A Bold Move: HP Acquires Mercury

July 28, 2006

A Bold Move: HP Acquires Mercury

 By Robin Bloor

Question: In what way was HP’s system management portfolio like Mercury’s system management portfolio?

Answer: It wasn’t.

In a nutshell, that’s the main point of HP’s $4.5 billion acquisition of Mercury. HP’s software business was growing strongly and so was Mercury’s, both with revenues in the region of $1 billion. They were complementary. Put them together and you have a $2 billion business that’s growing strongly and you reap some useful economies of scale.

When one company acquires another there’s always a propaganda statement about how great a fit it is. “A marriage made in heaven”, etc. In the case of this acquisition, the propaganda isn’t propaganda. The fit is surprisingly good. Mercury grew from its strong base in the testing market. HP has no software testing assets worth talking about. Mercury developed a portfolio of governance and application management software. While HP has offerings in Applications Management and Governance, they tap different areas from what Mercury offers.  Mercury has no offerings in the management space.  HP’s crown jewel of software, Open View is big in Asset Management, Service Management, Performance Management, Configuration Management, Help Desk and Identity Management.

HP had invested strongly and wisely in SOA with its acquisition of Talking Blocks, a few years ago. As a consequence, it was transforming its system management products into a service layer to support a SOA application layer. But HP had no registry technology and therefore had actually licensed the Systinet registry. In January of this year, in a surprise coup, Mercury snapped up Systinet, the leading registry technology company. HP had planned to replace Systinet with another registry.  Now, with the acquisition of Mercury, HP adds this key piece to HP’s SOA assets. It adds more than one piece in fact, because it also gives HP a full suite of testing tools, and testing, as both companies are well aware, is an important part of making sophisticated SOA implementations viable.

The Ecosystem
With HP’s acquisition of Mercury, the infrastructure management market has become a big-fish-only market. Mercury was the last valiant attempt by any vendor to acquire the strategic position occupied by BMC, CA, HP and IBM. We do not use the word “strategic” lightly here. Few IT sites pursue a “best of breed” approach to buying infrastructure management components. They choose one vendor from among the big fish, or maybe two. Then they fill in the gaps where they must. That’s how this market works.

The big fish gradually fill out their software portfolios by feasting on smaller fish, most of whom are happy to be consumed.

There are two possible outcomes to HP’s acquisition. Either it will find Mercury difficult to digest and thus its growth rate will be impacted, or the combined strength of the two operations will at least equal the sum of its parts. The latter possibility should worry HP’s competitors. Each of the other big fish in the market have substantial revenues from the IBM mainframe market. HP has none and neither does Mercury. If you discount that section of the market, which is not growing significantly anyway, then HP together with Mercury counts as both the biggest fish and the fastest growing fish. HP’s acquisition of Mercury could disturb the ecosystem in this $10 billion pool.


Newsletters 2006
About Robin Bloor

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