Perhaps I should have called this piece “Blogger Eats Words.” Hewlett-Packard has landed (pun intended) precisely the kind of strategic partnership win I recently suggested it is not positioned for, based on its recent description of its portfolio in a quarterly earnings call. The victory comes exactly where I suggested it needed to: with a services-led approach, leveraging the formidable assets of EDS. In an-industry-shaking coup, HP has landed a contract to replace Sabre as the proverbial “airline reservation system” – traditionally, a synonym for “really hard IT stuff” – for American Airlines (more precisely, AMR, the parent company).
It gets better. As Forrester’s Henry Harteveldt points out, “Sabre Holdings is not only the one of the largest travel technology firms, but one of the largest private-sector transaction processing systems in the world, regardless of industry.” Read Henry’s piece for an excellent look at many of the details and implications.
Sabre was spun out of American itself; nobody knows its value, its limitations, and its architecture better. Except perhaps EDS, who signed a 10 year deal with Sabre in 2001 to outsource its IT. American has taken a bold step, in the midst of difficult economic times for its industry, to mount a reworking of this core process. Strategic? You bet. Partner? It could hardly be more so. It is intriguing, though, to see HP bidding against a firm for which it provides IT services, and that sort of increased coopetition will become more widespread in an era where firms outsource more and more core processing.
Services firms like EDS and its competitors have traditionally described themselves, especially to the investment and industry analyst communities, in terms of such wins. Learning how to leverage these stories in its corporate messaging will serve HP well as it asserts its strategic value. (It’s worth noting that Larry Bissinger, who handles messaging to those communities – and more – for EDS, is one of the folks who have remained with the team after the acquisition. A good move by HP there.)
Linkage to HP’s portfolio, if such linkage can be engineered into similar deals, can be used to validate the cross-portfolio synergies. No doubt there will a great need for, say, PCs, printers, servers, cloud infrastructure, systems management, telecommunications assets, and more in this deal – all of which are strengths HP has in abundance. And the prominent mention of open source componentry may hint at a direction in HP’s messaging that could be a foil to other firms’ portfolios of expensive software.
So kudos, HP, and I must say crow doesn’t taste quite as bad as I feared it would. I hope that next time your timing will be a hair better – an announcement like this with your earnings call would have made a great addition to the atmosphere.
Merv, Thanks for an insightful post. Henry’s blog post has a nice level of detail that really underscores his travel/hospitality industry knowledge. He’s a huge asset for FORR.
I’ve seen a number of these big EDS/services-led deals (this isn’t the first one by any means) and there are more in the pipeline, no doubt. And you’re bang-on with regard to Larry B., too. Larry always has interesting insights and advice to share — I always walk away smarter after speaking with him.
Cheers,
Gerry
Thanks for the comment, Gerry. It’s quite a deal.
A win like this is one thing but, in my experience with HP, delivery is another beast all together.
There’s no doubt in my mind that HP, with the addition of EDS, has the smarts to take on this task but the question I would have would be around delivering it with a demotivated workforce who have just seen their pay and benefits slashed. Where tens of thousands of people have been laid off, with the ensuing exodus of real experience, innovators and talent, replaced with cheap and often mediocre labor from other countries.
For the sake of HP people I hope I eat my words too.
Cheers
Damian
The concerns you raise are very real, Damian, and huge projects are notoriously difficult to bring home on time and on budget. That said, my focus wasn’t there but on the potential of HP’s portfolio to deliver strategic value to its customers. On that score, this is straightforward. As you suggest, the proof is in the pudding – and somebody will be eating something.
Hey Merv, you are setting a scary precedent: looking back to revise/correct previous pontifications :>). In some ways, this win for HP/EDS @ AA heightens your earlier concerns about HP’s “identity” — can it be both a strategic enterprise supplier/partner (vs IBM) and a high-volume box manufacturer (vs Dell or Cisco)??
Best, Chris.
Hey, Chris – thanks for the comment! It’s great to have you here. I guess this is a “damned if you do, damned if you don’t” kind of thing for an analyst. I don’t relish the public revisions, but I like to use the blog as a place to air out ideas, and react honestly to events that affect them. My initial response to HP’s numbers for the quarter and how they were communicated was that they cast doubt on the firm’s aspirations about “strategic IT partnership.”
