Customers of Hewlett-Packard and Electronic Data Systems offered a range of reactions Tuesday to HP's $13.9 billion bid for the massive outsourcing company.

HP will benefit from EDS' talent pool, but the specter of layoffs -- which EDS president and CEO Ronald A. Rittenmeyer indicated Tuesday would be possible as the companies integrate -- raises concerns about customers' existing deals, said Nina Buik, president of Encompass, a HP user group that says it has 50,000 members.

[ Special report: HP scoops up EDS ]

"From a business perspective, I understand when you consolidate staff there's going to be duplicate jobs," Buik said. "I want to make sure the customers are still getting the level of service they signed up for. That would be my concern."

HP's pending purchase, which will bring it in close competition with services leader IBM, has been approved by both companies' boards of directors, and is expected to close in the second half of this year.

The deal will result in a new unit called "EDS -- an HP company," based in Plano, Texas, where EDS has its headquarters. Rittenmeyer will lead the new unit and report to HP CEO Mark Hurd.

Joe Lovetere, president of Hub Technical Services, said he was surprised by HP's move, but called it "exciting" and not likely to be a threat for his South Easton, Mass., company, which resells HP's hardware and provides services.

"I don't think that it affects our business in terms of the market segment we have," he said, explaining that it is divided between the public sector and SMBs. EDS goes after the biggest accounts, Lovetere said.

One of those is Xerox, which has spent billions of dollars on EDS services during the past couple of decades. The company signed a $263 million deal in April that will see EDS manage and support its end-users, service desk, and mainframe operations. It was a recent milestone in a long relationship.

Xerox's latest deal with EDS provides it with "flexibility in the event of changing business circumstances," and the pending acquisition could well qualify as such, said Carl Langsenkamp, director of public relations at Xerox.

However, he declined to speculate on whether Xerox would, in fact, look to alter the contract.

The company has a "two-fold relationship" with EDS, partnering with it as a member of EDS' Agility Alliance, which brings together offerings from a range of vendors into an "agile enterprise platform," he said.

Meanwhile, HP and Xerox compete in the office printing business, but Langsenkamp downplayed the potential impact. "This move seems to retrench them in IT outsourcing, but not document management," he said.

HP's hardware division presents another potential wild card for customers, should HP attempt to move EDS clients over to its computing platforms.

Hurd insisted during a conference call Tuesday that EDS would resist such an obvious temptation and remain hardware-agnostic.

This scenario is believable, Lovetere suggested.

"EDS is still a stand-alone business with a core group of customers and a core group of relationships," Lovetere said. "Trying to force customers onto platforms they don't have comfort level with doesn't make good business sense."

The acquisition will benefit both companies in the long run, said Rick Morris, chief information officer of Dollar Thrifty Automotive, which signed a five-year IT services contract with EDS worth $150 million to manage application development, network, and hardware management.

"I would be more worried if they were merging with a lesser-known commodity than HP," Morris said.

With HP being a products company and much of EDS' revenue coming from infrastructure outsourcing, the acquisition is a natural way to try to expand in the services business, he said.

The combined company could lower Dollar Thrifty's IT operation cost by bringing in HP's product culture and more scale, Morris said, adding that HP could also reinforce and enable EDS' strategy to make business applications for the travel and transport industry.

Yet, there are concerns. EDS has a big focus on the travel and transportation industry, and Morris questioned whether HP would retain that vertical focus. Questions also remain about HP's ability to effectively integrate EDS' operation and culture, Morris said.

"The HP-Compaq merger seemed pretty messy; the major thought would be, would they execute this better," Morris said. HP's acquisition of Compaq for $25 billion in 2001 was considered a failure, as the company didn't generate hardware profits as a result. Former CEO Carly Fiorina, who oversaw HP's buy of Compaq, was replaced by Hurd.

While the deal could present issues for some vertical markets, it could translate to better IT integration for health care organizations, said Elizabeth Messina, CIO of Blue Cross Blue Shield Arizona. Blue Cross already uses HP hardware and recently renewed a contract with EDS for claims-processing hosting in March.

Blue Cross has been an EDS customer for 15 years and the acquisition could allow HP to expand its offerings, Messina said.

"This allows [HP] to come forward with hardware solutions with services to provide at competitive prices," Messina said.

The EDS deal could overall catapult HP near the top of a space worth $748 billion in 2007, according to recent figures from Gartner.

