You could almost feel the common sense radiating from the conference call. CEOs Mark Hurd (HP) and Steve Ballmer (Microsoft) announced that their already-enthusiastic-business collaboration would now include a three-year, $250 million investment aimed at helping businesses reach for the cloud.

On the Surface

There has been enough noise about cloud computing not to bother replaying much of that refrain from this conference call. Suffice to say that businesses from the SoHo to the Global Company are motivated to make the future a little cloudier, because:

• Apps get deployed faster
• No capital investment
• Incremental adoption
• Lower cost

We know it’s going to happen and few companies are as focused on it as Microsoft. It knows that sooner or later the world’s office applications will live in the cloud and it would prefer that they lived in a Microsoft cloud than a Google cloud or an IBM cloud.

There’s no mystery as to why Microsoft decided to cosy up to HP either. Face it, it had to be HP or Dell, and HP is bigger, broader and deeper. HP, although it rarely makes noise about it, has done a great deal of “cloud engineering” for very large social networking and web businesses. Microsoft has been building cloud data centers itself – some of the papers it has produced on the topic are the best I’ve read.

• It knows that you need to build the iron for the data center.
• It knows you need to design and integrate the software stack.
• It knows all about the economics (from location to power supply)
• It knows it has to compete with and beat Google (in the cloud)

To me,  the announcement that HP and Microsoft will invest $250 million on top of their existing collaboration is a declaration that Microsoft has picked its partner for the cloud and hence the corporate computing market, too. The companies claim to be working together across sales, marketing and engineering, but never defined the boundaries of that partnership.

HP CEO Mark Hurd said (pointedly, I believe) “It was time for us to really align our enterprise businesses.”

As part of the deal, Microsoft will deploy HP hardware for its Windows Azure deployments – which also means “internal Azure clouds”, if I understand it correctly.

Between The Lines

This is no small deal or commitment from either company. That Mark Hurd and Steve Ballmer were both on the conference call speaks volumes. The question is whether it amounts to a realignment of the major vendors. I suspect it does, but I may be wrong.

The server market is under a great deal of pressure. IBM is paddling its own canoe very effectively, but HP, Dell, Oracle (Sun) and Cisco all seem to be floundering a little. Cisco, particularly, has to prove it can break into the market and if it fails, then a Cisco Dell merger looks inevitable to me.

Cisco is playing a jazz riff on the old “the network is the computer” theme, expecting the network switches to eat the servers. But that blade has two edges. The servers could, just as easily, eat the switches – in which case HP is well positioned.

“The network is the computer” is the old Sun refrain, of course, and it there would be some justice if Sun (under Oracle’s ownership) were able to deliver on it. Oracle will have to pull a whole warren of rabbits out of the hat to revive Sun’s fortunes, and if it has any such rabbits, they’ll need to be breeding like rabbits too.

As for the HP/Microsoft alliance itself. I cannot see it being negative for either party. It gives both companies more credibility in the corporate market and it asks questions of the competition.