Cover Story
Hard Pressed
By Ramdas S and Dhaval Valia
In 2009, HP lost significant market share in the notebook and printer segments. While HP calls it an aberration, many partners believe the company needs to review its channel policies and engagement if it wants to sustain its leadership
With the breadth of its products and solutions, Hewlett Packard (HP) India is regarded as the company having the maximum channel connect in the country. HP has always led in developing new partner engagement programs and innovative go-to-market strategies. This has helped the company enjoy market leadership in PCs and printers for a long time.
However, 2009 was a year when HP recorded new lows in its market shares in these two categories. After enjoying market leadership in the laser printer category for years, the company witnessed a nearly 20 percent decline in its market share in the last calendar year.
In the PC segment, HP India was the No 1 notebook vendor in India since 2003, and the No 1 PC maker since 2005, holding on to the pole position quarter-on-quarter. However, this remarkable run was spoiled by Dell, which, in Q4 2009, toppled HP from the notebook top spot.
While loyal partners still swear by HP’s product quality and channel focus, and believe that the decline is temporary and that it will bounce back, others say that HP has become complacent due to its long reign at the top. They say that channel overcapacity, lack of marketing and
pricing innovations, and slowness to respond to changing competitive landscapes are reasons for HP’s decline.
HP on its part is candid about its mistakes, but is largely adamant that its market share loss, if any, is just an aberration. The company is now cranking up its marketing, product innovation and channel engagement, and promises to create more opportunities for its partners.
Imaging and printing
For over a decade, imaging and printing has been the mainstay of HP’s business, a segment where it has enjoyed market leadership against companies such as Epson and Canon which have been very distant competitors.
However, 2009 posed a big challenge for HP IPG when it saw its market share dip below 50 percent for the first time since 2003. According to a Gartner India report, HP’s market share fell by 5 percent to 48 percent as compared to 53 percent in 2008.
In the laser printer category, HP’s market share fell from 62 percent in 2008 to 43 percent in 2009. On the inkjet front, however, HP continued to dominate the market with almost 72 percent share, which was actually a percentage point up from 2008.
Canon emerged as the biggest gainer, upping its market share in the overall printer category from 11 percent in 2008 to 18 percent in 2009, as per the Gartner report.
In the laser printer category, Canon’s gains are even more impressive with the company increasing its market share from 13 percent in 2008 to 33 percent last year.
Comments Vishal Tripathi, Principal Research Analyst at Gartner, “HP had serious supply issues with many of its laser printers and a few of its inkjet models. This contributed to its poor showing in 2009. What is noteworthy is that both Canon and Epson seized this opportunity to make inroads into markets earlier dominated by HP. Canon’s increased focus on small cities and the expansion of its partner network coupled with strong marketing campaigns gave it a big boost. Epson, aided by a new distribution strategy and stronger partner engagement, showed good growth in the inkjet segment.”
According to Compuage Infocomm, an HP distributor, between July and November 2009 there was a shortage of several popular HP laser printers and a few inkjet printers, as a result of which HP’s IPG business declined. “HP informed us that there was a global shortage of its products. The company had cut down on production following the global recession, which led to insufficient supplies,” informs Atul Mehta, MD, Compuage Infocomm.
HP is candid in admitting that it messed up on demand forecasting and inventory planning. “There is no denying that we had forecasting issues which led to the short supply of a few of our products. Since then we have ramped up our production, and the supply scenario has improved,” says Samir Shah, Director, Commercial and Enterprise Printing Business, IPG, HP India.
Although supplies have improved, Tripathi believes that the four-month shortage may have given Canon a considerable advantage, and that if Canon can sustain this it can give serious competition to HP in the laser category. “Many of HP’s loyal partners were forced to deal in Canon laser printers due to supply issues. Canon made significant gains in the government sector during the period,” observes Tripathi.
A few HP partners that CRN spoke to seemed to echo Tripathi. “I have been a loyal HP partner and never thought of dealing with either Epson or Canon. But we were forced to supply Canon laser printers due to HP’s shortage, and our experience has been good. Canon’s partner engagement has improved multifold,” says Alwin Lobo, CEO of Mumbai-based corporate reseller Active Infotech. He adds that he intends to work closely with Canon in future.
