company is formed, at current data this will be the most profitable PC Company on the planet. A company capable of operating with the sole purpose of PC business but without the CIOs relationships it has today.  Things will not be easy.

Structurally, another Lenovo style company might be good for the new Lenovo style company as it will be entirely focused on the market but it will not have the same relationships as today nor will have the new HP.

By the way - to save on branding, the new PC Company could be called “Compaq”...  plenty of people will be happy about that.

Paolo Puppoli
Techaisle

Dell continues to show that it is serious about small businesses. In an economy where consumer purchases are slowing down, small businesses are continuing to refresh their technology and are showing growth rate in IT spends.

Dell today introduced the Vostro V131, a thin, powerful, and sleek laptop designed specifically for small businesses. It is an ultrathin laptop housing Intel® Core i3 or i5 processors, geared towards maximizing small business productivity. A removable 6-cell battery with 2nd generation Intel Core processors, both available as an option, is expected
to deliver up to 9.5 hours of battery life, allowing SMB users to work virtually anytime, anywhere.

Techaisle’s small business survey shows that not only enhancing IT is important for small businesses but also improving productivity through automation is extremely important. Among the newer technologies that they are currently investing in include: Windows 7, refresh of PCs and servers, as well as smart phones. It is quite clear that small businesses are seriously looking at enhancing their IT infrastructure, migrating from older technologies to more modern hardware platforms are key initiatives for reducing cost of operations. Over 60% of small businesses think that it is time for a refresh of their PCs and servers. To that extent, the timing for the introduction of Vostro V131 could not be any better.

Not only is Vostro V131 designed for improved productivity and enhanced mobility as
repeatedly by small businesses, but the laptop has also addressed the need for data security and backup. Remote back up and disaster recovery is still a top of the mind IT initiative for small businesses.

The Vostro V131 has very useful collaboration options including a full HD camera, SRS Premium Voice Pro, digital array mics and built-in Skype. In addition, the laptop offers two USB 3.0 ports, a chiclet keyboard with a backlit option, and quick launch keys. These additional collaboration features play extremely well into the new small business workplace scenario. Techaisle’s small business mobility report shows usage of relevant collaboration applications used by SMBs when traveling.

Of the options available in My Business Toolkit, that comes loaded on V131 (from September onwards), the most appropriate and useful for a small business are the Ruby Receptionists, a virtual reception service and Trend Micro Worry-Free Business Security Services.

Speaking about the announcement, Sam Burd, Vice-President of Dell’s Consumer & SMB Product Group said, “We designed the Vostro V131 to deliver fast, uninterrupted multitasking for today’s business challenges, the result is a feature-rich laptop for mobile professionals who want full performance to support their technology demands without sacrificing design and portability. In addition, the V131 offers services and software solutions that improve productivity and data security.”

V131’s starting price available on Dell.com is US$499 with a Celeron processor and a backlit keyboard which is a great price for a small business. An i3 based model is available for US$599. The price point is even better for small business owners that may be contemplating using Tablets instead of notebooks. V131 not only serves as a great content creator but also a secure and reliable collaboration tool while enhancing productivity.

We fully recommend it.

Anurag Agrawal
Techaisle

SMB SaaS is of high interest to the Vendors and the Channels as well as the SMBs themselves. This high interest has been fed by the promise of lower cost of ownership, avoiding software upgrade cycles and licensing fee and its ability to scale with the business. Our research shows that Global SMB SaaS market is expected to be US$5.3 Billion in 2011 and growing to US$8.9 Billion in 2015. This represents about 50 Percent of Global SMB Cloud spend, but is also showing the lowest growth rate behind IaaS/PaaS. While CRM and ERP seem to be the obvious choice for SMBs to begin their SaaS journey, supported by numerous small and global SaaS vendors, SMBs are looking for industry verticals or line of business applications more than generic SaaS applications. In our recent Channel studies, we have found that 40.3 percent of Channel Partners are currently offering SaaS based CRM solutions which is a little over 10,200 SMB Channel Partners in the US alone.

In the US, there are 2.3 million SMBs that are using some sort of SaaS solution. However, only about 1 million are using CRM. This represents approximately 98 CRM customers for each CRM SMB Channel Partner. With an average number of seats per SMB being not too high, one can easily guess as to how the Channel Partners can effectively make money in providing just CRM based SaaS solutions. This is with the assumption that all SMBs using CRM SaaS are going through Channel Partners. The only logical progression for both the Channel Partners and SaaS Vendors is to verticalize their applications, and that is where the actual demand is as both SBs and MBs are exhibiting high adoption levels for industry specific applications.

