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Microsoft and HP: A Marriage of Convenience?

Threatened by newly emboldened Oracle, VMware, IBM and others, HP and Microsoft team to tie app, data center and cloud infrastructures.

It's not uncommon for Microsoft CEO Steve Ballmer to announce a partnership with a hardware supplier or a software vendor. But it is unusual for him to effectively describe the extension of a long-term alliance as the most important technology and go-to-market effort to date. Yet that's effectively what he and Hewlett-Packard Co. CEO Mark Hurd did on Jan. 13 when they disclosed that they were jointly investing $250 million to develop next-generation data center and cloud technology.

Whether the technology lives up to the grandiose expectations they've set remains to be seen. The venture calls for collaborating on a model that ties together infrastructure and applications and marries both companies' technologies, including the HP line of servers, systems-management technologies and network gear with Microsoft SQL Server, SharePoint, Windows Server, System Center, Hyper-V and the new Windows Azure service.

The goal with Windows Azure, Microsoft's new cloud service that went live last month, is to enable public and private cloud offerings with technology from Microsoft and HP for companies of all sizes. Private cloud offerings could be delivered with a combination of software from both companies on the ProLiant server and HP storage platforms, the companies indicated.

On a conference call announcing the extension of their 25-year partnership, Ballmer underscored that the effort is focused on what he repeatedly described as a tightly integrated model for tying "infrastructure to applications" and allowing companies of all sizes to run those applications on public and/or private clouds. "It's absolutely cloud-driven," Ballmer said. "The fact that our two companies, Hewlett-Packard and Microsoft, are very directed at the cloud is the driving force behind this deal at this time."

Added HP's Hurd: "This is breakthrough stuff for us. It's a different thing than you've seen from the two of us before. This is the deepest level of collaboration and integration and technical work we've done that I'm certainly aware of. We're talking about aligning big parts of our go-to-market capability."

Yet despite all the hyperbole, Microsoft and HP both need each other, perhaps more than ever. They're bolstering their relationship on the heels of Oracle Corp. closing its $7.4 billion acquisition of Sun Microsystems Inc. In addition, Microsoft appears to be encountering the growth of another rival, VMware Inc., now led by CEO Paul Maritz and COO Tod Nielsen, both former Microsoft execs. VMware recently teamed up with Cisco Systems Inc. and NetApp Inc. to provide secure virtualized infrastructure.

And while IBM Corp. is also a key Microsoft partner, it too is a major rival in many segments where it can tie its database, business intelligence (BI) and systems management heft to offer robust systems based on Linux and other non Windows-based platforms.

Hence, Microsoft extending its ties to HP could be its best bet, says Ovum analyst Tony Baer. "Microsoft competes on a very rich third-party ecosystem, but they don't have the same enterprise robustness that you'd associate with a Sun or with an IBM," Baer says. "On the other hand, if you take a look at Cisco, VMware and NetApp, you're getting the raw infrastructure but nothing beyond the SpringSource platform [recently acquired by VMware] that goes further up the stack. So every one of these stack vendors is going to have something that's missing."

Forrester Research Inc. analyst James Kobielus says both HP and Microsoft can benefit by lending their intellectual capital to take on IBM and Oracle in databases, BI and data warehousing. "Microsoft has a strong BI stack, if nothing else. Look what Microsoft brings to the table there, and their transactional database, SQL Server and their big-market global presence," Kobielus says. MySQL could become a threat to Microsoft over time if Ellison fulfills his promise to beef it up and target small to midsize businesses, he adds.

Filling the Gaps
The pact is also important as both companies look to fill gaps among each of their enterprise data center and respective cloud efforts, says RedMonk analyst Michael Cote. "HP and Microsoft can fill a lot of holes in each other's strategies," Cote says. "If they deliver on these optimizations and these go-to-market initiatives are promising, they can help each other out."

While HP recently launched its own cloud initiative in December, Cote says it doesn't have the cloud ecosystem that Microsoft has. Meanwhile, Microsoft can gain from HP's enterprise hardware, storage, networking and systems management expertise.

