COM D. Curtis, M. Govekar

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1 D. Curtis, M. Govekar Research Note 7 August 2003 Commentary HP's OpenView Management Software Group Shows Vision We continue to rate Hewlett-Packard's OpenView products as "positive." However, HP's strong and comparatively easy-to-implement OpenView management tools need more sales, marketing and organizational attention. Hewlett-Packard's (HP's) adaptive enterprise vision, which was announced as a major corporate initiative in May 2003, included a significant management software component. This vision is being driven from the top by CEO Carly Fiorina and down through HP's business units. From the OpenView perspective, we believe that this is the most positive vision we have seen from HP since the early days of HP OpenView Network Node Manager (NNM) more than a decade ago. It signals a management software strategy that is aligned with HP's corporate strategy for the first time ever, which we believe will lead to increased funding, an unprecedented level of corporate attention and a drive in behavior across the corporation to include OpenView where it never was in the past. Strategy HP's OpenView strategy is to deliver integrated IT service management that enables the HP adaptive enterprise. We find it positive that HP understands that it takes not just technology, but also people and processes, to move from a component-oriented, operations-centric management model to a servicecentric model in which IT is aligned with the business. HP has most of the pieces of management software required for end-to-end service management, but it has not been able to execute this high-level strategy well. Evidence in the field suggests that more than 80 percent of OpenView customers are operating down at the component level with less than 20 percent taking the end-to-end service view. This is not an indictment of HP or OpenView alone. Rather, this is representative of the lack of IT management process maturity in IS organizations overall. OpenView must continue to perform the delicate strategy balancing act of partnering with the HP server groups to provide superior management of its own hardware/operating-system platform, while keeping them at arm's length to assure customers that OpenView is hardware-platform- and vendor-neutral. This is more difficult now that OpenView software and server hardware are in the same HP Enterprise Systems Group. It is even more difficult with the evidence that OpenView is often being sold with a larger HP server contract. Although access to other sales channels within HP is a plus for OpenView, it results in OpenView not being perceived as an autonomous management solution that is independent of HP. Gartner 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 Financial Gartner estimates that HP OpenView is a $1 billion business. About $450 million of that is new software license revenue. The remainder is maintenance, consulting, professional services, support and other revenue. In Gartner Dataquest's ranking of network and systems management (NSM) software vendors' market share, HP holds the No. 4 position among the "Big Four" vendors, behind IBM Tivoli, BMC Software and Computer Associates International (in that order). If mainframe management software revenue is eliminated and we consider only the distributed management software market, HP holds the No. 2 position behind IBM Tivoli (according to Gartner Dataquest). Note that the Gartner Dataquest NSM market segment does not include storage management, which if added would bring Veritas Software among the top five management software vendors. Although HP's position in the distributed management software market is very positive, HP's lack of mainframe revenue leaves it at a competitive disadvantage vs. the other Big Four vendors that use mainframe revenue as a "cash cow" to fund research and development. HP OpenView's revenue represents less than 2 percent of HP's total revenue of around $70 billion in 2002, which means that despite the adaptive enterprise vision, OpenView can potentially suffer from lack of corporate attention. Marketing Marketing has been the biggest problem area for OpenView. HP has found it difficult to shake OpenView's network management legacy and demonstrate the portfolio's breadth to enterprises. OpenView is a good, strong brand. Customers associate it with reliable tools that, compared with the other Big Four vendor products, are easy to implement and use. This brand image rose up on the back of HP's network management tool, and HP has not leveraged it effectively in terms of increasing awareness and the installed base of other OpenView management tools, such as its event management console and service desk product. In the past, marketing has done a disservice to the OpenView brand, bifurcating the portfolio with new brand names such as VantagePoint. Now, the alternate brand names have been dropped and HP is putting all of its marketing efforts behind OpenView. As part of the new HP corporate attention being focused on management software, OpenView has appeared in recent HP advertising in mainstream publications such as the Wall Street Journal, Business Week and Fortune. Unlike the other Big Four vendors, HP markets OpenView predominantly through partners and resellers, with around 55 percent of its worldwide revenue coming through indirect channels. The fact that many resellers are only point network management product providers has made it difficult for HP to consistently communicate the right marketing messages that can connect with the higher echelons of IS management. HP has been conservative in this area and has not placed much emphasis on marketing and communicating its successes, which has resulted in lack of awareness. For example, HP was one of the first vendors in the IT operations management area to develop and implement a business service management function (Service Navigator); however, it did not get the message out, and larger competitors such as IBM Tivoli and BMC have been "beating the drum" of business service management. Organization HP OpenView is the largest part of HP's Software Global Business Unit (SGBU), which is led by Senior Vice President Nora Denzel. Included in the SGBU as peer organizations to OpenView are Utility Data Center (an adaptive solution combining HP server hardware, OpenView software, specialized utility controller software and services) and OpenCall (software for the telecommunications industry vertical). The SGBU reports into HP's Enterprise Systems Group (ESG), along with the parallel Enterprise Server and Storage Group, which contains all of ESG's hardware assets. 7 August

