HP Hornswoggled? Will Autonomy Purchase Pay Off?

by Dan Olds of Gabriel Consulting Group

When HP announced its purchase of UK analytics firm Automony for $10.4 billion back in September 2011, it shocked HP shareholders and caused many industry insiders to comment that HP was paying way too much for the company.

At the time, Autonomy was a 15-year-old analytics firm that specialized in helping enterprises manage all types of data, with an emphasis on pan-enterprise search and dealing with the growing problem/opportunity inherent in the explosion of unstructured data.

Pre-purchase, Autonomy boasted high recessionary revenue growth of 18% in 2010, solid 43% operating margins, an average deal size of $800,000, and a customer list that included some of the largest high-profile enterprises in the world. But the company still hadn’t topped a billion in revenue and certainly didn’t have the profile of a SAS or SPSS.

HP paid a 79% premium based on Autonomy’s pre-acquisition share price. So what has HP gotten for their money? Did they get hornswoggled, or did they get a good deal on a hidden gem?

A trio of recent articles take a look at what Autonomy brings to the HP table. The first is a Los Angeles Times piece about how Autonomy’s technology is being used to bring ‘augmented reality’ to the masses – allowing devices to understand what they’re seeing and act upon that information. One of the examples from the article discusses how a consumer might point their phone at a jar of pasta sauce and automatically get wine recommendations. (I’ve always wondered which box of wine would best complement my Chef Boyardee Beefaroni.)

CRN interviews former Autonomy founder-CEO (and current HP VP) Mike Lynch, asking how the company fits into HP and, specifically, what value the company might bring to HP channel partners. A short piece from Business Insider takes a bit of a skeptical look at the company and how it’s positioned for future growth.

The jury is still out on whether Autonomy was a good deal for HP. They’re now rolling out Autonomy-infused hardware appliances along with software/service packages, showing cooperation and cross-fertilization between the companies. Autonomy already had than 60,000 customers and, as was outlined in the Business Insider piece, has closed some huge deals with equally huge customers, so HP is getting the benefit of that business.

The addition of Autonomy will almost certainly help HP get a larger wallet share with their joint customers as sales of software secret sauce drags along HP hardware and services. This alone might be enough to justify the purchase price.

To me, HP had to make a move to stake out a claim in the big data gold rush. There isn’t time to organically build their chops in big data; the market is moving much too fast. So HP bought their way in, just like both IBM and Oracle have done.

HP’s purchase of Vertica got them part of the way there, but Autonomy’s advanced and even unique capabilities give HP the credibility and tech heft to compete for the largest and most ambitious big data deals. With Autonomy (and Vertica too), HP can put together custom large-scale solutions for their biggest customers and, at the same time, develop dedicated data appliances that will be point solutions for everyone else.

It could be a compelling value proposition, and one that puts HP squarely in the same league with IBM and Oracle – assuming that they can properly craft and execute on the strategy.

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