HP's Cloud Strategy Could Play Right into IBM's Hands

Disruption is in the air. While HP and IBM both grapple with what has become a long term downward revenue trend, Amazon, Google and others are enjoying the spoils of disruption.

To combat the threat, both HP and IBM are doubling down hard on cloud computing, but as HP CEO Meg Whitman mentioned in the Q1 investor call last Thursday, the key to managing the disruption will be to manage the decline in revenues:

“The water is now going to stop draining out of the bathtub as fast as it has, so the water that we pour in ought to lead to a rising level in the tub” - HP CEO Meg Whitman

Probably not the way I would have worded it, but I get her point.

Will the growth from HP and IBM investments be enough to stop the revenue declines? Eventually, probably, yes, but it’s difficult to say when growth from the new business will exceed decline from the old. There is no doubt about the scale of investment. During IBM CEO Ginni Romnetti’s analyst meeting last week, she mentioned an additional $4 Billion investment in emerging technologies like social, mobile, analytics and cloud; this is in addition to the $2 Billion acquisition of Softlayer as well an incremental $1.2 Billion in additional cloud capacity. The Eucalyptus acquisition is an example of HP's investments in cloud computing . That said, all appearances are that IBM’s total dollar investment in cloud is far greater than HP's, with HP appearing to rely on a more organic growth strategy that leverages Openstack to quickly gain capabilities.

Will HP’s strategy work?

If co-opted correctly, open source can be an effective defensive weapon against disruption, but the key is to maximize the benefit of your investments; I think IBM is doing a better job on that score than HP.

As this chart indicates, IBM’s relative contribution to the Openstack code base has declined while HP's has increased. Even though Openstack is a key component of IBM's cloud software portfolio, HP is now the leader in contributions to Openstack. So what happened to those developers? Did IBM lose them to HP and others? Unlikely. What’s more likely is that these developers are now working on proprietary enhancements and integrations into IBM’s software portfolio. If true, then the more HP invests in Openstack, the more IBM benefits as IBM continues its aggressive investment and acquisition strategy while continuing to use Openstack as a core technology. That’s not to say that HP won’t see success, it’s just that IBM seems to be taking advantage of a better position, and arguably better understanding of how best to use open source as a competitive weapon.

What do you think? Who will end up on top?

Or do you think it doesn't matter since the Amazons and Googles of the world will crush the IT incumbents?