HP Sings New Tune, Builds Own House of Blues

ENT, Nov 22, 2000 by Joseph Mckendrick

In a move to build its application services portfolio, Hewlett-Packard announced it was acquiring Bluestone Software, a provider of Internet software platforms, tools, and technologies. Through the $500 million stock swap, HP will be adding, among other elements, Bluestone's Java 2 Enterprise Edition (J2EE) and XML application servers and tools. These tools enable developers to deploy applications and services that take advantage of the emerging Web services-based computing model, as well as new wireless capabilities. All of Bluestone's 350 employees will become HP employees when the deal is completed early next year, and they will remain at Bluestone's Philadelphia headquarters.

HP has been concentrating on its e-services, centering around e-Speak, which provides automated discovery and interaction between Web services, as well as an "always-on" architecture supported by servers, storage, software, and services. "HP was always driven by products," said Carly Fiorina, HP chairman and CEO, at a recent industry conference. "Software was just seen as secondary, as a way to sell the products. Now it is its own business." HP's goal is to provide "dynamically brokered services that will support the swarm of transactions that are going to be accessed by increasingly smaller and more intelligent information appliances."

To that end, Bluestone's J2EE and XML application server technology and Java transaction service will form the core of HP's middleware offering. The combined HP/Bluestone software will offer advanced XML, e-services, and mobile technology capabilities.

Another Bluestone product is Total-eServer, a J2EE-based application server. In July, Bluestone acquired Arjuna's Java Transaction Service, an XML server that supports HP's ChangeEngine. HP's existing Internet software portfolio includes integrated service management with OpenView, the security software Praesidium, quality of service provisioning via WebQoS, high-availability software MC/ServiceGuard, the voice-enabling technology OpenCall, Internet service tracking and billing solution Smart Internet Usage, and e-services integration technologies such as e-Speak and ChangeEngine. HP Consulting will develop a set of implementation and integration services in support of Bluestone's technologies.

Some analysts think HP got a good deal with this acquisition while saving Bluestone's hide in the process. "We think HP grabbed a great technical bargain by timing its acquisition to coincide with Wall Street's punishment of Bluestone for growing operational losses," states a Zona Research announcement. "Bluestone's profuse bleeding is emblematic of a little guy trying to establish a worldwide marketing presence overnight. Now that Bluestone's 80 sales professionals will become specialist resources for HP's sales-force hoards, they will be unlikely to hear customer rejections based upon Bluestone being too small a player to consider."

The acquisition represents a new competitive threat for IBM, Sun, and BEA, the current leaders in the Web application server market. Zona believes this may be particularly bad news for BEA, an HP partner and direct competitor of Bluestone. The componentware vendor's WebLogic application server "has been driven to the top spot in part by reference selling from HP's worldwide marketing team. HP will still partner and reference sell WebLogic, but the acquisition of Bluestone gives HP its own first-class Web app server in Bluestone's Total e-Business software, Arjuna's Java Transaction Service, and wireless technology that HP can use to disseminate a new generation of wireless applications tied into the HP OpenView monitoring system."