HP's Bluestone Acquisition Seals Middleware Strategy

Software Magazine, Feb, 2001 by Colleen Frye

WITH THE RECENTLY completed acquisition of Bluestone Software in January, Hewlett-Packard secured the cornerstone of its next-generation software strategy, and took another step toward reinventing itself as a software and solutions company. As part of the deal, Bluestone stockholders will receive 0.4866 shares of HP common stock for each share of Bluestone common stock. In return, HP takes possession of Bluesrone's JE22 and XML application servers and tools, which will become the integrating platform for HP's current software offerings as well as the core of HP's middleware foray. P. Kevin Kilroy, former chairman and CEO of Bluestone Software, will steer this strategy going forward as vice president and general manager of HP's Middleware Division.

According to Eric Buatois, general manager of marketing and strategy for HP's Software and Solutions Organization, HP will also begin reporting its software revenues as a separate item. He says software today represents a several-billion dollar business for HP. "In Q4 we grew our software business 50%," says Buatois. "It's clear that software is one major area of focus of HP."

HP's software portfolio (excluding operating systems) today includes OpenView, integrated service management; Praesidium, security software; WebQoS, quality of service provisioning; M C / Service Guard, high- availability software; OpenCall, voice enabling technologies; Smart Internet Usage, Internet service tracking and billing solutions; and e-speak and Changengine, e-services integration technologies.

Buatois says HP is building on its strong portfolio of software systems infrastructure.

He says over the past two years HP has been betting strongly in two areas. The first was in creating dynamic linkage in applications, which he says HP accomplished with c-speak, a platform for the creation of dynamic, intelligent c-services. HP's second area of focus comprises process management and enterprise application integration, which is where Bluestone will complement HP's efforts.

"I think given issues around other players in the middleware area, they needed something that was more competitive, more in the WebMethods genre," says Joe Butt, a senior analyst in the infrastructure group at Forrester Research, Cambridge, Mass. "Bluestone is a good fit. It feels like they're doing the right thing, getting more competitive in the [IBM] WebSphere and BEA areas."

Buatois says the timing was right for HP. "We had to make an acquisition to have the right product at the right time. We believe Bluestone has one of best product portfolios on the market."

It was a strategic move for Bluestone as well, says Kilroy. While the publicly held company had been growing rapidly, it had not reached profitability. Total revenue for the third quarter of 2000, which ended September 30, was $11.6 million, an increase of 190% over total revenues of $4.0 million for the third quarter of 1999, and a 23% increase over total revenues of $9.4 million for the second quarter of 2000. Year-to-date revenue was $28.3 million, up from $10.6 million, a 167% increase over the same period last year. Adjusted net loss for thc quarter was $7.0 million.

Kilroy says the acquisition expands the breadth and depth of Bluestone's distribution channel. For HP, Bluestone provides "a key strategic platform that is open standards based, and it will be distributed by an open standards leader, HP."

In a related matter, HP in October 2000 announced it would contribute e-speak technology to the UDDI (Universal, Description, Discover, and Integration) project, an Internet Registry and Discovery standards project, being spearheaded initially by IBM, Ariba, and Microsoft. Forrester's Butt says UDDI is "kind of an EDI model," attempting to create machine-to-machine communication around e-business.

"UDDI will allow you to discover services between different B2B software," says Buatois. "e-speak will be one of the kernel technologies."