There has been speculation over the past five days as to the significance of HP’s announcement that it intends to buy UK-based Autonomy for US$ 10.7 billion. Questions over the wisdom of the deal are rife, but ultimately, the answer to the general question as to what it is all about was provided by HP CEO Léo Apotheker in the initial announcement.

HP’s New Business Strategy

The statement may have been short on detail -- how much concrete detail can you give on a deal of this size and import? -- but it did outline a medium-term strategy that will take the company out of consumer products and place it firmly in the world of information management and infrastructure.

There has also been some speculation about the wisdom of the direction HP took under the stewardship of former CEO Mark Hurd, but it is speculative, and ultimately pointless, as HP has now pinned its colors to the mast as it moves forward.

We say medium-term strategy here because the deal is not expected to close for another year at least, and then it will take a least that time again before the revenue streams that Autonomy will bring to the equation come on line.

In the announcement, Apotheker outlined what HP sees as Autonomy’s added value. It goes like this:

Autonomy brings to HP higher-value business solutions that will help customers manage the explosion of information.

Together with Autonomy, we plan to reinvent how both unstructured and structured data is processed, analyzed, optimized, automated and protected. Autonomy has an attractive business model, including a strong cloud-based solution set, which is aligned with HP’s efforts to improve our portfolio mix.”

There’s more, but it all boils down to: information management, cloud computing, data analytics and business opportunity.

HP, Hardware ?

Over the weekend, the British Financial Times gave Ray Lane’s take on it. Lane is non-executive chairman of HP and has the unenviable task of explaining the move to HP investors who have seen HP’s share price drop by 25% since the announcement.

The thinking behind it all, he is cited as saying, is quite simple: He says that the PC business was a drag on HP’s profit margins and it could thrive independently without it. Apotheker added that HP has to “…start running as an integrated company,” and that “… if HP did not make this move, we would be on the fringe."

So much for hardware. While it remains to be seen whether investors accept that, the move into key information management areas seems like a good bet for the future.

HP, Autonomy Together

So what is the future? IDC was quick off the mark to point out what that future is. In a commentary by Susan Feldman, Melissa Webster and Vivian Tero entitled HP to Acquire Autonomy: Bold Move Supports Leo Apotheker's Shift to Software, we get some idea of what that might be.

At the core of the deal is the realization by Autonomy and HP that the market is at a tipping point, the commentary says.

That tipping point will see a move from a legacy data-based software stack to a new IT infrastructure that can integrate both unstructured and structured data. The new technologies enable enterprises to find and create links between related data spread across different silos and present that data as a bundle.

This is particularly true with the ongoing data explosion across the information landscape. Already we have seen over recent years how IBM with its data analytics, as well as Oracle, Microsoft and EMC, have responded to that.

IDC says that the development of these technologies will, in the near future, eclipse traditional search, business intelligence and data warehousing with integrated modular information platforms.

These platforms can gather, index, search, query, analyze and visualize all kinds of information stored in enterprise silos. The result will be information work environments that will be able to address the needs of particular business processes.

To date, HP hasn’t had anything that could touch any of this. We have seen before that when a company can’t do something itself, especially when it has the resources that HP has, it just goes out and buys it.

Autonomy’s Pedigree

And in this case, HP bought Autonomy. Those familiar with the company will be familiar with its Intelligent Data Operating Layer server, better known as IDOL.

From a technology perspective, it is this that HP is spending all that money on. Autonomy, in the early days, would have been better known as an e-Discovery and archiving vendor across the legal and business industry.

Not any more, though. Over the past seven years, it has been devouring companies and competitors with an appetite equal to HP's. In 2005, it gobbled up one of its main competitors, Verity, for US$ 500 million; email archiving vendor Zantaz was next on the menu for US$ 375 million in 2007.

Obviously not sated, it also made meals of Interwoven in 2009 for US$ 775 million, and snatched the information governance wing of CA in 2010. When Iron Mountain ran into problems with its directors earlier this year, Autonomy acquired its digital archiving business too.

Autonomy’s IDOL

The result is a list of business applications that can be built up off IDOL, which gives meaning and context to all the information stored across the enterprise.

It also touches on another major, developing area of information management, which we are going to hear a lot more about in coming years: That is, of course, cloud computing and Big Data.

It wouldn’t be right to suggest that HP had bought Autonomy for this alone, but it must surely have played a part in it.

On top of all the other things it does, Autonomy can also connect to the cloud. As more enterprises are taking to the cloud, more data is being stored there. However, if it goes in, it has to come out, and Autonomy is good at finding and retrieving the right information, and quickly too.

As a result of its acquisitions, it is now one of the top data storage and protection vendors. And again IDOL is the key here.

Using IDOL’s metadata and classification capabilities, enterprises can manage the classification problems created by cloud computing.

It can normalize information across schemas and silos, including metadata information from middleware applications, with the result that it can manage the classification and policies across hybrid architecture environments.

Metadata is the glue between the physical and virtual infrastructures, and maintaining these relationships is critical for effective risk management and compliance across on-premise and cloud environments and lends itself well to solving the classification challenge posed by cloud computing.

HP, Autonomy, Cloud Computing

Going back to the announcement, Apotheker confirmed that cloud computing was indeed on its mind when it decided on Autonomy.

He said of it:

"Autonomy offers solutions that are synergistic across HP’s enterprise offerings and strengthens capabilities for data analytics, the cloud, industry capabilities and workflow management. This will bolster HP’s cloud offerings with key assets for information management and data analytics."

At the moment, Autonomy manages 31 petabytes of information for its cloud customers, while its cloud business represents 62% of sales, and is growing at 17%, according to its last quarterly figures.

HP, Autonomy Business Value

And finally, there’s the business gains. Over the past year, you only have to look at the figures every quarter to see just how well Autonomy has been performing.

In a single, if expensive, deal, HP not only buys itself a place at the information management table with the likes of EMC and IBM, it also buys quite a substantial portfolio of customers and deals. Yes, there are probably other vendors that could have brought the technology, but few that could have brought the business.

According to IDC, Autonomy’s revenue stream is around US$ 1 billion, plus it has 400 OEM customers and 20,000 enterprise customers worldwide that are not afraid to do business.

In the last quarter, it posted revenues of revenues of US$ 256 million, up 16% from Q2 2010, with strong performance in its cloud business, with commits rising to US$ 465 million as of June 30, up from US$ 390 million in the last quarter, of which US$ 28 million came from the Iron Mountain acquisition.

The Future?

It’s clear, then, that Autonomy is a profitable software business with a wide, global customer base with a lot of cash that should add considerably to HP from a business perspective.

Autonomy will also gain from the muscle that HP brings and its reach into a larger playing field, where it might not be able to compete, with the help of a heavyweight like HP.

While this deal is a medium-term deal, the possibilities look good. However, the success also depends on integrating the two businesses, and no one can really predict what will happen there.

While HP's exit from the PC and device market may have come as a shock and caused a knee-jerk negative market reaction, it’s probably better that the reaction and adjustments on the part of HP happens now when it can still react, and not when the market has moved on and left HP behind.