January 13, 2010 -- Microsoft and HP today announced a $250 million technology development partnership and a series of software/hardware/service rollouts that HP CEO Mark Hurd called "the deepest level of collaboration and integration" in his company's history.

The agreement, which appears to have no official name, is to develop a comprehensive software/hardware stack that is preconfigured, tested and optimized for use in public and private cloud data center environments.

The deal centers on aligned R&D involving Microsoft Exchange and SQL Server, along with HP server, storage, networking and other application packages. Operationally, the stack is to be optimized through combined work on HP Insight, and Technology Optimization software as well as Microsoft System Center, Hyper-V virtualization and Windows Azure public cloud platform.

Microsoft CEO Steve Ballmer joined Hurd and other executives on a conference call to reaffirm the companies' stance that the cloud will be the modern architecture for how businesses will build and deploy applications going forward. The same features being built for Azure will be productized, from pretesting and configuration all the way through delivery to customers.

"[Customers] need a hardware/software stack and services on which to build, the same application model that we'll have on Windows Azure. In my own mind I think of this as the private cloud version of Windows Azure," Ballmer said. "That thing is going to need to be an integrated stack from the hardware, the virtualization layer, the management layer and the application model."

Dave Donatelli, EVP and GM of enterprise servers and networking at HP, said the companies are working from the construct of an "application machine" that marries the infrastructure, server, network, storage and operating system all the way up through the application. Starting with SQL Server and Exchange, the plan is to engineer infrastructure and applications to be faster and cost less money to deploy. "We're even looking at how we can make it easier to ship to the customer, Donatelli said. "With SQL Server you can ship the hardware with the software already preinstalled from HP to the customer."

The plan will involve 11,000 employees at both companies, and, while budgets were not broken out, includes engineers, service resources, dedicated sales forces and publicity campaigns for the partnership.

While Microsoft and HP have entered several partnerships in the past, Hurd says this is different. "There's a difference between a bundle and ... how much true engineering gets done and maybe that gets lost a little in the words. [We're] talking about putting millions and millions of dollars around not just bundling, but engineering alignment, testing, aligning thousands of service people around it."

Bob Muglia, president of the server and tools business at Microsoft said the companies have been working to integrate System Center and Hyper-V with HP's Proliant hardware.

"As an example of what we'll be delivering in a very short timeframe are a set of power management capabilities that will be unique on HP hardware where System Center will be able to directly control an overall data center," Muglia said. The enhancements will reduce the power utilization of data centers; other milestones will include run book automation (workflow management and reporting) to simplify the management of Windows within a heterogeneous environment of applications.

Both companies said the agreement will not affect other partnerships and was not influenced by competitive moves, such as Oracle's planned acquisition of Sun Microsystems. "We respect that HP is still going to work with guys we compete with and we're going to work with guys that HP competes with," said Ballmer. "That won't stop us from doing a lot more with HP or HP doing a lot more with us."

But Ballmer added that part of the effort is to "glue together" some of the millions of dollars in research and development spent by the two companies.  

Muglia added that the companies are "investing together on some very exciting R&D to redefine the way data centers will be built and optimized" for a next-generation cloud application model. "Frankly I don't think any other companies in the market could really deliver on these things today," he said.

And Hurd said he expected "a continual incline" in collaboration between the technology and software giants. "There isn't a meeting we have together, which happens frequently, where we don't talk about further opportunities to align R&D. It's not just a piece of paper that defines everything we do together because we constantly have ideas for new things to do together. Think of this as the deepest relationship ever announced with a plan and a series of releases and features coming out."

(Read storyrelated blog post here.-ed)