But HP is unfazed by its 2009 performance. “Ups and downs are a part of the business. Year 2009 was definitely challenging for us and tough for our partners. But the commitment partners have shown has been phenomenal. We are jointly addressing the challenges of 2009, and making good progress. I don’t see a reason why we shouldn’t be back to where we were,” declares Shah.
To get back to the top, HP is putting its entire marketing machinery to work. Starting with an aggressive Best Seller channel scheme for lasers, the company has intensified its customer and channel engagement programs in smaller cities. It is presently organizing a range of free service camps, offering attractive schemes on the purchase of select after-market cartridges, and has introduced buy-back offers for customers.
Shah says, “We have four priorities in 2010. The first is to grow the color printer business which is only 4 percent [of the printing market] in India. The technology is becoming affordable, and offers much value. The cost of printing black on a color printer is the same as the cost of printing black on a monochrome printer. The second priority is incorporating design and technology in the AIOs and multi function devices (MFDs) to take them to the next level. The market for MFDs is just the tip of the iceberg. The third priority is around the toner business and involves evangelizing the value proposition of originals. The fourth is to ensure that our channels are up-to-date in terms of technology. We want to arm them with all the possible ammunition to enable them to grow their business.”
HP India is betting big on managed print services (MPS), where it expects to gain major traction with SMBs. Also on the cards is increasing the number of certified partners providing HP Smart Printing Services. “We’re focusing a lot on MPS, especially for SMBs. Through our smart printing services, our certified partners handle everything necessary to manage a company’s HP printers and MFDs. We have about 50 certified partners across the country. They have been strong in the medium business sector. We are now keen on increasing our SMB client base,” informs Shah.
HP is also increasing the number of touch points where customers can see its products. “It’s important that the customer gets to experience a product before buying it. We’re currently focusing on redoing our 200 HP World outlets. Ensuring that the right product is bought by the customer is also a priority. We don’t want the customer to buy a product that doesn’t suit his requirements. Hence, next on our agenda, is a plan to train our partners’ sales executives,” says Shah.
Consumer PCs
In India, HP has been the No 1 notebook vendor since 2003, and the No 1 PC maker since 2005—holding on to the pole position quarter-on-quarter. However, the remarkable run ended in Q4 2009 when Dell India piped HP from the notebook top spot.
According to the Gartner report, of the 7,59,412 notebooks sold in Q4 2009, Dell had a 24 percent market share, HP 22.5 percent, and Acer 14.5 percent.
“It was a strong quarter for Dell, and it seems some of their strategies have paid rich dividends. Dell did exceedingly well in the last quarter in consumer notebook sales, and enterprises have also rallied behind the company,” notes Diptarup Chakraborti, Principal Research Analyst, Gartner India. “There was a gap of close to 36,000 units a quarter between HP and Dell during Q1 2009, so it’s a remarkable turnaround for Dell.”
On the retail front, Chakraborti believes that Dell had the right products at the right price, which wasn’t the case with HP. “HP delayed the introduction of new models, and its pricing was not aggressive. Plus, both Dell and Acer outscored HP with their print ad campaigns.”
Chakraborti attributes the strong show to the way Dell managed the consumer channels. “Eyebrows were raised when Dell signed on regional distributors instead of adopting the multi-tier channel strategy that other vendors follow. However, the strategy seems to have worked because Dell managed to find new markets away from the urban centers where they have always been strong. Also, Dell was one of the first brands to tap large format retail.”
An HP India spokesperson refused to comment on Gartner’s market share figures saying that they “are yet to see the Gartner report and that over the first three quarters the company had a comfortable lead in the PC market.”
However, channel partners are not surprised. Those HP retail partners that CRN spoke to said that this was waiting to happen, and that over the last three quarters HP had become complacent.
“I would be surprised if HP says they were not expecting to lose their market leadership in the consumer category. The signs were difficult to miss,” remarks Dinesh Nair, CEO, BigC Technologies, Bengaluru. “Despite this they did not do anything to correct the situation. They continued to charge a premium of around 10 percent over Dell on many products, and were also slow to launch new products.”
