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HP and the public cloud: game over or game changer ?



HP and the public cloud: game over or game changer ?
In early April of this year, the New York Times published an article – based on an interview with Bill Hilf, the head of HP’s cloud business – that was widely interpreted as signalling a decision to quit the public cloud.

Although late to the market, HP apparently thought it could compete head on with Amazon Web Services (AWS) and players like Microsoft and IBM in the high volume, massively scaled cloud game.

According to Hilf, “We thought people would rent or buy computing from us…. It turns out that it makes no sense for us to go head-to-head.” This was an entirely reasonable admission and the putative decision to exit was generally well received by market observers.

Then came the denial

ln a statement to CRN three days later, the company said that “HP is not leaving the public cloud market. We run the largest OpenStack technology-based public cloud out there. This has to do with not competing head-to-head with the big public cloud players.”

The denial only made matters worse, mostly because of the erroneous claim that HP operates the world’s largest OpenStack public cloud, and immediately set off a barrage of negative reactions (to say the least) on Twitter and in the blogosphere.

After several days of being “unavailable for comment”, Hilf waded back into the conversation, writing in a blog post that he had been misinterpreted and that “our portfolio strategy to deliver on the vision of Hybrid IT continues strong,… Our public cloud services are used by customers that require them as a component of their overall cloud and hybrid delivery strategy.”

OUR COMMENTS ON THE CONVERSATION

The IT industry would be a duller place if HP didn’t shoot itself in the foot every once and awhile. This latest communications “snafu” at least has the merit of clarifiyng HP’s place in the market and where perhaps it might be going.

While exec Bill Hilf is now safely back “on meassage”, his remarks – and in fact the whole confusing conversation - don’t exactly add up to a bold ambition in the public cloud as a business, bearing in mind that the company’s “go to market” has been very different in regions ouside of the US, especially Europe.

HP's US public cloud is way behind the curve

HP has invested significantly (if not massively) over the last several years in its US public cloud operation but still doesn’t have much to show for It. The company has consistently lagged its competitors even in basic thing like compute and store services, and it has completely missed the boat on the newer, higher level XaaS type services, which is where the action is now. HP also lacks global reach, with public cloud operations only on the East and West coasts of the United States. According to the company, its US public cloud allows it to “test at scale” new technologies, but frankly this is not much of a business case for a public cloud operation.

On a more positive note, with the announcement last year of the Helion product and services portfolio, HP does have a strong private and public cloud tool kit, complemented by its access to and role in the OpenStack technology ecosystem.

In breaking news, this week in Las Vegas at Discover 2015, HP announced important updates to its portfolio and in particular, HP Helion CloudSystem 9.0. High points of the new version include:
  • expanded support for mutiple cloud environments (AWS, Azure, VMware...)
  • the HP Helion Development Platform for cloud native application development and infrastructure
  • a new version of HP Cloud Service Automation, to manage hybrid cloud environments.

HP also annoucned an automated testing tool called LeanFT, for continuous application testing in the DevOps cloud environments where continuous and fast delivery of application functionality is critical for the business.

A player in the public cloud needs a compelling message

As in all technology markets, players in the public cloud need a clear - and defendable - value proposition, with a compelling message for the customers they want to serve.

Consider a few of the leading players.

  • Amazon invented cloud computing (or at least IaaS) as part of an internal project to improve IT delivery for Amazon.com, but quickly saw its potential as a revolutionary service for other companies. The now classic message was simple: customers could source virtualized infrastructure on demand, transforming CapEx into OpEx, saving money and gaining flexibility. Over time, however, cloud computing morphed from an infrastructure sourcing model into a new computing paradigm, unleashing a wave of innovation. Amazon Web Services (AWS) now has nearly fifty different services (most going well beyond basic compute and store) and an endessly inventive ecosystem. Although AWS still carefully addresses traditional customer expectations, what one might call “Innovation at scale” has now become its most compelling message.

  • Microsoft is rapidly emerging as AWS’s most credible challenger in the volume segment of the market. As an established major player in enterprise IT, the company can leverage its ubiquitous software portfolio, a huge installed base and well established developer and sales ecosystems. As Microsoft moves its software to the cloud, the message seems to be something like: with the Microsoft cloud, customers can achieve transformative business benefits, taking advantage of what cloud computing now makes possible while relying on the software that they already know and trust.

  • Rackspace had the good sense, in 2014, to abandon its ambitions in the high volume segment of the market and focus on the services intensive space, in particular on the managed cloud. With an outstanding reputation for “high touch” customer service and a strong offering of managed services, Rackspace may offer less economies of scale than the high volume leaders, but it can deliver what its CEO calls ”economies of expertise”. With the managed cloud, customers can focus their resources and expertise on what is important to their business, while Rackspace provides specialized technical expertise (on everything from DevOps to Big Data) and industrialized management of cloud services.

AWS, Microsoft and Rackspace are very different companies, but all three are reasonably clear about the value they think they can deliver in the public cloud. So what about HP?

HP has spent the last several years taliking about the ”hybrid cloud”. There are however some real problems with this as a message for a public cloud business:

  • The “hybrid cloud” message is unclear. There are at least as many definitions of hybrid cloud as there are speakers in a conference. Public + private ? Private + traditional IT ? All three ? This ambiguity has, in our opinion, been very practical from the point of view of internal politics. While our friends at HP disagree, our own take on the situation is that the “hybrid cloud” message conveniently allowed the company paper over some very real differences about strategic options.

