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News from Portfolio.com

Also on Portfolio

The HP Way: A Big Deal

Turning a Radio Deal Back On

The Dirtiest Major League Ballparks

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Five years ago, if Hewlett-Packard bought EDS, everyone would've thought it was pretty much like when IBM bought PwC -- a play to create a powerful data processing consulting business that could coexist with a computer hardware business. In fact, that's been a great model for IBM.

But with HP today buying EDS for $12 billion, the smart thinking goes in a different direction. It's looking like a red-hot area going forward for IBM, Amazon and Google will be so-called cloud computing -- a.k.a. hardware as a service.

If you're a startup or a corporate IT manager, you increasingly won't have to buy computers to run your business. You just rent capabilities from some computing giant and move the information there and back over the internet. If something crashes, the data is always backed up and stored somewhere out there in the cloud. This is the ubiquitous computing idea IBM has pushed for a decade -- making computer power something like electric power.

If you tack together some of HP's other purchases under CEO Mark Hurd -- as Om Malik did -- it seems even more obvious that HP is at least as interested in cloud computing as consulting. And EDS is a solid cloud-computing play because a core business is owning and running giant data centers.

As part of the interview I did with Amazon CEO Jeff Bezos (the video is now on Portfolio.com), we discussed Amazon's push into cloud computing.

"We've been working on our Infrastructure Web Services for four years," Bezos said. "We launched our first one two years ago, the Simple Storage Service, and I am astonished -- I rarely meet a startup company these days who isn't using our web services and now we're starting to get, you know, deployment inside Enterprise level data centers as well. So it's a very exciting."

Asked about Google's plans to get into a similar business, Bezos said: "Well ... we really do have a practice of not talking about other companies. But this, like our retail business, (there) is not going to be one winner. I think there are going to be multiple winners pursuing different flavors or strategies, different kinds of products.... I think our web services business is going to be part of what becomes an important industry. And ... important industries are rarely made by single companies."

So maybe there is room for HP, Amazon, IBM, Google and others to play in the cloud computing space. The HP deal is telling us that the concept is ready for prime time.



News from Portfolio.com

Also on Portfolio

Dove: We Didn't Airbrush our 'Real Beauties'

TV Networks Scale Back on Once-Lavish Ad-Sales Fetes

The $1.7 Million Car of Your Auto Erotic Dreams

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From way over in Indonesia, Microsoft chairman Bill Gates let it be known that Microsoft never needed to buy Yahoo to make headway in search and advertising. It just kind of wanted to.

"We have always felt we could do very well on our own and now that's the path we are focused on," Gates told AP in Jakarta on Friday. "The standard strategy for us is to just hire great engineers and surprise people at how well we can compete, even with a company that's got a strong lead."

Actually, that may be the first bit of sense out of Microsoft since the Yahoo thing first emerged. That is exactly what Microsoft is good at: identifying market leaders in interesting new tech markets, then systematically destroying them. In fact, Microsoft is probably better at it than maybe any company in history. Netscape, Lotus, WordPerfect, Novell, Real Networks ... there's a long list of companies that invented something that Microsoft then copied and took down. And Windows, of course, was a copy of what Apple and Xerox were doing. Now Microsoft's Zune is taking aim at the iPod.

Microsoft is at its best when it does this. It spends billions of dollars a year on Microsoft Research, but has yet to invent an entirely new business. (Microsoft did once get out in front of a tech development, creating travel site Expedia early on. So surprised was Microsoft that it did this, the company soon thereafter spun out Expedia -- perhaps so Expedia would not contaminate the Microsoft culture with actual market innovation.)

The thing is, though -- search so far is looking like Microsoft's Waterloo. Yeah, it's won every big battle so far, but Microsoft has spent vast amounts of time and money trying to crack search -- and so far has failed. Can it beat Google at Google's own game? That seems unlikely. Can it outwit Google and create an innovative new version of search that Google never thought of? That would be very un-Microsoftian.

So ... now what?