When will HP's software shopping spree pay off?

By announcing plans this week to acquire data center automation vendor Opsware, HP continued to prove it is "serious about software," but the pending purchase has industry watchers wondering when HP's software strategy will evolve from one of spending money to making it.

HP's $1.6 billion bid for Opsware puts its investments in software over the past few years at about $6.5 billion, according to Thomas Hogan, senior vice president of HP Software. CEO Mark Hurd reported in June that HP had shifted its primary R&D focus from hardware to software and spent $500 million to integrate its now renamed OpenView software with acquired technologies. With 2006 software revenue of approximately $2 billion (a small percentage of HP's $90 billion total revenue last year), HP is spending more than it generates in software revenue annually.

"[The Opsware acquisition is an] excellent move for the future of HP Software in terms of technology,” says Jean-Pierre Garbani, a research vice president at Forrester Research. "How are they going to get their money back is a big question; let alone how they are going to make money."

The Opsware deal, expected to close by the end of HP's fourth fiscal quarter, would become the company's third-largest acquisition behind Compaq (about $24 billion) and Mercury Interactive ($4.5 billion). Industry watchers say the technology could help HP surpass competitors such as IBM and enable HP to deliver the broadest set of management, provisioning and automation capabilities today.

"This category of automation is incredibly strategic and powerful," Hogan said in a press conference. "Our view is that we have unmatched breadth and depth in our portfolio. We are not taking a back seat to anybody in this marketplace."

HP says that when the deal is completed the company will be able to offer Opsware's automated server provisioning, network device configuration management and run-book automation capabilities directly to customers. The companies had partnered in the past, and there is some overlap with technology HP acquired with Novadigm, but HP says it will hit the ground running selling Opsware, much like it handled Mercury — which saw revenue growth in mature product categories such as load testing following its acquisition by HP.