Episode 42: Opsware (with special guest Michel Feaster)

Episode Summary

Executive Summary: The episode examines HP’s 2007 acquisition of Opsware through the lens of Michelle Feister, who led product on the HP side and later became a founder and CEO. The discussion centers on why HP bought Opsware, how virtualization made data center automation strategically important, why the company’s LoudCloud-to-Opsware pivot was visionary, and how integration, culture, and sales-channel execution shaped the deal’s outcome.

Main Topics: HP’s strategic rationale for buying Opsware (Priority: 5/5): Michelle explains that HP faced a consolidating market in data center automation and could not realistically build its way to leadership. Buying Opsware provided market leadership, channel fit, and a strategic control point in the future of enterprise IT. LoudCloud’s failed cloud vision and successful pivot (Priority: 5/5): The hosts recap how LoudCloud tried to be AWS before AWS, then pivoted after the dot-com crash into Opsware, using internal tooling to automate its own infrastructure and later selling that product externally. Virtualization as the market catalyst (Priority: 5/5): Virtualization dramatically increased infrastructure complexity and made manual server management untenable, creating the demand for automation tools like Opsware and validating HP’s acquisition thesis. Integration and culture clash after acquisition (Priority: 4/5): Michelle describes the friction between HP’s large-enterprise processes and Opsware’s startup culture, including IT policy conflicts, source-control migration issues, and the challenge of training HP’s sales force to sell a specialized product. Enterprise software economics and sales-channel leverage (Priority: 4/5): The episode emphasizes that in enterprise software, only the top market players make strong margins, and that HP’s existing OpenView channel was a key advantage in monetizing the acquisition. Long-term talent and ecosystem impact (Priority: 3/5): The conversation notes the ‘Opsware mafia’ effect: many people from Opsware went on to important roles at firms like Andreessen Horowitz, Benchmark, and other successful startups, amplifying the deal’s broader impact. Boards, leadership, and founder development (Priority: 3/5): Michelle reflects on how Ben Horowitz later became a valuable board member at UserMind, arguing that former CEOs can provide unusually practical guidance on hiring, management, and company building.

Key Arguments: HP needed to buy rather than build because the data center automation market had already consolidated around a few players, making internal development unlikely to reach dominance. Opsware was strategically valuable not just as a product, but as a lever to strengthen HP’s broader software portfolio and OpenView channel. Virtualization was the technological shift that made Opsware’s original infrastructure-management problem urgent and scalable. LoudCloud’s initial cloud idea was ahead of its time; the business failed because the market lacked virtualization, cloud maturity, and enterprise willingness to adopt the model. The pivot from internal operations tooling to enterprise software was extremely difficult, especially while public, but it gave Opsware a strong persona fit and product insight advantage. HP’s acquisition success depended heavily on sales-channel alignment and on transferring the acquired company’s expertise into HP’s broader organization. Large companies struggle to innovate in software because they often lack the incentives, culture, and tolerance for betting early on visionary products. Former operators/CEOs can be especially effective board members because they understand company-building in a practical, leverage-oriented way.

Data Points: Acquisition price: $1.6 billion - HP’s purchase of Opsware in July 2007 LoudCloud seed round: $21 million at a $45 million pre-money valuation - November 1999 round led by Benchmark Debt financing: $45 million - January 2000 debt raised from Morgan Stanley before product launch Later private round: $120 million at a $700 million pre-money valuation - June 2000 financing during the dot-com bubble IPO date: March 2001 - LoudCloud went public on NASDAQ Post-IPO market cap: About $480 million - Public valuation after the March 2001 listing Managed service sale: Just over $60 million - August 2002 sale of the managed service business to EDS Cash on hand vs. valuation: $60–70 million cash; $28 million market cap - Opsware’s valuation after the pivot, before HP acquisition Product development time: About 2.5 years - Michelle’s estimate for UserMind from prototype to public launch Customer research: About 300 interviews - Michelle’s process to define UserMind’s persona and requirements Mercury growth: 200 to 3,000 employees - Michelle’s tenure at Mercury Interactive Mercury revenue scale: Almost $1 billion - Michelle describing Mercury’s growth while she worked there LoadRunner business size: $250 million - Product Michelle managed at Mercury Data center automation market position: Fifth in the market - HP’s position before deciding to acquire Opsware Engineering investment: 200 engineers - HP’s internal effort on the related automation business Revenue scale of HP’s effort: About $20 million - Revenue generated by HP’s then-current automation business Sales/training travel: 350,000 miles - Michelle’s travel in the year after acquisition for customer meetings and rep training Business growth after acquisition: 350% growth - Michelle’s estimate of growth in the combined business by the time she left Listener community size: Over 800 - Acquired Slack community mentioned in the episode

Pivotal Quotes: "It was like providing the electric power grid and companies can plug in." — Mark Andreessen (quoted by hosts): Describing the original LoudCloud/AWS-like vision for infrastructure as a service "If you know yourself and you know the enemy, you'll be victorious in a thousand battles." — Michelle Feister: Explaining HP’s buy-versus-build logic and the importance of self-awareness and market position "An executive is someone who gives you leverage." — Ben Horowitz (as relayed by Michelle): Michelle describing advice Horowitz gave her about hiring her first non-cofounder executive

Implications: The episode shows how timing, market structure, and organizational fit can determine whether a technically strong product becomes a category winner. It also illustrates how acquisitions can reshape both companies’ trajectories and seed future founders, investors, and board relationships.