Paramjit Singh Juneja, CEO, Secant Technologies, and an HP retailer in Ludhiana, adds, “Dell has been aggressive with their ad campaigns in Ludhiana and rural Punjab. It also ran some excellent schemes, including one which offered a Bangkok trip for partner selling 20 notebooks and was a huge success.”
Kishore Makhija, CEO of the Raipur-based Priyanka Computer Services, who was an HP partner for almost a decade, points to a more systemic issue. “I feel HP’s present channel policies lack vision. They are losing the plot in the PC business. They lack aggression, are not doing the right promotions, are over-distributing their products, and are killing channel profits. This shows there is something wrong with what HP is doing with its retail PC business. The quicker they figure out what is wrong and fix it the better.” Little wonder then that Makhija is now an MSA of Dell, and says he is doing roaring business.
Many partners suggest that HP’s debacle may have a lot to do with the departure of Ravi Swaminathan as president of PSG. While Swaminathan quit in November 2009, since October 2008 there have been rumors that he was quitting.
Opines Shyju Antony, CEO of Kochi-based retailer Online IT Shop, “It must be hurting HP that in less than three years after Dell got into the consumer business in India they have overtaken HP’s decade of hard work. Dell had their set of issues, but ironed them out effectively.”
Juneja offers a neutral insight, “With the PC market maturing and competition intensifying, no single vendor will enjoy the type of market share that HP did in the notebook segment a couple of years back. The gap between the first three will be narrow.”
Commercial PCs
On the commercial PC front too HP is facing tough competition. According to Gartner, enterprises rallied behind Dell in Q4 2009 in the notebook category. And with Acer firming up its enterprise strategy and Lenovo revitalizing its India strategy, the competition is only heating up. And just like the consumer space, it will become increasingly difficult for any vendor to have a huge leadership margin.
However, certain issues highlighted by HP business partners require attention. One key issue is the slow response of the company to even large deals. “Despite increasing competition, HP hasn’t improved its market response time. We have to wait much longer to get special price clearance from HP than a Dell partner has to wait to get clearance from Dell,” complains Rajeev Mehta, CEO, Zest Systems, Delhi.
Another major issue highlighted by partners is that of channel overcapacity, which they say is leading to heavy price discounting and margin erosion. Mid-size HP partners allege that HP favors large partners and gives them extra benefits, thus making it difficult for mid-size partners to compete in large deals.
Sameer Mathur, Head, Solutions Partner Organization, HP India, accepts that margins have been under pressure, especially due to the slowdown. But he is unwilling to accept that the company is suffering from channel overcapacity and favors large partners. “Margins are decided by market dynamics rather than vendor policies. In the last 12 months, due to the slowdown, everyone has seen erosion of margins on PCs.”
Mathur says he’s surprised that partners feel that HP suffers from channel overcapacity. “On the contrary we feel we need to increase our footprint and partner network. Moreover, at PSG, among the 1,200 regular partners who address the commercial PC market, we work very closely with only about 200 partners who account for 90 percent of our commercial PC business.”
Commenting on the allegation of partner bias Mathur says, “With our new rules of engagement draft, we now have no ambiguities and will allow all partners to manage their space. Our deal registration mechanism is fair and transparent, so I don’t accept these allegations.”
However, he says that on certain large accounts the company definitely uses its discretion in aligning with a partner who has the best chance of clinching the deal. “We do look at the win-ability of a partner in deals that are large and challenging—the way any other vendor would choose to align with a partner who has the maximum chance of closing the deal, or has proven technical strengths for supplying the solution. But the first preference is always for the partner who registers the deal.”
ESSN group
Over the last two years, the core IT infrastructure space has perhaps witnessed the maximum transformation than any other segment of the IT industry. The global economic meltdown has expedited the evolution or adoption of several new concepts, including cloud computing, virtualization and converged infrastructure. Recognizing these paradigm shifts, HP has been on an acquisition spree to boost its services business and to offer a converged infrastructure platform.
Two of the company’s biggest acquisitions have taken place over the last two years. The first was EDS, making clear HP’s intentions about enterprise services. More recently, in December, HP announced the acquisition of 3Com to boost its networking portfolio and strengthen its bid in the converged infrastructure space.
