Leading a new lineup into 2K1

Winston Prather has spent the first year-plus of his leadership in the 3000 community preparing for change — much the same mission he had when first joining the Commercial Systems Division (CSY) more than 16 years ago. Back in 1984 he trained the HP engineers in the field on the coming PA-RISC architecture and the new MPE/XL operating system. Early this year CSY will unveil its first systems ready to accept the successor to that architecture, IA-64. The new versions of MPE/iX and the 3000 hardware will reflect the rejuvenation of re-engineering, a mission that general manager Prather and his division have performed far from the customer spotlight.

Introducing a new architecture often means rejuvenating a product’s value proposition. Few things can chill new sales like an announced but unshipped product that is promised to beat a current lineup for value. CSY has been more open about its future than many divisions across the computer industry, in part because it had to continue to dispel rumors of the system’s decline. Talking up N-Class servers all year, and A-Class 9x7 replacements since summertime, has had an impact on installed base sales.

Prather was well-versed in the technical challenges of leading CSY through this period, having spent four years on former GM Harry Sterling’s staff as R&D director. The nuances in marketing and channels were his first set of GM lessons, he told us. Few problems could be more vexing than maintaining sales momentum during a bridge period for a 28-year-old computer line. The first four months of Prather’s reign involved preparing for Y2K, a shift handled so smoothly that the expected terror was replaced by yawns throughout the customer base, deprived of sleep but reporting few calamities.

Now Prather sets his division’s sights on a year with some economic uncertainties and thousands of aged 9x7 systems being herded off HP support. The year also marks the end of the road for the 5.5 MPE/iX release, the one most companies used as a safe passage across Y2K. CSY means to sell a lot of computers to customers who have maintained their 3000 investment by waiting for what’s new. This year the new gear arrives, the starting gun for sales having been delayed by ample notice of better things to come.

In some ways, Prather has had a more challenging mission than Sterling accomplished — announcing and planning a transition as Sterling did is one thing, something that took nerve and optimism. But executing it, moving the customers through Y2K, and away from widely-installed MPE/iX 5.5 at the same time is something else. We spoke just before Christmas, when the stock market was being hammered and doubts about the depth of the economy’s stall were rampant. I asked him to talk about what it’s been like to do the heavy lifting of the 3000 market from pre-Y2K to post, from PA-RISC to Pre-IA, and how well HP 3000 customers have responded to HP’s shifts away from product focus.

What would you say you’ve learned the most about in the first year-plus of the job?
I’m an R&D guy, so I’ll tell you what I’ve learned. The most learning for me has been on the sales, marketing and channel side. I wasn’t educated on how everything went on there. That’s been the most interesting for me. I tend to flock to areas where I can learn more.

Would you say that knowing the right thing to do in those subjects is much more difficult than technical issues?
I’ve been in discussions about the right way to market the systems. What’s an effective way to market is an interesting debate.

More of an art, and less of a science?
I totally believe it is.

How do you think the cooling economic growth might impact the 3000?
It’s been interesting to watch the entire tech sector talk about the slowdown. It’s interesting times, shall we say. Let’s cross our fingers and hope for no big recession.

How would you gauge the impact of this past year’s “heavy lifting” in rejuvenating the platform? Lots of work has been going on, but under the surface. Did the lack of change, or dramatic HP product releases, maybe lead to a slowing of 3000 growth during 2000?
I don’t think there’s been a lack of change. HP has not injected as much change as we did the year before with 6.0, but if you look at the product offering customers have available to them, I think it’s changed pretty dramatically, specifically in the Internet space. A lot of the work has been done by third parties trying to take advantage of customers moving to the Internet. From a customer’s shoes, there’s a lot of new product offering. We put a lot of emphasis in two areas: Heavy lifting in rewriting IO drivers, and we had a lot of emphasis in Internet enablement. There’s been more change in that Internet enablement space in the last year and a half than in a long time.

I’ve said in speeches we’ve focused on really making some fundamental investments. I wonder, do customers think there’s been a lack of new enhancements they can take advantage of? Because when I go and talk to them, they’re overwhelmed in the Internet space with the functionality they can use.

My assumption is that the growth of the 3000 business in the last year was less than the year previous. We haven’t spoken to resellers who are reporting a better year for 2000 than for 1999. How’s the business been?
You probably know there are even more stringent rules that have started over the past quarter with the Securities Exchange Commission about what we’re allowed to say. I don’t totally understand the new laws, which actually leads me to comment less. Each piece of data we give out has to be made available to everybody. The guidance given to people like myself is to even say less.

But let me give you my take on this. I would say that the last year has not met my expectations for what the business should have done. And when I think about why, I think about the fact that there’s new products coming. You always know there’s new products coming, but they don’t tell you when. We’ve been showing a road map that says we’re going to overhaul the entire product line. Well, that causes customers to say if that’s the case, shouldn’t I wait for that

I can only assume that we’re experiencing some of that now, and I’ve gotten that feedback from resellers. Customers know that we’re close to announcing new product, and it’s definitely impacting new sales.

