HP: To Kill or Not To Kill E-Biz Software Unit

On Tuesday, HP executives reportedly told analysts that heavy losses in the company's e-business group had convinced it to retire its middleware software, including its Bluestone Software application server.

Now, though, HP's resolve seems to be wavering, according to news sources.

Reading Between the Lines

What does this waffling mean? Yankee Group analyst Robert Perry told the E-Commerce Times that HP wants to be like IBM (NYSE: IBM) , with end-to-end solutions, but cannot decide what its middleware offering should be.

On the one hand, HP has a legacy relationship with Microsoft (Nasdaq: MSFT) via its merger with Compaq. On the other hand, the company has acquired and developed Bluestone server technology since October 2000.

But even after HP began giving away its core application server for free last November, charging only for advanced features and add-on technology, Bluestone holds a tiny share of the application server market, which is dominated by BEA Systems (Nasdaq: BEAS) and IBM.

Deciding the Future

Perry said he expects HP will eliminate Bluestone because of the ROI (return on investment) factor.

"Maintaining and keeping the J2EE application server, complying with standards and keeping it competitive from a scalability and performance standpoint is too expensive, and there is no return," Perry said, adding that he expects HP will recognize that and will choose to support another vendor's software.

Potential partners include IBM, Oracle (Nasdaq: ORCL) , Microsoft and BEA. Perry said BEA WebLogic is the most likely choice for HP because it is not associated with any hardware.

"I could not imagine HP forming a relationship to run WebSphere or the Sun ONE application server," he said. "That wouldn't make sense."

Good News for Competition

HP's dilemma is good news for the competition. While the company may not have much market share, someone will benefit by taking over its portion of the market.

BEA's WebLogic may be the likely choice, but Perry said he thinks Microsoft's .NET would be a strong play for HP.

"I had hoped they would focus on .NET and go forward with that as their lead strategy, while recognizing that Unix was important to them and they would probably need to have that stack," said Perry.

Why Microsoft? Because not many other players are running it.

"It's sort of the world against Microsoft to some extent," Perry said. "Everybody is Java , Java, Java, and .NET is going to have success and is a good direction."

HP execs were not immediately available for comment. The company reportedly will make its final decision at the end of June.