Interesting article from ZDNet.
Psst! Wanna a free mainframe?
By Michael Fitzgerald, ZDNet
Forget the free PC phenomenon. Hewlett-Packard Co. is giving away mainframes.
There's always a catch, of course. But the move away from straightforward selling computers signals that the huge computer maker is ready to shed its heretofore stodgy skin, and may trigger a widespread shift in the industry.
Nick Earle, chief marketing officer at Hewlett-Packard's (NYSE:HWP - news) Enterprise Computing Group, told ZDNN Friday in an interview that HP this week outlined three new sales models to its sales staff. The models include:
Taking an equity stake in a company in exchange for hardware and services.
Giving them the hardware in exchange for a percent of the revenues, in effect, an annuity.
Or, in some cases, acquire the company outright.
Of course, HP will also sell its hardware outright.
While these aren't quite the same as Internet service providers giving away PCs in exchange for service deals, they present a radical shift away from HP's current business model.
Earle said HP developed the strategy in January and launched it in February, before finally rolling it out to its 2,500 salespeople this week during a meeting expanding on HP's new E-Services initiative.
"Let me tell you, there were a lot of salespeople saying, 'Wait a minute, did he just say we're going to give away the hardware?'" Earle said. HP has devised new commission models to encourage salespeople to pursue these new opportunities, he said.
Chasing the bouncing ball
Driving the move is the pace of the technology business, where ever-shortening product life cycles wreak havoc on profit margins.
"The hardware business is like chasing a ball down the stairs -- you can't catch up to the margins," Earle said.
Analysts were impressed by the new business model.
"It's really exciting," said Kimball Brown, an analyst at Dataquest. "(HP is) finally breaking out of that stodgy mode. The computer business is becoming a services business, and for HP to participate in the services side .... It's too logical."
Another analyst said it could be particularly attractive to Internet companies.
"It's a good model if you look at the way the market is maturing," said Rob Enderle, an analyst at Giga Iinformation Group. "There are a lot of companies with huge potential but not much cash. If you want to capture those companies (as customers) and grow with them, you have to be extremely flexible in the way you do business with them."
"This borders on brilliant. You wouldn't expect this from HP," Enderle added.
"Six months ago, we would've said, 'We can't do this,'" Earle acknowledged. He noted that so far, the nascent program represents less than 1 percent of HP's revenues. But after this week's sales meeting, "we've taken it the street. Our revenue growth and stock prices will be the measure of how it works."
Examples of the deals
Among HP's early deals: Ariba.com, a business-to-business services site, has given it an annuity based on revenues in exchange for hardware and services; it took an equity stake in S1, a Web banking services company; and it bought Open Skies, an e-ticketing portal.
Both analysts agreed that there was a potential downside to the strategy.
"If they (the customer) go out of business you've made this investment and lost it," Brown said. But the upside potential of having a steady stream of revenue that isn't dependent on hardware sales should help HP's revenues and stock price.
But the upsides are tantalizing.
"It could be the beginning of a huge trend," Brown said. "It's about time that people woke up to new ways of doing business, instead of just making Microsoft and Intel rich."
|
