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If OpenVMS is profitable, where's the money going?

HP's OS dilemma
Wed Jun 04 2003, 09:32
IN MY PREVIOUS article I suggested that HP should sell OpenVMS either as a product to customers or as a complete department to a buyer who is prepared to take the risk on its future.

This suggestion provoked indignation and claims that OpenVMS brings in $800 million in annual profit and that it is essential to HP's services division.

Unfortunately for the writer of these statements, they serve only to support my contention that HP should be either more active with the marketing of it, or should sell it so it can concentrate on the less-profitable product lines that it is so enamoured with.

Let's start by following the money because if OpenVMS is truly as profitable as is claimed, then where is the money going?

In the first quarter of this financial year HP's Enterprise Systems Group made a loss of $83 million and in the quarter just ended the loss was $7 million. Supposedly OpenVMS brings in $800 million in profit each year. We can't assume that for each quarter OpenVMS brings in $200 million profit but we certainly can assume that it does produce some amount of money.

If OpenVMS is producing a profit in each quarter, then which products are making such a loss that the total profit for the group is still a loss? It seems clear that OpenVMS is subsidising at least some of the products in ESG, and that this is happening even while HP puts no effort into marketing OpenVMS itself.

It is a fair statement that OpenVMS provides significant input to HP's Services segment. This is not surprising when Digital and then Compaq made major plays for the system management contracts of many large OpenVMS sites. In many cases this was due to a perceived shortage of skilled OpenVMS people but this shortage came about but of the failure of Digital and Compaq to actively promote OpenVMS as a general-purpose operating system.

What we have today is a state where OpenVMS is in danger of becoming a proprietary operating system that only the vendors know how to operate. That is a ridiculous and self-defeating situation because potential customers will not be attracted to that arrangement and the market for OpenVMS will diminish even further.

These two matters are simply an extension of Compaq's attitude towards OpenVMS and in most respects to its high-end product, HP could easily be renamed "Son of Compaq".

Perhaps "Compaq Reloaded" would be a better name because the executive positions related to the developing and selling of high-end products are filled by ex-Compaq people. Peter Blackmore is executive vice president (EVP) for the Enterprise Systems Group; Jeff Clarke is EVP responsible for the supply chain; Shane Robison is EVP of Strategy and Technology; Mike Winkler is EVP responsible for marketing. Together they control the design, manufacture, marketing and selling of the high-end systems.

For my money they did a miserable job with OpenVMS at Compaq and now at HP they look like doing more of the same, in particular we can expect that no attempt will be made to increase the market for what is self-evidently a cash-cow.

In particular I believe that we can expect little in the way of advertising of OpenVMS despite the fact that this is essential to overcome the widespread ignorance about it. It is abundantly clear from the dearth of articles in the press that that the IT market knows very little about OpenVMS. It would not be out of the ballpark to suggest that fewer than 20% of the industry would know much about OpenVMS and of that number at least half would believe that it had been terminated years ago.

Sure, IBM doesn't need to advertise its specific operating systems but that is because it would be a rare IT decision-maker that was unaware of the range of offerings from that company. The opposite unfortunately holds true for OpenVMS because of the years of neglect by Digital, Compaq and now HP but it is those decision-makers, and those providing the finance to back those decisions, that need to be convinced that OpenVMS is a very credible alternative to the better-known operating systems.

For many years users of OpenVMS have been requesting an increase in advertising for OpenVMS but this has been ignored by its various owners, probably dismissed as rabble-rousing.

In fact, the request for more advertising has also been going on at higher levels, but it too has been ignored. While the current HP executives were at Compaq they also ignored a similar request from 32 senior representatives of the largest customers of OpenVMS. The event was the OpenVMS Executive Council meeting in Pine Cliffs, Portugal, in October 2000 and it saw these customer representatives meeting with a number of Compaq representatives, the most senior of which was Rich Marcello.

The report of the proceedings of that meeting noted that at a previous meeting the gathering had complained about the lack of aggressive marketing and promotion of OpenVMS. The statements of this "carry-over business" include

Customers want Compaq to aggressively promote OpenVMS to the market. (Non-technical, corporate managers need to be comfortable with recommendations to implement on OpenVMS.)
Even though customers are confident of Compaq's support of OpenVMS, they worry that OpenVMS may lose the support of the market if its installed base does not grow.
Customers want to see more aggressive marketing and promotion of OpenVMS to new accounts.

This meeting in Portugal saw a repeat of those kinds of complaints with comments such as…

Compaq needs to promote OpenVMS on equal grounds to its other offerings
make OpenVMS more visible on a corporate level
please make OpenVMS more known worldwide

…but again these comments fell on deaf ears.

Those particular deaf ears appear to have belonged to Peter Blackmore who at that time was, according to HP's website, "responsible for worldwide sales, distribution, advertising, promotion, service and support of Compaq products", or if you prefer, responsible for curtailing the advertising of OpenVMS. Given that he is now the executive vice president for HP's Enterprise Systems Group, to which OpenVMS belongs, surely the future of OpenVMS at HP looks rather grim.

It is already evident that regards OpenVMS, HP has not taken any actions that its major customers requested and that they are only continuing to preach to the choir. What's more, this choir is usually composed of those who work with OpenVMS and it very rarely includes the real IT decision-makers, but it is those decision-makers who will have the ultimate say in whether OpenVMS will be purchased or whether some other operating system will be used.

