HP announces three strategic alliances
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HP (NYSE: HWP) on Thursday announced three new strategic alliances during day one of its E-Services World conference, a two-day affair that has drawn nearly 700 people.
Two of the deals, with StarMedia Network Inc. (Nasdaq: STRM) and USA.Net, involved HP swapping hardware, software and services for either a slice of revenue, equity in the company or both. The other, with eOnline, was a more traditionally structured deal.
Since it started its e-services effort, HP has signed 30 deals, roughly one-third of them involving equity or revenue swaps. HP officials said it's been very happy with these deals and expects to continue doing them.
"Companies who will win in the online world will be those who do it both with technology innovation and business-model innovation," said Ann Livermore, president and CEO of HP's Enterprise Services Division. She added that HP has learned a great deal about how to build "cyber centers," or data centers that feature high availability equipment, and that this expertise is helping it win more deals.
Out-of-the-box thinking spurs growth
It looks likely that more such deals will be signed, too. Carleton S. Fiorina, HP's new president and CEO, was the first keynote speaker of the day, and promised that "you can count on the fact that we'll be more aggressive from this time forward." She also quoted Socrates to the assembled customers, saying "we cannot live better than in seeking to become better."
While revenue swaps and equity swaps remain highly unusual, HP's new partners cited its willingness to forgo cash on the barrel for systems as better for their businesses.
"We don't see it as wacky; we see it as how businesses will work in the new economy," said Fernando J. Espuelas, chairman and CEO of StarMedia, the largest Spanish and Portuguese language portal on the Web. HP and StarMedia will partner to offer small and medium-sized businesses in Latin America the chance to set up online stores in less than 24 hours. HP will build and host the stores, in exchange for a chunk of revenue.
Espuelas said that "the ability to get to market very quickly, instead of having to build it ourselves, is a huge business advantage for us." He noted that 60 percent of StarMedia's visitors have credit cards, as opposed to only 10 percent for Latin America generally, and said he hoped the deal would help create "an Amazon.com for Latin America."
HP's 'secret weapon'
HP will get a chunk of equity and a slice of revenue from USA.NET, in exchange for $15 million in hardware, software and services. USA.NET, in Colorado Springs, Colo., is the world's largest e-mail outsourcer, with 12 million mailboxes, said John W. Street, its president and CEO.
Street said that the company is adding 500,000 mailboxes a month, and its HP deal, which could eventually be worth $25 million, means it doesn't have to spend so heavily on capital equipment upgrades.
"What they're trying to do with e-services makes perfect sense to us," said Street, whose company will use HP servers and storage for their enterprise business deals going forward. Sun servers and EMC Corp. (NYSE: EMC) storage products will continue to be used for USA.Net's existing business and new consumer business. "From my perspective, it's been a long time coming."
"(HP's) secret weapon is the financing option," said George A. Thompson, editor-in-chief of HP Professional, a trade magazine devoted to HP. "They have the ability to finance these companies, and that makes them more interesting to them." HP has not been shy about pointing out Sun's lack of a financing arm.
Meanwhile, eOnline, an application service provider, will pay for its hardware and services up front. But as it built its SAP applications site, the company will take full advantage of HP's expertise in running applications globally.
Long-term payoff
While its non-traditional deals mean HP does not book as much revenue up front as it would if it just out-and-out sold the hardware and software, the company expects to more than make this up over a three to five year period, Livermore noted.
She also said that the company intends to keep up its deal-making ways.
"We're becoming a kind of new breed of venture capitalist," said Nick Earle, chief marketing officer at HP's Enterprise Systems Division. Earle said that since HP did its first "mainframes for equity" swap in March, the company has found that both this model and trading for revenues has worked well. "Right now, all the financial models are looking great."
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