Here's Why HP Is Moving Into the Software Business

It’s clear to us that HP is looking to focus on the software industry now and while many sites and blogs have been attempting to dissect the actual words HP used in its announcement that were discontinuing the TouchPad, WebOS devices, and planning to spin-off its PC business, I’ve thinking about what they didn’t say.  It all starts with the company’s new CEO, Leo Apotheker, who is the former head of SAP, the giant German enterprise software company.

If one thing is clear, Leo Apotheker knows the enterprise software industry very well.  Do you truly expect him to change his expertise because he’s at HP a company known for its computers and printers?  The short answer is no you wouldn’t.  And there is no reason Leo should try and get out of his comfort zone.  Stick with what you know well – it typically works out better in the long-term.  But aside from that there’s several reasons why being in the software business makes more sense from a business perspective.

The current state of the PC manufacturing industry is rapidly declining between razor-thin profit margins and the fact it’s difficult to sell expensive PC’s unless your Apple – there’s just no money to be made anymore.  I mean just look at Dell’s recent earnings report.  However, when you look at the software industry it’s the complete opposite of the PC manufacturing industry.  Software profit margins are much higher.  Look at Microsoft all these years — Windows and Office are cash cows.  And more recently, look at how well IBM is doing.  Plus with all this talk about “the cloud” it just makes sense to try to exploit the industry.  Additionally, a company the size of HP has a lot of sway and can impact the future of “the cloud” within enterprise environments which could lead to them becoming a major player (and dominant force) within the space.

A quick look at HP’s acquisitions over the years (especially since 2006) will show you that a majority of them are software company acquisitions.  It’s not like they’re starting completely fresh here either.  They have a lot of software to work with.

Lastly, I wouldn’t doubt that part of the plan is to get back at Mark Hurd and Oracle.  I mean HP must be at least slightly mad at them.

What do you think?  Leave a comment!