HP plans Internet recovery

By rights, the mid-1990s Internet explosion should have been manna from heaven for Hewlett-Packard.

One of the biggest users of the Net, it was also a leading supplier of the powerful computers that connect the Net. And unlike competitors, HP sells millions of printers, PCs, scanners, and other devices - the on and off ramps to cyberspace.

But instead of a cyberboost, the company has downshifted from more than 20% revenue growth in the mid-1990s to about 10% in the past two years.

While rivals Sun Microsystems and IBM have roared to prominence, HP has been an Net under-achiever. 'Customers were getting a picture of the future from others, but not from us,' says HP chief executive Lewis Platt.

It may be time to listen. On May 18, HP laid out a sweeping Internet strategy, dubbed eservices. The plan allows companies to rent software over the Net and run it on remote HP servers. HP also has a new technology that will make it simple to scour the web for almost any service - for example, the best price on a widget or the cheapest place to lease computing power.

How confident is Platt of his new game plan? Enough to back the effort with a $100 million (£62.5m) ad budget - more than four times its previous Net-related spending. To bolster the strategy, HP has invested more than $200 million in a dozen Net-related companies since November.

At the centre of HP's eservices scheme is a technology dubbed eSpeak.

HP hopes the software, to be available free via the web to developers when it's finished early next year, will emerge as an industry standard, such as Sun's Java and Jini technologies. How does the eSpeak software work? Basically, it provides a common way to describe Net services. Just as companies use the arcane HTML programming language to create and describe the content on web pages, HP hopes web developers will use espeak when creating online services. That way companies or individuals can use eSpeak programs to search the web for eSpeak-enabled services, much as they use search engines to find web sites.

HP has other ideas for eservices. It believes that many companies will want to outsource applications to service providers, which will take care of those applications over the Net for a monthly fee. Forrester Research expects this market to grow from $90 million in 1998 to $10.1 billion in 2001.

HP is approaching outsourcing in two ways: by handling the outsourcing itself via huge server farms set up in Atlanta and Toronto, and by selling computers to other outsourcing companies. HP is buying equity stakes in those companies or agreeing to forego up-front payment for its computers in exchange for a cut of monthly revenues.

Take HP's agreement with Qwest Communications International and SAP.

HP will contribute $500 million worth of technology to the three-way partnership, which will charge medium-sized companies a few hundred dollars a month to run SAP's software over Qwest's network. That saves them from having to set up their own in-house operations. By taking a share of the monthly revenues, HP says it will at least break even over the three-year deal but could bring in as much as $1 billion if Qwest meets its growth plans.

As part of the agreement, Qwest must buy 95% of its Windows computers and 75% of its Unix servers from HP.

HP isn't limiting its investments to service providers. It will invest $100 million in BEA Systems to develop software to help companies put their internal systems online, and $35 million in BroadVision, which makes software to personalise web sites.

HP still has to overcome a lot of obstacles on the Net. According to a recent survey by Merrill Lynch, only 10 of 50 chief information officers polled believe HP is the company that can get them onto the Net - well behind IBM, Microsoft, and Sun.

'We feel like we're halfway to the moon, and they're trying to gas up the rocket ship,' snipes Anil Gadre, vice-president of marketing at Sun.

'Welcome to the Internet Age, HP - five years late!'

What's more, eservices will require vast amounts of consulting and support, an area where HP is weak. While it is partnering with traditional service companies such as Andersen Consulting, almost 16,000 of its 24,000 field service staff are computer-repair people.

HP also must prove it can rally industry support for its technology.

While 19 software partners, including Oracle and PeopleSoft, will support eSpeak, analysts question whether or not HP can garner the backing of programmers, as Sun has done for Java.

Yahoo! chief executive Tim Koogle says his company will hold fire on HP's plans. 'It's a complicated vision,' he says. Lew Wilks, vice-president at Qwest adds: 'eSpeak is potentially huge, but the proof isn't in the labs, but in the marketplace.'

Even with these challenges, HP's bold Net thrust has energised the company.

'We're tired of watching other companies have all the fun,' says Nick Earle, marketing chief of HP's enterprise computing unit.