How HP Shakeup Could Impact SMBs

Major changes at the tech giant will have a trickle-down effect on smaller companies. Here are four things to keep in mind.

Kevin Casey, Contributor

August 23, 2011

5 Min Read

As the world's largest technology vendor overhauls its business, much smaller companies are certain to feel the effects.

That will perhaps be most apparent in the potential spinoff of HP's personal systems group. HP accounted for more than 18% of PC purchases made by small and midsize businesses (SMBs) in the United States in 2010, according to market researcher Techaisle. That was second only to Dell, which sold one in four PCs bought by SMBs last year.

"HP's PC business has been the major reason for the company's focus on SMBs," said Techaisle CEO Anurag Agrawal in an interview. If HP indeed jettisons its PC unit, that's likely to downsize HP's role with SMBs. Agrawal noted, for example, that an Autonomy acquisition would be an enterprise move that holds little appeal for smaller firms.

SMBs are still buying PCs--120 million of them in 2010--even as they flock in greater numbers to cloud technologies, tablets, and other mobile devices. That's not changing in the immediate future: Recent IDC research indicates PCs--and especially notebooks--as one of the key drivers behind an expected $125 billion in IT spending by SMBs this year.

For that and other reasons, Agrawal said in an interview that SMBs-- defined as up to 1,000 employees--and their third-party IT providers can expect to see significant changes as a result of HP's continuing shakeup. Here are four ways IT at SMBs could be affected now and later:

1. Changing Choices. This one's a no-brainer: Given HP's share of the SMB market, particularly in the PC segment, its strategic shift to software will ultimately alter future purchasing decisions. Agrawal points out the crucial role PC purchases play into broader technology strategies, especially for the "small" in SMB--which comprises the bulk of the total market.

"Their first entry into the IT world is through personal computers," Agrawal said. "HP has been a very aggressive player [globally] in this category."

Depending on the fate of the PC division, that could ultimately mean less choice for SMBs--usually not a good thing. Agrawal called Dell the only credible alternative to HP today. He pointed out that Acer isn't in every market, Sony has a niche with executives and road warriors, and Lenovo has struggled to gain brand recognition in the U.S.

"All of a sudden, [SMBs] will find themselves at a crossroads because the choices available to them become extremely limited," Agrawal said.

2. Different Decisions. That crossroads could actually lead to more choices for SMBs in their broader IT portfolio--usually a good thing. Agrawal said HP's transformation is likely to have a major impact on the channel--the universe of third-party firms such as managed service providers (MSPs) and value-added resellers (VARs) that many SMBs lean on for IT support. This will lead to changes in the technology bundles these providers offer--including not just PCs but servers, networking, peripherals, storage, mobility, and cloud applications. A mix-and-match approach is more likely, rather than a single-vendor offering.

"The choice actually opens up as far as the adjacent technologies are concerned," Agrawal said. That could translate to diminished SMB market share for HP in other areas. He points to networking, where HP has done well with SMBs, as a prime example.

"It's not because HP is very strong in networking--they just bought 3Com," he said. "It's the fact that the channels that are selling PCs are able to [also] sell networking, and therefore [HP has] a very large channel base that can go after the SMB."

3. Shifting Loyalty. Techaisle data shows SMBs are loyal to their existing providers: 61% buy what they already have. Current HP customers will be much, much less likely to do so in their next buying cycle, according to Agrawal. He described the mindset: "HP? I'm not so sure I want to invest in that," he said. "Mr. Channel, do you also sell Dell? Do you also sell Acer? Do you sell other vendors? If I buy a Dell PC but still buy an HP server, how will that work?"

Paolo Puppoli, a senior analyst at Techaisle, said that if HP's PC unit is indeed spun out, loyalty won't even be an option. "[For PCs], the brand HP will be mixed with something else at first, and then completely disappear," he said, noting the transition of ThinkPad brand from IBM to Lenovo as a precedent. "I will be forced to make a different choice, and because of that I will be open to what best suits my needs."

That re-evaluation of the buying decision could expand into other infrastructure purchases, too, according to Agrawal, and affect sales of servers, printers, and other hardware: "HP's shakeup could actually delink the purchase of HP products from each other," he said.

4. Decreasing Prices. We saved the best news--at least for SMBs--for last. In spite of the possibility of decreasing choices, both Agrawal and Puppoli also expect decreasing PC prices as vendors fight tooth-and-nail for SMB budgets. Agrawal expects Dell will improve its already strong standing with smaller businesses, and also predicts that smaller players like Acer and Lenovo will treat HP's overhaul as an opportunity to grow their SMB customer lists.

"We fully expect Dell to come out with guns blazing," Agrawal said.

Indeed, Michael Dell is firing away: the Dell chairman and CEO has publicly tweaked HP with a series of recent tweets. "If HP spins off their PC business ... maybe they will call it Compaq?" the first said. The most recent, published Saturday, was a bit fiercer: "@HP PC business 100% committed to ownership change to new unknown owner(s) w/unknown strategy, on an unknown time frame."

You can't afford to keep operating without redundancy for critical systems--but business units must prioritize before IT begins implementation. Also in the new, all-digital InformationWeek SMB supplement: Avoid the direct-attached storage trap. Download it now. (Free registration required.)

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About the Author(s)

Kevin Casey


Kevin Casey is a writer based in North Carolina who writes about technology for small and mid-size businesses.

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