It really is a difficult place to be in, isn’t it?
I think we’re in a much more difficult place than many other HP products. Because of the uncertainty from customer perspectives about the longevity of the product, that has made us want to be even more open with our roadmap. How many show a five-year roadmap? I don’t know of any. How many people show a one-year roadmap? They don’t, and the reason is that they don’t want to cannibalize sales. To try and give people comfort, we share it, and I think it hurts us. It’s a hard balance, and over the last year we decided we’d be open with it, so people would know there was a long term future. I’m sure it impacted our sales. Especially in the timeframe we’re in right now, because people think it’s right around the corner.

And now it looks like product introductions could come at the same time 3000 customers are watching the economy’s changes. True?

I think there’s a lot of built-up demand because people have been waiting. How will it all play out? Talk to me in another year. If I could tell you that, I’d be making some money in the market somehow.

I really believe as we enter the year and roll the product line, it’s going to be in the best shape in years. From a product offering view, I think we’re going to be in good shape.

Speaking of the product line, what’s wrong with using the L-Class servers for new HP 3000s? The L-Class looks like it’s got a lot to offer on price/performance, judging from the Unix system numbers.
One differentiator between the Unix and 3000 business is that they have many more price points along the way than we do. The volume that they turn justifies maximizing the gross margin with as many different price points as possible. Since we don’t turn the same volume, there isn’t as much need to have as many different gross margin products. Now, that doesn’t mean that we won’t support the L-Class. That’s also a matter of timing, when things are available, and when we can make them available to customers.

What’s important for customers is that we have a broad range of product from a price/performance perspective. We have the performance range they need and the price range they need. The fact that we choose to do it with an N-Class at different price points versus a different product is really an internal thing.

We should ask customers if they can get what they need. A channel partner may wish we had 10 different pieces of hardware to optimize gross margin. But I’m looking at it from the customer’s view. We’re not all in business to make the channel happy and let them make a lot of money. My scorecard doesn’t include “The resellers love me because I let them make a lot of money.” I want them to make a fair amount of money.

How do you think having a single distributor to cover all of North America’s resellers has helped the 3000 community in the first year of the plan? Is every reseller getting the assistance and resources they need?
The feedback I’m getting is very positive, although if you’re hearing something else I’d like to know. I just met with a reseller a few weeks ago who was talking about how they were new to Client Systems, and they liked it a lot better. They believe from an operational point of view — configurations, order processing to time to get on the customer’s dock — Client Systems is doing just fantastic.

Is it part of a distributor’s mission to generate demand for the platform?
I would say it’s not their primary job. Their primary job is a fulfillment channel. They do provide services to resellers that help with demand creation. I’m not sure exactly they do there. They’ve worked with resellers to take brochures we create and customize them for a reseller.

There’s been some significant changes at Client Systems since it spun off Collaboratek. Key staff have moved to the new company,. How does CSY feel about the shift in managers from the team which sold the division on being its only North American distributor?
I have only positive things to say about this. We didn’t hire [CEO] Pat Maley as our distributor. We hired Client Systems as the distributor. They’re a large company with lots of capability. I know Pat and Evan [Westenskow, former Marketing VP] and Gail [Pierce, former CFO] very well, but I also have a huge amount of confidence in [current President] Mike Murphy. They’ve always had lots of different irons in the fire, doing dabbling in ideas. Pat always has been doing other things. A perfect example of that is 3kworld, exploring all sorts of different opportunities. That’s a very positive thing that came out of that.

Has 3kworld lived up to your expectations so far?
It’s lived up to mine, but I’d love to hear what the customers think. The idea behind it is that it’s a place to go where you can find out all the information that’s going on in the community. It would be interesting to know what customers, third parties and tool vendors think. It’s another place I go, like 3000-L is a place I go. I think it has. When it was starting up I was less interested in any one of the particular ideas and more interested in the theme in general: a one-stop portal for the 3000 customer. I think they’ve totally met that objective.

CSY Europe gets to manage its business differently than CSY in the Americas. This is an approach unique to CSY among HP’s server businesses. Why does this segment get enough elbow room to run its own Web site and offer deals unavailable elsewhere?
I’m just trying to do whatever we need to do. Regions tailor everything to meet specific local needs. We try and give all the regions that elbow room. Europe has a very different channel structure. There’s good reasons for the tailoring: language, currency, customs. They cause a need to have a very localized program. If it was effective, I think you’d see more of a mass volume distribution model. From a cost point of view, there’s tremendous leverage in going that way. But it’s just not effective in Europe.

You’ve said that there’s been more change at HP in the past year than any other time during your career. How do you believe that’s that impacted the 3000 community?
There will be less focus on individual product and more focus on meeting the customer’s needs. In the past, there were times when you could see one sales rep in there selling one product, and another selling a different product — but nobody completely looking out for what the best thing was for the customer. We’ve gone through a huge amount of internal change to make sure we focus on meeting customer needs. You’ve heard us talk about 83 different product lines. That’s what’s going away. What I believe you’ll see is much less competition between product lines, and much more focus around how we can work together to meet customer needs.

The vision is all of HP’s product lines coming together to best meet the customers’ needs. I know some customers are already feeling the difference of seeing HP as one company, instead of 83.

