I have another Comes v. Microsoft exhibit to share with you, Exhibit 9542 [PDF], a November 22, 2002 email to Jim Allchin and Orlando Ayala from Mike Oldham. It has to do with a planned meeting on the 25th between the two companies, on their "Better Together" theme. I think it will explain some things we've sometimes wondered about. One thing is clear. Microsoft was seriously concerned about Linux. And HP? Somewhat flexible, I'd say. Note the part about "the HP plan of record" to "bring a new Linux powered device into the mid-range marketplace" regarding NAS devices (network attached storage devices) and how Microsoft was able to convince them not to do that.
Here are some snips, but as with so many of the exhibits, the readability is low, so there may be errors, and you need to rely on the PDF for exactness:
When the product roadmap was announced in May 2002, HP was committed to only the low-end entry WP-NAS devices (S1000) and the high-end NAS/SAN fusion device (E7000). The HP plan of record was to bring a new Linux powered device into the mid-range marketplace (12K-100K). Since that time we have convinced HP to continue with the engineering and marketing of the B Series. In addition we emphasized the need for an offering below the $25K entry point. Just recently, HP determined that it could scale down the B2000 into the $7.5K range. While this is a step in the right direction, we still believe that HP needs to provide a very low-end offering in the $2.5-5K range to compete on the low end. We believe that without a low end offering, MS reps will be forced into a mixed vendor message where certain customer requirements demand a low-end NAS offering. This includes key enterprise opportunities in the branch office environments found in industry sectors such as retail, insurance and finance. Without an HP offering, the only offering to compete with low-end Linux offerings will be from other OEMs. THis poses the big threat to the HP Server group as a HP will lose account control in these mixed vendor shops. Rick Becker, (VP Software CTO, ISS) understands this deficiency and will to work with us to influence the NAS roadmap. But we still need an executive sponsor in the NSS team specifically Howard Elias or Roger Archibald....
Based on HP's server shipments, HP reports WIndows share is up one point to 73%, Linux is also up one to two points to 12-13%. This represents approx. 200K Linux servers in the next year. HP believes that a substantial part of the Linux growth is due to the declining share for Novell. However they believe there is a growing Linux threat in the enterprise space - especially financial accounts....
Current MICROSOFT-HP Emerging Markets efforts:
- South East Asia. HP discontinued its Linux SKUs beginning on November 18th. This is based on joint marketing effort that spans six months to promote low cost Windows SKU's with $30 extra channel incentives that focus on white box resellers. The goal is to enable the whitebox resellers to offer HP branded PCs instead of naked PCs.
- India. The plan is to jointly build a 2nd tier HP branded SMB channel using competence training/solution/demand generation to provide a profitable way to sell branded HP products with legal software. Target launch January '03.
- HP ships Business OS with +90% of all their Business PCs sold in all regions of the world incl. China and South East Asia. This reflects that HP's has been unsuccessful in SMB in the Emerging markets. Duane Ainzner has targeted HP to gain share against White Box vendors in all regions but most specifically in China/Asia.
- As a merged HP + CPQ company PSG is under pressure to maintain volume. The top two priorities are: 1) selling direct, and 2) winning share against white box manufacturers. White Box require less than $400 price point
- HP PCs will never win against local white box manufacturers. HP is today $300-$400 higher than white-box suppliers but hopes with new product range to get into a $100-200 price delta. HP's subs claim a $50-80 (8-12%) premium is acceptable.
- HP ships today ~20k Linux per month World Wide vs 10k six months ago. We estimate HP will ship up to 45k Linux a month Summer 03 - 3% of HP's overall PC volume. The growth is generated by a world wide effort to target White Box volume which mainly ship without legal OS. HP has in the last 6 months created Linux Desktop PC sku's in 20+ new countries across all regions, including most recently the US.
- HP is not advertising Linux sku's in NA and EMEA. However, they are advertising Linux sku's in Latin America, Asia, China. There is one Linux sku on HP's NA web site today at $520. Their lowest priced $899 notebook ships with Windows XP HE.
[PJ: Chart of average monthly Linux PC volumes in Fall of 02 and Summer of 03, all showing growth, at least double, except Southeast Asia channel, which shows 2k down to 0k and footnote: "Assumes our joint Initiative continues. If not, HP's Linux Channel volume in SEA will be 5k/month Summer '03".]
- HP will launch lower cost desktop PC in January 03 targeting a $300-399 street price incl. cpu and monitor excl. OS Design target is material cost of $230 excl cpu, monitor and processor vs. today $350 up. Jed Callaway organization has decided to provide Linux preload images in all regions 1H '03. There will be no promotion of sku's in Mature markets but the Linux offering will be available in all regions on Evo Desktop D300. We also expect Linux preload on future notebooks and consumer desktop PCs.
- Local country/region PSG managers will decide degree of active promotion. HP has been selling Linux models actively in China, Germany and parts of Eastern Europe for two years. Monthly run rate has been ~10k of which 60% ws from China.
- HP has since July 02 launched $600 Linux SMB sku's in 2nd tier channel in Indonesia, Thailand, Malaysia, Philippines, Vietnam, Taiwan, Korea, Greece, Middle East and Consumer PCs with Linux in India. These are seen as test cases for future low price efforts. This effort has hurt local MS subsidiary engagement as it is perceived as HP endorsing piracy in these markets.
- HP is using low cost Linux Pavilion sku in India in ads to generate traffic to HP branded retail stores to upsell to Windows PCs to fight local manufacturers $400-600 price points.
- HP's lowest cost Windows XP Pro Desktop PC in the US is $499 excl. monitor incl Celeron 1.8Ghz.