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Who wants a licensing software company in decline?

October 16, 2004

Over at Bill Burnham’s blog he is suggesting that HP acquire BEA. Well I hope Carly has learned that buying a sinking commodity business in not a good idea. Yes, BEA is getting hurt by Microsoft and Oracle, but their real problem is JBoss and the LAMP platform (Linux, Apache, MySQL, Perl, Python, PHP).

If a developer wants to build an application he/she can ask the CFO for a $100k Oracle/BEA P.O. or they can download JBoss and/or LAMP for free. The developer’s downside is that the support is spotty for all applications and non-existent for the combined stack – developers can’t count on Sourcelabs & Spikesource being around in 10 years.

And therein presents a huge opportunity for HP. Of the solution vendors they alone lack an app server and a dbase. Now they turn this strategic gaff into an advantage by offering support for JBoss/LAMP. To their credit, HP has quietly become a force in Linux servers (Debian is run by an HP employee) and they have a nice relationship with JBoss. Cozy up to MySQL (or buy them) and you have:
1. $25k to $50k per server solution price advantage over IBM.
2. Recurring support revenue that would have gone to BEA/Oracle
3. Open source developers helping do your R&D
4. Commoditized your competitor’s high margin products
5. An exciting vision for customers and employees.

As Christianson taught us, commoditization moves value to adjacent layers. In this case, to services and perhaps hardware – areas where HP is a leader. The downside – this is sure to annoy important business partners like Oracle and Microsoft – but no more so than buying BEA. And it is not in Oracle and Microsoft’s interest to push more business to Dell.

So now that I have cavalierly “fixed” the enterprise side of HP. Let me note that they should spin out the consumer PC and imaging divisions into a new company. Said newco should acquire Adobe, and perhaps Macromedia. By making these products work together (which they don’t today) HP would be far and away number 1 in imaging and web development from professional to consumer.

The result is two companies, that wall street can understand. In a year HP shareholders will have $40 a share combined, easy.


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