Simply put, the two companies have effectively positioned themselves as preferred partners to bring together the next wave of integrated IT infrastructure tied with applications, advanced cloud technologies and new data center automation capabilities. And the timing reflects huge changes on the competitive landscape facing both companies.

At the same time, while the companies talk about tightly integrated stacks, they'll continue to push their traditional best-of-breed component approaches. For example, from HP's perspective, it can't afford to alienate VMware, which it has a relationship with as well. Many customers still prefer VMware's hypervisor stack, which still has a substantial technical edge over Microsoft's Hyper-V, and they expect it to be well-integrated with hardware, says Directions on Microsoft analyst Paul DeGroot.

"VMware is the leader. If HP wants to be in the data center, which is linked to virtualization, those two companies have to work together," he says. "Hurd is too smart to put all his eggs in one basket. Microsoft needs this; Microsoft does have to ensure that people who want to have a virtualization offering don't require a lot of tweaking."

As HP continues to work with Microsoft rivals VMware and Teradata Corp., Microsoft also has ties with HP competitors such as Dell Inc., EMC Corp. and IBM. Big Blue recently announced its intentions to bundle Microsoft SQL Server 2008 R2 Parallel Data Warehouse. It remains to be seen whether Microsoft and IBM will drift apart following the latest HP-Microsoft deal, particularly as IBM looks to go downmarket with its own apps, gets more aggressive with its Lotus suite and forges closer ties with two other key threats to Microsoft: Amazon Web Services LLC and Google Inc. These two companies provide key cloud platforms that will compete with Windows Azure.

Back to the Future?
Meanwhile, Oracle with Sun looms large on the competitive horizon.

Ellison describes a strategy with Sun's assets that ties all components of the hardware stack -- from silicon, operating systems and middleware -- to applications. "This notion of vertical integration we think delivers huge value to customers, giving them systems that cost less, run faster [and are] more reliable and more secure," Ellison says, describing

Oracle's goal of providing a modern-day architecture based on the model once established by IBM.

"In a way, it's kind of back to the future," Ellison notes. "Our vision for the year 2010 is the same as IBM's vision for the year 1960, which was to go ahead and deliver a comprehensive integrated suite of technologies. This was done very successfully by IBM under T.J. Watson in the '60s, and that strategy made IBM the most important company in the history of the earth. We like that strategy, so we're going to simply adopt it."

Every player is trying to come up with its own vertically integrated stacks, says Ovum's Baer. But he questions whether customers will buy into it. "I don't necessarily think that the market really is demanding that vendors fill every single checkbox because I don't think they want to lose their negotiating power that best-of-breed allows them. What they do want is to reduce the complexity of best-of-breed, and I think that's what these stacks are an answer to."

Microsoft and HP also are aiming to marry both companies' respective systems management offerings. "The fact that they're joining forces on that software isn't in and of itself unique: Both HP and Microsoft have built technology partnerships for their systems management software with other vendors," says Forrester analyst Glenn O'Donnell. "What I think is notable with this is they're really tying this into turnkey packages of applications, where the systems and the management software orchestrate everything happening under the covers."

Coming Soon
Early deliverables aren't expected to be groundbreaking, but they'll be coming soon. Bob Muglia, president of Microsoft's Server and Tools Business, said on the teleconference that both companies are already working to integrate the Microsoft System Center management platform and Hyper-V virtualization technology into HP ProLiant Servers and HP Insight Manager management software.

In the coming months, Microsoft will deliver power management capabilities in System Center that will be unique on HP hardware. "We have a whole set of milestones that will be coming associated with incremental deliveries to that virtualized environment," Muglia said. "Things like run-book automation to help simplify the management of both Windows environments and heterogeneous environments, as well as the next set of steps as we begin to implement that private cloud infrastructure."

Forrester's O'Donnell predicts that over time, enterprise customers can expect to see tighter integration of HP Insight Manager, System Center and Business Technology Optimization software, which consists of the former OpenView and Mercury Interactive management tools.

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