The company has undertaken a reorganization of its enterprise solutions and services business. Starting last November, HP’s networking business ProCurve has been integrated with its Technology Services group to form the enterprise servers, storage and networking (ESSN) group.
ESSN, HP Technology Services, HP Software and HP Enterprise Services (formerly EDS) will now be collectively called the Enterprise Business, and headed by Neelam Dhawan.
The convergence of all HP businesses under one group has also meant a change in the overall channel organization for its infrastructure solutions and services. Traditionally, HP had two channel organizations which managed the enterprise channel business: the solutions partner organization (SPO), which looked after all distributor-led volume products that go into infrastructure, and the enterprise channels organization (ECO), which was responsible for value-added products, solutions and services that require to be sold on a back-to-back basis.
“After the restructuring of the team, the SPO job role will be limited to only IPG and PSG products, and will not include any volume ESSN products. The ECO will drive the entire ESSN engagement with partners, be it volume or value products,” explains Pradeep Khemani, Country Manager, Channels Organization, ESSN, HP India.
Networking will be a key priority for HP in 2010. While HP ProCurve has managed to capture the number two spot in the networking segment, it’s still way behind Cisco because it lacks the comprehensive portfolio needed to compete with the market leader.
Chandranshu Singh, IT Infrastructure and Integration Technologies Analyst at the Ovum Butler Group, observes, “ProCurve’s portfolio is suited for SMBs and the mid-market, but it lacked presence in the enterprise segment. With 3Com, HP has a stronger portfolio to take on Cisco in the enterprise space. 3Com will help make HP’s footprint in the enterprise LAN bigger. The vendor will move from edge to core with the help of core switch technology from 3Com.”
Singh believes that the move to combine the networking business with servers and storage will enable HP to sell its networking products to organizations which have invested in HP compute solutions. But while, ProCurve has been doing that for the last three to four years, it remains a marginal second networking brand in partners’ portfolios—nearly 95 percent of HP’s key partners sell Cisco products.
“We are aware of this market reality. We are creating enough value propositions for our server partners to take a complete HP solution to our customers. Also, we have developed a set of 100 partners whose primary focus is network integration,” admits Subhodeep Bhattacharya, Country Manager, Networking, ESSN, HP.
A key issue HP faces is the lack of certified professionals. Cisco’s biggest strength is its education program, which is considered the industry standard for networking expertise, and the availability of certified professionals makes it easier for a customer to bet on Cisco. “We have tied up with HP Education to create certified professionals. Already 400 professionals have been certified, and this number will grow exponentially through the year,” says Bhattacharya.
Many partners are worried that HP may compel them to sell its networking products over Cisco’s, but HP says that it will not force partners to choose one over another. “Our idea is to make both partners and customers see value in buying server, storage and networking gear from HP, and not to create forced cross-bundles,” assures Bhattacharya.
Servers and storage
The server business remained the bright spot for HP in 2009 when the company lost market share in IPG and PSG. The company says that over the last 12 quarters it has led the x86 server market over IBM. Nevertheless, the real challenge for HP has been the major decline witnessed by the overall server market. In 2009, the x86 server market declined by 25 percent, the steepest fall in years.
HP says its key priority is to revive the server market. “In the last 12 months, the Indian x86 server market has shrunk from $400 million to $300 million. Though HP has maintained its market share, our revenues from the server business have dropped. We plan to revitalize the market by rolling out new initiatives,” says Rajesh Dhar, Director, Industry Standard Servers, HP India Sales.
According to Dhar, the average selling price of servers has seen a considerable drop in the past six months because processors have become faster and building blocks cheaper. “As virtualization is maturing, server consolidation is gaining momentum. A customer who has 100 servers needs only 15-20, hence it’s important for partners to create opportunities by identifying new problems and offering newer solutions.”
To predict what the customer will buy in each vertical, HP is taking a more granular micro-vertical approach. Partner training will remain a key focus.
On the storage front, 2009 saw the company introduce two new brands—LeftHand Networks iSCI SAN solutions and IBRIX, a file-serving software that provides data protection, management and availability to scale-out and cloud computing environments.
IBRIX allows customers to scale bandwidth and storage capacity using industry-standard servers and storage, and leveraging a customer’s existing infrastructure. “These two additions bolster our storage portfolio. We have trained more than 400 partners on LeftHand products in India, and our focus will be to train more partners on our new high-end products,” says Prakash Krishnamoorthy, Country Manager, Storage, ESSN, HP.
