HP to buy Mercury Interactive

On Tuesday 7/25/2006, CNNMoney.com (along with *many* others) broke the news that the rumored HP/Mercury deal is really happening. A summary and my reaction is below. See the entire release here and draw your own conclusions.

July 26 2006: 9:22 AM EDT

NEW YORK (Reuters) -- Hewlett-Packard agreed on Tuesday to buy Mercury Interactive for about $4.5 billion in stock, or $52 per share, in a bid to expand the computer maker's business software operations.

The deal, which sent shares of the No. 2 personal computer maker down 4 percent, should help boost sales of HP's (Charts) OpenView systems management software, which makes it easier for far-flung businesses to monitor the hardware, software and networks running throughout their organizations.

The purchase of the former star Israeli technology company also puts HP in closer competition with other major systems management software providers, including IBM's Tivoli unit, CA Inc.'s UniCenter and BMC Software.

Since last year, a number of top Mercury executive have left amid a regulatory probe into its stock option granting practices. The financial scandal drove Mercury, once a top performing stock, to delist from the Nasdaq market.

Folks, you may not realize it, but this is major. Until about a year ago, over 75% (up to 90% depending on which year and which report you read) of the total revenue in the test automation and test management tools market went to Mercury, Rational and Segue since the beginning of the "Dot-Com Era". Over the last 13 months this seemingly consistent market has been turned on it's head:

1. IBM-Rational has released "replacement" tools that are now targeted (and useful, IMHO) exclusively to the Eclipse market, stopped development on the tools I was a strong supporter of and lost or drove out the last of the team of developers who had made those tools worth supporting.
2. Microsoft released it's Visual Studio Team System, which while having a target of development teams who use Visual Studio, is a solid test automation and management platform built around Sam Guckenheimer's (you all remember Sam, right? The brilliant mind behind the Rational Unified Process. While I've certainly bashed the way some folks have implemented RUP over the years, I have never been anything other than amazed with Sam's work on RUP.) vision of software development process. Oh, and did I mention Microsoft is the *only*, yes *only* test automation and test management tool vendor that I have ever encountered who is honestly in tune with it's users, collaborating with industry experts (even those who don't typically support Microsoft products) and encouraging the developers of the various tools to speak publicly and candidly about the tools, their strengths, weaknesses and challenges in development. Oh, and did I mention, these tools come in at a cost of about 1/10th what Mercury (pre-HP) and IBM have been charging for tools?
3. Borland has purchased Segue. Segue has always been one of my favorite test tool vendors, but they always seemed to have a weak marketing and publicity engine. We don't know yet what Borland is going to do with the Silk tools, but they swear to me that it is their intent to "build on and improve" rather than "use the Silk name, but otherwise build a new tool" like IBM did with Rational.
4. Of course HP buying Mercury, in my mind at least, completes the transformation of this market. We don't know what HP will do with Mercury tools, but we do know the following:

• Unlike Mercury Interactive, to the best of my knowledge at least, HP has always been an ethical company.
• HP appears to be interested in Mercury's BTO, Production Monitoring and SOA offerings... which incidentally incorporate LoadRunner and QTP, but the automation tools aren't a cornerstone in the marketing message for these offerings... and I suspect are only part of the offering to entice current customers to “buy more Mercury stuff”.
• Also unlike Mercury, my experiences with HP support since I got my first HP calculator in the 80's has been nothing short of stellar.
• Finally, while HP certainly wants to use Mercury offerings to increase the reach and profitability of the OpenView systems management offerings, I just don't see HP focusing on the test automation and test management tools as independent and separable products in the long term. I, of course, could be very wrong about this.

NOTE: I have no insider information. All opinions expressed here are exclusively my own. Any predictions are just my gut feelings based on years of watching this market as closely as I know how. I am not a market analyst, but I do get calls from analysts and get quoted by them fairly regularly. That said, I did predict that Borland would purchase Segue (in 2003), that performance testing tools would move into fully featured IDE's (in 2004), that Microsoft would become a force to reckon with in test automation and test management space (the day I found out they hired Sam), and that IBM was going to lose it's position as a leader in the test automation and management space (the first time I tested out a beta release of RPT and subsequently stopped writing about their products). I guess we'll just have to wait and see what happens.