Autonomy Acquisition: A Modest Start On Transforming HP

Cloud-based archiving is a great fit with HP's storage business, but calling a search engine online or retrieving email messages and documents for regulatory purposes is not what most of us would think of as software as a service. No doubt there a few more sophisticated cloud-delivered applications in Autonomy's mix. But search and retrieval are more like functional capabilities compared to SaaS-based business applications such as ERP and CRM.

Autonomy's data centers should help HP build out cloud capacity and perhaps even infrastructure as a service, but I don't see anything like Salesforce's Force.com or Microsoft's Azure, which are development platforms-as-a-service. In fact, the online archiving business is more like hosting than multi-tenant, public-cloud computing, and Autonomy carefully describes itself as "one of the world’s largest private cloud companies." In short, there's a reason you never hear Autonomy's name mentioned in the same breath with Salesforce.com or Amazon EC2: It's not on the same playing field.

Nicely Profitable, But Not A Sales Powerhouse

Will Autonomy "significantly enhance HP's financial profile," as Apotheker predicted? Software is generally much more profitable than HP hardware, and Autonomy has impressive margins that are much higher than HP's. But Autonomy is only expected to do $1 billion in revenue this year, less than 1% of HP's $126 billion revenue last year, so it won't exactly be a profit turbo charger.

It would become a big share of HP's software portfolio--HP Software totaled about $3.6 billion in revenue in 2010. But HP would still be well shy of being a software company, even if it spins off or sells its $40 billion-a-year PC business, as it announced it hopes to do. Autonomy is impressively profitable, with 45% operating margins forecast for this year, which is well above HP's margins.

Looking at growth, much of Autonomy's touted 55% growth rate in recent years has been fueled by acquisitions. The organic growth rate of the company's core IDOL portfolio--which Autonomy says in its financial statements is the most important indicator of success--was a more modest 17% in 2010 and 15% in the most recent (second) quarter of this year.

Salesforce.com, by contrast, grew 33% in its most recent quarter compared with a year ago. In short, without more acquisitions, Autonomy will not turn HP into a fast-growing software giant.

If HP wants to be a software player and real leader in information management, Autonomy is just a start. It took IBM 10 years and tens of billions in acquisitions to become a software giant. It will take multiple quarters and many more acquisitions to fulfill HP's vision.

Just as HP's Vertica acquisition has been somewhat oversold as turning the company into a big-data analytics leader, the Autonomy deal would not quite make HP into a leader in unstructured-information or cloud computing.

Who should HP buy? My yet-to-be acquired short list still includes data integration and master data management (Informatica), business intelligence and analytics (MicroStrategy or, in a really big deal, SAS, and enterprise applications. A deal in that last category would alienate important friends like SAP, unless, of course, HP bought the ERP kingpin (which would be a gigantic, bet-the-company deal, and one that Apotheker has sworn off).

We'll be watching and waiting.