HP has also introduced a removable data disk backup system called RDX, which Krishnamoorthy says will be sold through over 600 partners. “The product is perfect for Indian small businesses, and this will be an entry point for many of our PSG partners to move to selling storage.”
Storage virtualization is another key theme for 2010 and HP has trained 35 partners on assessment services to help them evaluate and advise customers on virtualization of their infrastructure.
ISV relationships
Offering vertical-specific solutions is a key theme for HP in targeting the SMB segment, hence it’s doing all it can to woo independent software vendors (ISVs) having vertical-specific applications and expertise. The company has had an ISV engagement program since 2008; however, it lacked cohesiveness and a clear mandate. This, says Faisal Paul, Head, Marketing and Alliances, ESSN, is all set to change with the revamping of the ISV alliance program. “We have launched a new program called developer solutions partner program which enrolls ISVs to work closely with HP in conjunction with a set of HP hardware partners. We currently engage with close to 250 ISVs across 16 industry verticals.”
The company has also set up separate regional teams to manage ISV relationships and ISV-hardware integrator alliances. “The regional teams have been given the mandate to choose the industry verticals they think are the most promising in their region, and manage the opportunity between the ISV and hardware partners,” explains Paul.
The company’s Partner Technology Access Center (PTAC) in Bengaluru will certify ISVs and train its partners to take the solutions to the market. “We have 100 trained enterprise partners who will carry these certified applications. Another key addition to the program is that our distributors will now be involved in helping partners and ISVs work together. This will increase our reach,” Paul avers.
Paul says HP has big plans to work closely with software vendors such as SAP, Microsoft and Oracle, and their implementation and ISV partners. The company is also looking to launch a big market development initiative akin to the White Spaces program to tap SMBs that have negligible investments in IT, in partnership with SAP. HP is confident of doubling revenues from their micro-vertical initiatives, during 2010.
Plans for services
The big story unfolding is HP’s plans for services and the channels’ role in it. “The next few years will see the emergence of technologies such as everything as a service, convergence of infrastructure, real-time business intelligence, and simplified collaboration,” predicts Neelam Dhawan, Managing Director, HP India. “At HP we are focused on addressing this opportunity.”
While EDS has been integrated to form HP Enterprise Services, the HP Technology Services team has drawn up plans to offer commoditized services through partners.
“Our partners are facing competition from Dell and IBM, and we are launching services that will help partners compete and win. We have launched a program called Co Sell Co Deliver, where we take the delivery and sales capabilities of partners and go to market offering a multitude of services,” explains Poonacha PT, Channel Manager, Technology Services, HP. “The plan is to offer integrated multivendor support. We plan be more aggressive in pushing our infrastructure services such as e-mail, unified messaging and storage with strong service level agreements.”
Summing up
While HP’s plans for 2010 sound impressive, it’s the execution that will count.
In the IPG segment, the chances of HP gaining market share will largely depend on how Canon sustains the momentum it gained during 2009. In the ESSN part of the business, HP continues to innovate in market and business development. However, in each area of focus it faces competition. In server and storage, IBM, Dell and EMC all have aggressive marketing strategies. The space will see new competition from Cisco who has launched its rack and blade servers. On the networking front, despite the 3Com acquisition, it will be a few years before HP can pose any serious competition to Cisco.
In PSG, it’s clear that there will be close competition between Dell, HP and Acer, and it will be difficult for HP to regain the market share that it had earlier.
HP’s success in India so far has been the result of the channel mindshare and confidence it enjoys. The charges of complacency, channel overcapacity and slow market responsiveness will have to be looked into seriously and the company will have to look for ways to improve and innovate its channel engagement.
Irrespective of changing market dynamics any new strategies, HP’s leadership promises that it will continue to be channel-centric. “Whatever we’ve been able to achieve so far is only because of the support we have enjoyed from the channel community,” says Dhawan. “We’re one of the few vendors who’ve stayed committed and have not hesitated to invest in a technology, a market or a product. That has provided a strategic opportunity for our partners and us to gear up for the next decade.” |