Advertising to these IT decision-makers is not difficult. It simply requires advertising material to be placed in publications that they might read or even business television programs that they may watch. One very obvious example is a magazine like "CIO", but there are sure to be other publications that are also widely read at that level of management.

Given the lack of knowledge about OpenVMS, a principle aim must be to educate these people about its features and what these mean to a business. It might be a quantum shift from the kind of minimalist advertising that HP often uses, where several glossy pages have just a few words in small print, but this educational style of advertising is essential if the message is to properly reach the reader.

There is no denying that relatively few companies are in the business of developing their own software but that is easily catered for by having the advertising material encompass the operating system and some of the range applications that are available for it. There is nothing earth-shattering in this; it is simply getting the information to the potential customers, something that the present team of HP's executives seems curiously unable to fathom.

The other targets for the educational advertising are the analysts and the trade press. My personal communication with certain journalists has revealed that editors have deliberately removed references to OpenVMS from articles about Alpha-based systems. Either these editors knew nothing about OpenVMS or they assumed that few readers would be interested - neither state of which is very satisfactory for OpenVMS sales.

On the subject of the value of OpenVMS, HP seems to be unable to grasp one of the basic concepts of "goodwill" - that it only exists and has a price when there is demand for a product. The continued decline of OpenVMS is diminishing the goodwill just as it is reducing the revenue for the product.

Conversely a failure to attempt to increase the sales of OpenVMS is to forego both the increased revenue and the increased goodwill. But this is exactly what Compaq and HP have been doing.

They/it also seem unable to perceive that there is little or no goodwill associated with Linux because the profit margin is very slim. The same could also be said for Windows and Unix but that hasn't stopped HP promoting these three products in search of the Holy Grail called "revenue".

Based on its recent financial statement and statements in previous years (for Compaq using the January to March period), the revenue of the single company is about 2.5% down on the combined revenue of the two companies in 2002 and almost 14% down on 2001. The revenue in all segments are down, with the exception of Printing and Imaging which has seen a revenue increase of almost 13%. In particular the revenue for PCs is down 10.3% compared to 2002 and 25.6% compared to 2001.

In the last quarter we saw profits increased in the PC and Enterprise segments but that is scarcely surprising given the level of retrenchments to remove job duplication. Even now the Enterprise segment is not making a profit but as I noted above, this can be attributed to the loss-making products and not to OpenVMS which, we are assured, is highly profitable.

It seems quite obvious that there is every reason to attempt to increase OpenVMS sales; in fact it is so obvious that one would have thought stockholders would be questioning why this has not already been attempted.

Those indignant denials to my earlier article also stated that HP has a roadmap for OpenVMS and they have been meeting those commitments. There is no arguing that this is true but a roadmap is only of interest to people who are on that road or are considering using it, and right now that is not as many people as could be using it.

There is also no need to assume that such a roadmap would cease to exist if OpenVMS was sold to a more interested party. That roadmap survived the transition from Digital to Compaq because the OpenVMS division is largely autonomous. There is no justification in assuming that those roads would cease to exist under a new owner; on the contrary the roadmap could easily increase when customer demand creates new branches. Without an increase in interest in OpenVMS I wonder how long it will be before we start seeing signs saying "road closed", certainly many OpenVMS supporters feel that they are on a road to nowhere.

Perhaps there is a small revival happening in OpenVMS sales in the US or more likely those sales are only replacing those sites that are decommissioning it. The picture in the rest of the world looks decidedly grimmer with a steady defection from OpenVMS to other platforms, and once the commitment has been made to transfer to another platform it is almost impossible to induce the customers to change their minds.

As an illustration of this defection, I just looked at the OpenVMS jobs on offer from Jobserve, a leading UK job service. A total of 16 jobs contained the word "OpenVMS" of which two were clearly duplicates. Of the remaining 14, only four did not mention a requirement for skills in another operating system. There can be no denying it, OpenVMS is on the way out in Europe and to my mind this decline can be largely attributed to the failure to market it.

OpenVMS was largely absent from the boom in IT sales during year 2000 and early 2001. Compaq missed that opportunity through its failure to market the product and now it looks like HP is also intent on failing to grasp opportunities, which is none too surprising when the same people are now responsible for it.

It is high time that HP truly made up their mind about OpenVMS, whether they will attempt to increase sales and in doing so increase profits and maybe even regain lost sales ground, or whether they will dispose of it. It might be a profitable product, but HP seems to have no interest in increasing the profits from it. The alternative is to assign a price to it and sell it promptly because to delay the sale through another five years of inaction will be to risk a serious reduction in both its direct value and its goodwill.

As I mentioned previously, IBM has to be the stand-out candidate for the purchase. It has been clearly confirmed for us that IBM is quite experienced and knowledgeable about OpenVMS, moreover it would seem that it is able to make an accurate judgement of when OpenVMS is a more appropriate offering than their own products. These kinds of pragmatic, customer-first decisions are a far cry from HP's continuance of Compaq's niche markets and are a powerful reinforcement, if we ever needed it, that IBM would be the ideal buyer.

HP's initial interest in OpenVMS has waned, but so too has the patience of those users and customers who expected something better than Compaq's miserable efforts. Many of those customers will have been developing transition plans and their dissatisfaction with HP probably means that they will be looking hard at the competition.

As one reader eloquently commented after my previous article, as regards OpenVMS, it is high time for HP to shape up or sell out. µ

See Also
OpenVMS - high time HP sold it?
OpenVMS safe in HP's hands, says Shannon


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