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HP cloud services here to stay, but IaaS ambition shifts

HP knows its cloud services won't beat AWS, Google and Azure, but its hardware can play an important role in the cloud.

The recent flap over whether HP plans to abandon the public cloud market has renewed focus on exactly what opportunity, or lack of it, still exists for legacy hardware companies.

As the big three public cloud providers, Amazon, Google and Microsoft, continue to solidify their position at the top, the large traditional suppliers must rethink their approach to make money in the cloud market.

"People think it's sexy to say you are a public cloud [provider] but no one is making money there, with razor-thin margins," said Dana Gardner, principal analyst with Interarbor Solutions, LLC a market researcher in Gilford, N.H. "Companies like HP are saying, 'let Amazon be the low-margin public cloud and we'll put things like our Vertica big data engine in the Amazon cloud.'"

Indeed, Bill Hilf, senior vice president in charge of HP's Helion product management, admits the company miscalculated in believing HP cloud services could compete with the big three in hosting the business of large IT shops and developers.  In The New York Times last week, he confessed it "makes no sense for [HP] to go head to head."

Many misconstrued that comment to mean HP would bow out of public cloud entirely, which HP has since denied. But Hilf's admission is no surprise to Lydia Leong, a vice president and distinguished analyst with Gartner, Inc. She said the writing has been on the wall as far back as a year ago, despite HP's careful comments this week that it has no intention of backing away from its public cloud operations.

"I tend to think HP's public cloud strategy was doomed from the start," Leong said. "I don't think they ever had -- with their strategy as they had it originally -- a real chance in the public cloud market."

HP is playing more in the markets adjacent to cloud as opposed to playing directly in it, Leong said. That includes things like HP Cloud Service Automation, which has high value in automating virtual environments but isn't cloud.

They can become the provider of picks and shovels for the Amazons to mine the gold in all the different clouds.
Dana Gardnerprincipal analyst, Interarbor Solutions

Dell also rethought its ambitions for the public cloud and last year shifted toward being a cloud broker rather than public cloud provider. The Dell Cloud Marketplace allows users to compare, purchase and manage public clouds on Meanwhile, IBM is placing stronger emphasis on its hybrid cloud products and strategies, pushing many of its users in that direction. Like Dell, IBM launched a cloud marketplace last year where users can test and buy IBM and non-IBM products and services.

Other long-time industry giants, including Oracle and SAP, would be wise to follow HP, IBM and Dell's example, given the changing attitudes of many corporate users. The enterprise IT market has "permanently and radically" shifted, according to Carl Brooks, an analyst with 451 Research, citing a recent 451 survey that showed some 75% of hosted services users believe the majority of mainstream apps are going to be hosted or headed in that direction.

Many of these legacy vendors' business models were predicated on customers owning and buying their technology and services – the value of which has permanently dropped, Brooks said.

Currently, around 16% of IT is outsourced, according to 451. There will always be some workloads that remain on-premises, but it could be closer to 50% in a couple years, Brooks said.

"HP and IBM and all these other folks are trying to restructure to soak up some of the available business that's not going to these providers," Brooks said. "It's a real challenge for someone the size and scale of IBM."

Dell, HP and IBM bank on cloud hardware

Unlike many of the big three's cloud competitors, Dell, HP and IBM have another franchise that could keep them relevant in the cloud conversation -- hardware. Their proprietary server hardware businesses have taken savage beatings from a number of low-cost white box providers, but each company has offered a glimpse of the next generation servers cooking in their laboratories.

The question is whether these systems arrive before significant damage is done that limits each company's chance to become a major player in the cloud market.

Last year, HP showed off The Machine, a server line with a completely new chip architecture that promises to be much more energy efficient and up to six times faster than current systems. It also features a new form of computer memory based on an electronic component called a memristor. The cherry on top of this futuristic server ice cream sundae is a new operating system to take advantage of all the new hardware.

Company officials said they hope to have a working prototype of The Machine some time in 2016, with delivery of the final product the following year.

"If HP can effectively put all its R&D muscle behind [The Machine] and be the first to define what the next generation of hardware can do in terms of performance in the data center, they can change the game," Gardner said. "Then, they can become the provider of picks and shovels for the Amazons to mine the gold in all the different clouds."

This, along with the appearance that HP doesn't expect to compete with the big three, further increases its chances of being successful as an infrastructure provider to public and hybrid clouds, Gardner added.

Ed Scannell is senior executive editor for TechTarget's Data Center and Virtualization media group. He can be reached at [email protected] 

Trevor Jones is the news writer for SearchCloudComputing. You can reach him at [email protected]

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