HP's brand of venture capital

Rasheed Baqai (rasheed@usa.net)
Fri, 23 Apr 1999 22:28:23 -0700 (PDT)

HP wants the profits of Softbank and Sequoia it seems.

Will that be 'part of the HP' network on the next new Internet company you



Psst! Wanna a free mainframe?
By Michael Fitzgerald, ZDNet

Forget the free PC phenomenon. Hewlett-Packard Co. is giving away
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

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

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

"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

"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."