3 Although OpenView employees have not experienced the high turnover rate that is common in the software industry, the OpenView business has had two recent changes in the general manager responsible for this area. Patty Azzarello, who had been general manager of the OpenView division for two years, left in July Azzarello left a significant positive stamp on the OpenView division with her focus on the "one OpenView," creating a consolidated OpenView division and eliminating the separate product groups and labs that were often developing redundant, overlapping products. Upon Azzarello's departure, Jim Grant was named interim, acting general manager. Nine months later (March 2003), Grant left to join competitor BMC/Remedy. With Grant's precipitous departure, Todd DeLaughter was named interim, acting general manager. DeLaughter comes from the Compaq Computer side of the business, previously responsible for managing TeMIP. After what was reported by HP to be a rigorous selection process to get the right general manager candidate in place, DeLaughter was named as permanent in this role. That this was done without any fanfare or public announcement shows how little strategic importance HP attaches to this position. DeLaughter needs to demonstrate some stability in this role and quickly communicate his strategy and priorities for OpenView as the foundation of HP's adaptive management vision. Product/Technologies HP's background and historic success lie in network management with its HP OpenView NNM product. NNM is the market share leader in the distributed network management market segment with an installed base of more than 130,000 licenses. It represents approximately one-fourth of HP's OpenView software license revenue. HP has successfully managed to straddle the Java 2 Platform, Enterprise Edition vs. Microsoft.NET conflict, partially by building strong partnerships (with Microsoft, BEA Systems, Oracle and others) in both camps and partially by staying on the sidelines and not assuming the competitive stance against Microsoft that IBM and Sun Microsystems have. HP provides good cross-platform management solutions (for example, OpenView Transaction Analyzer). Of the Big Four vendors, HP is one of the biggest influencers in Web services management standards development. It has developed a Web services management engine that can be deployed across heterogeneous platforms. Event management for distributed systems has also been one of HP's strengths, with a functionally rich product that can be deployed comparatively quickly. HP OpenView has recently focused on application management (using OpenView smart plug-ins), competing effectively with BMC in areas such as SAP management. HP has good partnerships with the packaged-application vendors, such as SAP, Oracle and others. HP has chosen to pursue the service desk, application management, business service management and performance management markets with internally developed or acquired products. HP acquired Trinagy, for example, in an effort to revitalize and extend its reach in the performance management area. HP has chosen to partner in some key areas such as software distribution (Novadigm), job scheduling (ORSYP) and mainframe management (EView Technology). Gaps in the portfolio, such as asset management and security management, need to be filled through internal development or partnering. The menu of more than 40 often-overlapping and redundant products needs to be rationalized and integrated to create clear, focused solutions. The OpenView technology road map includes developing a new management architecture that is built around a common data model (or configuration database) that will be consistent across all OpenView products, such that a service defined in one product becomes part of an integrated repository that can be shared by other OpenView products. With future OpenView product versions being built around a 7 August

4 common data model, it will be difficult to ensure that it does not begin to appear like the monolithic framework style of management products against which enterprise buyers rebel. Overall, the HP OpenView product portfolio, mostly bought as point products through resellers, has good functionality, is easier to deploy compared to other frameworks and has generally happy customers. Storage management is a notable exception to this rule an area where the HP products are not as strong, especially for backup. HP's products, when compared with the other Big Four vendors, are competitively priced, but more expensive than the point product vendors, such as TeamQuest (for performance management) and RealTech (for SAP management). Customer Service/Product Support Sales: OpenView has traditionally been hamstrung by lack of investment in a focused direct sales force. The size of the OpenView sales force pales in comparison with the number of "feet on the street" for the other Big Four vendors. Previously, the pre-merger Compaq sales force received equal quota credit for selling competing management software products as it did for OpenView. This situation has been corrected and, moreover, the general HP sales force is now offered incentives based on both revenue and gross margin. Thus, selling software is a more attractive proposition than ever before because of the higher margins found there. We are seeing more of the general HP sales force, including OpenView, as part of an HP server deal. This helps leverage the value of the larger HP enterprise systems sales force, but creates the perception that OpenView is tied to HP hardware. Distribution: OpenView is considered a "partner friendly" business unit. There are more than 300 independent software vendors in the HP OpenView Portfolio Partners Program. Approximately 55 percent of HP's OpenView revenue is generated through resellers and distributors worldwide as high as 85 percent in certain regions. The high-percentage indirect channel sales separate HP from its end customers, encourage the point solution sales and make HP less likely to be in the position of "strategic partner" to the end customer. HP would like to move to a distribution model where: Tactical point product transactions and small and midsize business deals are driven through indirect channels. Strategic new customers, acquired through IT service management and adaptive enterprise marketing programs, are driven through direct sales. This may alienate and marginalize successful HP OpenView resellers. However, with no managed effort on HP's part and no specific goals for what percentage of revenue will go through direct vs. indirect channels, HP will likely continue with the status quo. Support Services: HP's support services are generally rated favorably by customers. HP's OpenView business and its professional service organization understand the importance and have been strong proponents of IT operation process best practices based on the IT Infrastructure Library (ITIL), which has led to successful OpenView implementations. However, HP's professional services have not always been faithful to HP OpenView, sometimes choosing other vendors' management software products because of the nature of the service business. OpenView will need to be competitive with other solutions or it won't be chosen by HP services. Bottom Line: The overall rating for Hewlett-Packard's OpenView products is "positive." OpenView products have not always been the technology leaders, but they are functional and, more importantly, they have a higher-than-average success rate in terms of deployment. Although we believe that HP shows excellent vision, with its lack of sales, marketing and organizational investment, we have doubts 7 August

5 about its ability to execute its adaptive enterprise strategy and IT service management integration. Even so, we believe that HP will continue to provide operationally useful management software products for heterogeneous, distributed computing environments. Therefore, enterprises should consider HP OpenView, especially in the network management, event console, application management, Web services management and performance management areas. 7 August