Top tier SaaS vendors such as salesforce.com initiated the No Hardware/No Software model and SMBs were quick to jump onto that messaging. However, salesforce.com should be in a state of dilemma in terms of addressing the needs of the SMBs as the market becomes increasingly saturated with generic CRM applications. SaaS vendors such as salesforce.com and Sugar CRM, besides enabling their applications for Mobile Solutions and Social Interaction, have to increasingly move towards offering applications which pertain to an SMBs line of business.

Vendors such as Intuit or Intacct have not been written about much but they have successfully gravitated towards offering solutions that are integral to an SMB operation. It is not surprising that Channel Partners are constantly asking each other as to how and where money can be made. Even with the roll out of Microsoft Office 365, where 5 out of every 6 Channels is a Microsoft Partner, not everyone wants to resell Office 365. It seems that the time is right for the Vendor and the Channel Community to once again come together to not only revamp the SaaS Business Model but also for the vendors to enable their Channel Partners for vertical solutions.

SAP is on a growth path with the SMBs as they have successfully transitioned their SaaS offerings to specific industry verticals as well as solution requirements of SMBs. This also strengthens the commitment and confidence of the Channel Partners to resell SAP. Agreed that SAP solutions are still used more by the mid-market businesses than the small businesses but the path defined by SAP is clearer than the rest.

Tavishi Agrawal
Techaisle

The World is Flat (© Thomas L. Friedman) and so has become IT, especially for SMBs. With a Flat world, rises an opportunity for SMBs to employ workers who are globally distributed, travel and telecommute. With a Flat world comes Flat IT. And the IT vendors are missing the dialogue with their SMB customers- some vendors more than others. They are also missing a new understanding of SMB IT adoption cycle.

But we are getting ahead of ourselves. Let us first understand the world of Flat IT.

Waves have Evaporated to Form Clouds

Analyst firms typically use words such as IT waves or eras in describing SMB IT adoption - client/server wave, networking wave, Internet wave, etc. There is nothing wrong with this wave theory except now that there are no more waves left, all water is evaporating to form clouds. But some analysts still continue with that philosophy and call the coming wave as mobility wave. These do not do any good to either a vendor or the end-customer. Mobility started with notebooks & Wi-Fi. An SMB does not buy IT considering the wave, it does not even think whether the wave is waxing or waning. A typical SMB buys IT because it needs IT and the SMB with the help of channel partners becomes smart enough to understand what IT to buy to make itself more efficient, productive and profitable.

Waves were relevant more than a decade ago when technology products were evolving in piecemeal basis. Today all technologies are available at the same time and its adoption among SMBs is dependent upon the business plan.

Building Block IT

Enter the building blocks. SMBs started off their journey into IT by unknowingly using simple building block concepts. Their first purchase was always a PC which served as the foundational block. When they added employees and file sharing became important, they built a network and added a server – the next block stacked up on the foundational block. When they reached a certain size they added more servers, the third and subsequent blocks became applications such as CRM, ERP and Line of business. All of these blocks could not be added without the existence of the previous block. Very soon when an SMB reached a mid-market level of operation, the blocks were neatly stacked one on top of another. And when the blocks became vertically unstable, they brought in external experts such as consulting organizations to help manage these blocks and possibly break them into small chunks that could be easily maintained. SMBs looked for Enablement.

IT vendors thrived. Dell concentrated on the foundational block, Cisco connected the blocks, HP played with all block layers while IBM refocused to the top layers. Vendors like Microsoft, SAP and Oracle provided the layers that enabled the blocks.

The process of an SMB growth and its relative steps to absorb IT were steady and predictable. Some SMBs stacked the blocks faster than others but steps to get to the top of the block were always same. It was also dependent upon the financial capacity of an SMB to the extent that those with large dollars available for investment built the blocks faster not necessarily having the same end-results as SMBs with limited investment capabilities and which moved slower. Call it cutting edge versus laggards, but such nomenclature also never proved that the cutting edge SMBs were more efficient or profitable than the laggards. IT vendors and channels made money as they exploited the IT imbalance among various SMBs creating a race to reach the top of building blocks as fast as possible.

Flat IT

Enter Flat IT. Cloud, mobility, virtualization, and managed services have effectively toppled the blocks down in one fell sweep and have laid everything flat on the table. SMBs are now automatically empowered but they do not know it yet, because nobody has told them so directly. The concept of cutting edge and laggard has been torn apart because
it carries little meaning as SMBs now have a rich menu of solutions available that can be plugged into in a very short time. Now it is not a race to the top, but how can an SMB reach its full potential in the shortest period of time.

In a Flat world, with Flat IT, similar technology is now available across all countries and gap between developing and developed worlds is narrowing. In some of the emerging markets, IT is not only Flat but leapfrogging technologies as building blocks are not fully present. Where converged infrastructure is becoming a possibility, Cloud services will
be delivered via wireless.

Next week we will discuss how SMB IT has become Time & Size Agnostic and how the SMBs of today are transforming themselves.

Anurag Agrawal
Techaisle