So I could hardly ignore such a significant win and its implications. But I can’t disagree that it’s difficult to be too many things to many market sectors, and the inherent tension in HP’s positioning and its story certainly remains. What the win made clear to me was that HP can use the portfolio to play the kind of strategic IT role it aspires to. Whether it can do so consistently, build a coherent positioning strategy, communicate it, and execute on it – while spending enough time on the parts of its portfolio that are more commoditized, consumerized, and typically tactical – is a question Mark Hurd must answer. Sounds like we’ll both be watching.
I haen’t paid attention to travel/tourism in years but this was interesting to me.
Interested to know what you;ve learned about the long term strategies for both AA and HP. Could be that A/A wants to go in a direction they don’t think Sabre can take them (with HP willing to bend over every which way to take this commanding spot in the online rez game). And equally perhaps, HP may have its eye on taking business from the Travelport companies, Amadeus et al.
Any insight?
Hi Merv,
Thank you for referencing our blog post.
I thought I’d contribute to the discussion.
Though Sabre has done a lot to reduce its reliance on older languages (notably TPF), hardware, etc., I suspect that in AMR’s eyes Sabre didn’t go far enough. Amadeus, for example, claims its Altea Suite will be 100% off TPF by 2010 (though when in 2010 is not a data point I have). Likewise, the HP “Jetsream” solution will be a ground-up, brand new product that will use “next gen” languages, systems, etc.
As I understand it, Sabre was informed several months ago that they were not a finalist. In what may now prove to be an ironic move, Sabre’s decision to outsource so much of its data center ops/management to EDS starting in 2001 may have allowed EDS to (legitimately) gain useful insight into AMR’s business and technology needs.
Three airline groups – Air France-KLM, Lufthansa, and Iberia — hold an investment stake in Amadeus. I suspect that may have caused some concern at AMR, even though Iberia and AA are both oneworld alliance partners.
In addition, Amadeus uses a “community” model among its airline hosting clients. Each airline submits requests/requirements they’d like to see offered as a shared feature. Amadeus host airline clients, which include small carriers like Air Vanuatu (bet you didn’t know that airline existed) and large carriers (like British Airways) vote to prioritize the development efforts for shared (versus proprietary) applications. Well, anyone who knows AMR knows that they are used to being the BMOC. I somehow don’t think AA cared for Amadeus’ approach.
Another possible contributing factor: Amadeus doesn’t have any major US airlines hosting on it now. United (UA) has slowed its move to the Star Alliance Common IT platform that is hosted on Amadeus as UA seeks to conserve cash and determine whether another carrier will want to merge with them or whether UA will indeed have to go it alone. As customer-focused as Amadeus is, I don’t think AMR would want to be the only major US airline hosting on Amadeus.
Finally, one has to believe that cost played a factor. AMR knows how to negotiate a deal. Anyone who’s flown AA knows they closely manage their expenses (AA is the airline, after all, that removed olives from its salads to save $50,000 — and then removed not only food, but galleys as well). I have to believe that HP offered AMR extremely attractive financial terms that Amadeus just couldn’t, or wouldn’t, match.
I hope this is helpful and not too boring.
Henry
Thanks, Henry, for a thoughtful and detailed reply to Mike’s questions. Much deeper than I could have gone. Interesting to see that TPF is losing some ground after all these decades as the original “irreplaceable environment.” I visited IBM’s Hortolandia, Brazil facility some years ago, where it is maintained, and the commitment IBM has made over the years to it has been extraordinary. I thnk it’s time to check in with them to see what’s up…
Merv,
Here’s another viewpoint on the HP/EDS-AMR letter-of-intent-signing announcement on the next-gen reservation system platform:
http://dennisschaal.blogspot.com/2009/08/amadeus-common-it-platform-may-have.html
Best,
Gerry
Thanks, Gerry. More detail – the piece actually quotes Henry, who gave us a good deal of this info in his comment.