We’ve been told that the HP 3000 business was one of about 17 businesses that made the cut. True?
No individual product made it onto what we call Product Categories. Servers is a category. Workstations are a category. Storage is a category. They’re very broad. Unix and MPE and number of other server businesses are part of our server category. There wasn’t which product line gets to exist anymore. Servers is the category where the HP 3000 exists.

Just the same, those corporate reports and analyst briefings never seem to mention anything but the Unix individual products. We’re hungry for news of the 3000’s successes in HP’s business report.
They’re going to mention where the volume is: printers, Unix servers, the larger volume products.

That 3000’s lower volume is now a fact of life, isn’t it?
Yes, and I know this bugs a lot of people, but it doesn’t bug me. HP’s annual report is targeted at shareholders. It will talk about where we get the majority of our revenue from, and then technologies.

The fact that the 3000 business is a much smaller business than the 9000 portion is a fact of life. It doesn’t bug me. I understand that there are people who wish that wasn’t the case. But it just doesn’t bother me the way it bothers some people.

Is it possible that those bothered people are worried about a product that has lesser volume, and fewer mentions? What can you say to them by now?
What helps me deal with this is when I’m talking to customers, they are much less concerned about this than when I read 3000-L. It’s a whole different world. 3000-L is a wonderful group, about 2,000 people on it, but they are not representative of the majority of our customers. They’ve very vocal and adopt new technologies much faster than the rest of our customers. They are leading edge, and lead customers to new technologies. But they also are much more concerned about things than when I’m out talking to the CIOs.

I can get highlights of issues that might come up from reading 3000-L, but those issues never seem to come up when I talk to the CIOs. They’re interested in do you have a product line that will meet my needs. Do you have a roadmap, and do you have the support, those kinds of things.

And it’s not all of 3000-L. It’s a subset of them out there that are very vocal, very technical, very knowledgeable and maybe amplify concerns. Many of them send me private e-mails and I try to reply to as many as I can. They’ve been very helpful, giving me heads-up on issues. It’s a very important set of customers. We do have to keep in mind that they don’t necessarily represent the sentiments of the majority of our customers.

How is Channels on Tap progressing — will it provide new business for the platform in the next year?
It’s a possibility, depending on which vendors are hooking up with the program. The two that are participating are Telenomics and Paymaxx. The objective is to link service providers with application providers, so customers can have application deployment alternatives.

How about the Apps On Tap initiative?
The idea there is to hook up the ISVs and ISPs, and HP helps facilitate the arrangement.

Do either of these programs present themselves as a major source of new business for the 3000 in the year to come?
I haven’t thought about it that way. My view is from a customer perspective. I haven’t thought about them from a revenue perspective. I don’t think that’s the objective. It’s really trying to help the customer find applications and deploy them however they want.

Do you believe the 3000 market needs additional application partners to generate more business?
Would I like more? Absolutely. Do I think it’s feasible to expect these ISVs to port to a platform they’re not on now? To be honest, I don’t. If I look at the industry dynamics in general, I just don’t see it happening. Which is why, by the way, you’ve seen us invest in technologies like Java. These will hopefully allow application portability without a lot of effort. There’s nothing that HP can do on the 3000 to change the industry dynamics. Our strategy has been to maximize the ones we have, and at the same time invest in technologies that enable application portability.

Will that actually happen? I don’t know. But we’ve invested to the point that if it were to happen, we could benefit from it.

Do you think new application partners are essential to the continued growth and health of your 3000 market?
I don’t think it’s as black and white as that. What really does matter is much more the customers than the applications. If customers continue to invest, then the platform will be around forever. And if they don’t, it won’t. That’s the fact of the matter.

I know this isn’t palatable for a number of the extreme supporters. I work for a company that, to be honest, wants to meet the customers’ needs and it doesn’t have to be a 3000. As much as I love the 3000 platform, I’m here to meet a customer’s needs using all the products that HP has. If we meet their needs in the future with Unix or Linux, that’s success for me.

We’re less product-focused in our future than we were in our past. We’re going to be more focused on meeting customer needs more than the success of any product line. Which I totally believe is the right thing from a customer point of view. I consider myself a part of that community of extreme 3000 supporters. From that perspective, I’m not sure how [the new focus] rubs me. But the bottom line is that it comes down to what customers choose. And the good news is that they’re still choosing the 3000.

How did this year’s dot-com meltdowns impact CSY’s growth plans?.
There’s probably a company you used to buy from before the Internet buying that now sells on the Internet, too. I see revenues shifting. The Internet pure play companies had no office. It’s now a catching up of the bricks and mortar companies. The answer will be somewhere in the middle.

Do you think this mix will offer opportunities for the 3000?
Somebody’s got to have computers, and somebody’s got to have Internet-enabled software. The real indicator is going to be the economy in general. I have high expectations for the year, because we’ll have the best product lineup we’ve had in a long time. I’ll temper that with the bad timing of the economy potentially shifting at the moment. From a meeting customer needs perspective, I think we’ll be in the best shape we’ve been in for a long time.