  • Customers choose public clouds on their own merits. Even assuming making public and private clouds work together well is a customer priority, customers want the benefits of the best public clouds. Unfortunately, HP’s US Public Cloud is hopelessly outclassed not only by giants like Amazon and Microsoft but also by managed cloud players like Rackspace.

  • Hybrid clouds don’t work as promised. The advantages claimed by hybrid cloud evangelists went far beyond easy private + public interoperabilty. The vision was total IT production flexiblity – things like private cloud overflow onto a public cloud and dynamic movement of workloads from one to the other on a global scale. It sounded great, but as it turns out, HP has not been able to deliver on this promise, nor for that matter has anyone else.

While the outlook for HP’s own public cloud doesn’t look especially bright, public IaaS is only a part of a much bigger picture. The company does indeed take the “cloudification” of customer information systems very seriously, but as opposed to, say, AWS and Microsoft, HP has a different vision of how to do it.

HP can shine in the private cloud

The private cloud is often seen as the “poor cousin” of the public cloud , a second best solution for “server huggers” and security obsessed CIO’s. As it turns out, there is a lot to be said for private clouds, especially in Europe.

For a small or mid-sized company looking to outsource its IT infrastructure to reduce costs and headaches, a public cloud is a natural solution, but for large organizations, the choice is not at all automatic. While most large companies in Europe have bought into the cloud computing paradigm, a great many CIO’s have chosen private rather than public cloud as the primary strategic option. These companies thnik they are big enough to achieve attractive economies of scale on their own, bearing in mind that IT infrastructure typically represents only about 15% of the total costs of a major business application initiative.

There is also the increasing awareness that the real benefits of cloud computing are at the application level and, in particular, the capability to develop, deploy and adapt applications much faster than ever before. To do this, they need what one might call “business building blocks”, managed as a services catalogue that leverages cloud technologies (together with things like DevOps and agile development tools) while tightly integrating with the applications and data in their existing systems.

Last but not least, confidentiality remains a concern. No one doubts that the public cloud players (be they US companies like AWS, Microsoft and IBM or European players such as Orange and Deutsch Telekom) are very good at security. Even so, for prospective European customers of American public cloud providers, that may not be enough. The case of Microsoft vs the US, over the legality of a US search warrant for e-mails stored in Microsoft’s Dublin data center, is a ticking time bomb in the market. If Microsoft loses on appeal, all bets are off.

In this environment, HP has a strong hand to play. In large European countries like France and Germany, HP over the last several years has acquired a stellar list of private cloud references with big and important companies. A recent striking example is HP's huge 10 year deal with Deutsche Bank in which the bank will use HP’s Helion private cloud to buy data centre services on demand, including storage, platform and hosting. HP is also the main technology partner of the European Union in the STORM clouds project, a part of the EU’s digital agenda intended to promote the development of “smart cities” and to accelerate cloud adoption by public authorities and services.

While focusing mostly on private cloud, the company also has the tools in place to interoperate with the big public clouds as needed by the customer’s applications. Whatever the customer, the basic approach is the same : build and manage a catalogue of cloud based services in which each service has undisputed business value. The message appears to be: customers can tap into the value in existing systems while leveraging cloud technologies under their own control, to do business better and faster.

Naturally, there are challenges. As compared with competitors like IBM and Accenture or even ATOS, HP is much better at infrastructure engineering than in dealing with business issues of customers. It also will have to ensure that, in the private cloud environment, it can keep up with the pace of innovation of AWS and others in the public cloud.

Nonetheless, HP does have a strong message for the private cloud and what it is now calling “hybrid IT”… as well as plenty of proof that it can deliver.

Cloud28+ and the European service provider ecosystem

HP has long maintained that, at least as a general rule, it did not want to compete with its public cloud service provider customers but rather to cooperate with them.

In Europe, the Cloud28+ community recently founded by HP is an interesting example of how it might work. According to the company, “Cloud28+ is a federation of Service Providers, resellers, Independent Software Vendors (ISVs), and government entities providing an online catalogue of trusted cloud services, a “Cloud of Clouds,” made in Europe and secured locally. ”

As in HP’s approach to private clouds, the services catalogue is the critical piece, but in this case working like a marketplace. Participating service providers can offer customers a broader range of applications, while expanding their own geographic reach. Customers can search for what they need according to workload requirements, geographic location and price, while selecting a local IT partner of their choice.

If Cloud28+ becomes a success, it will provide validation for HP’s service provider ecosystem strategy, as well as demonstrating that there is more than one way to play the game in the public cloud.

CONCLUSION

Despite HP’s lack of success with its own public cloud, the company has a big opportunity to capitalise on its proven strength and achievements in the private cloud. There is also a lot to be said for its service provider ecosystem strategy, especially in Europe, but the jury is still out on that one.

In all of this, the company’s biggest challenge will be the development of a true “IT services culture”, which is easier said than done, as IBM found out over numerous years of effort. HP has always been strong in engineering great products, but now – as mandated by CEO Meg Whitman - it will also have to excel in engineering customer information systems.

Overall, HP isn’t out of the cloud game but the company is playing by its own rules. The cloud is a big and increasingly diverse market, and there are plenty of different ways to be a winner.

Tuesday, June 2nd 2015
Duquesne Advisory
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