IBM led the market with about $54 billion in revenue, followed by EDS with $22 billion. HP was in fifth place with revenue of $17 billion, behind Accenture and Fujitsu.

(Peter Sayer in Paris contributed to this report.)

This story was updated May 13, 2008.

Microsoft on Tuesday revealed pricing details for a new server software bundle aimed at midsize companies and the next version of its Small Business Server product.

Microsoft also made available preview versions of those products -- Windows Essential Business Server 2008 and Windows Small Business Server 2008 -- for download and evaluation.

Both products have been undergoing private testing. Tuesday's previews allow Microsoft to receive feedback from a larger audience before releasing the products, which it expects to do by the end of the year, the company said.

Microsoft is offering a standard version of Windows Essential Business Server 2008, including five CALs (client access licenses), for $5,472; additional CALs will cost $81 each. CALs are required for each desktop user accessing server software products from Microsoft. A premium edition of Essential Business Server 2008 will be available for $7,163, a price that also includes five CALs. Additional CALs for the premium edition will cost $195 each.

Windows Small Business Server 2008 Standard Edition, with five CALs, will cost $1,089, Microsoft said. Additional CALs for the software are available for $77 each. A premium edition of the product, including five CALs, will cost $1,899; additional CALs are $189 each for that product.

Pricing for Small Business Server has gone up from the current version of Small Business Server 2003 R2, which is $599 with five client access licenses for the standard edition and $1,299 with five CALs for the premium edition. Microsoft said the pricing has gone up because the latest version of the product includes more technology and services than the previous version of the product.

Microsoft Windows Small Business Server 2008, formally code-named "Cougar," and Windows Essential Business Server 2008, formerly code-named "Centro," are part of Microsoft's new Windows Essential Server Solutions line. The products in the Essential line combine Microsoft's Windows Server OS with other software products the company deems necessary to running a business, to provide what it describes as an all-in-one, easy-to-install software stack for companies that may only have a small IT support staff.

Essential Business Server includes three copies of Windows Server 2008 running on three hardware servers. The first server is a domain controller and management server that includes the Windows Essential Business Unified Management Console.

System-management products in the offering include Microsoft System Center Essentials, Active Directory Domain Services, DHCP and DNS, all of which are built onto Windows Server 2008. The second server in the Essential Business Server stack is for e-mail; it runs Exchange Server 2007 Standard Edition, Microsoft said. The third server is a security server running Forefront Security for Exchange Server and Forefront Threat Management Gateway.

The premium edition of Essential Business Server 2008 will include a fourth version of Windows Server 2008 on a fourth piece of hardware running SQL Server 2008, Microsoft said.

Aside from its price and new features, another change to Small Business Server 2008 is that it will be offered for 64-bit servers only; previous versions were available for 32-bit servers. Microsoft has said that going forward, it will be offering most of its software in 64-bit versions only, to encourage customers to move to the 64-bit version of Windows Server. For instance, the latest version of Exchange Server is available only for x64 servers, while previous versions also supported 32-bit hardware.

Small Business Server is an integrated offering of Windows Server 2008, Exchange Server 2007 Standard Edition and Windows SharePoint Services 3.0. It also includes Microsoft's Office Live Small Business service and 120-day trial subscriptions to Forefront Security for Exchange and Windows Live OneCare for Server. The premium edition of the software includes an additional license for Windows Server 2008 and SQL Server 2008.

So my phone rang one day last week and, naturally, there was a computer on the other end. But this wasn't a political robo-call trying to confuse me into voting for the wrong candidate. This was a commercial robo-call from a Web site called MerchantCircle, telling me there was a "new review of my service" on the site.

MerchantCircle is an attempt to create a localized Yellow Pages community on a national scale. So if you run a hair salon, you can put a page on MC with a map to your address, information about the salon, photos, testimonials, and ways for potential customers to contact you. Their tagline is:

"??? Join the 430,000 businesses across the country who rely on MerchantCircle to prove that their business is trustworthy!"

Read more of Cringely's stupid marketing escapade on his Notes from the Field blog

?

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As expected, Apple CEO Steve Jobs will once again kick off the company's Worldwide Developers Conference (WWDC) being held June 9-13 in San Francisco, Calif. The keynote will take place at 10:00 a.m. on Monday, June 9 at Moscone West.

For the first time, WWDC 2008 will feature sessions on writing applications for something other than a Mac. With the release of the iPhone SDK earlier this year, WWDC will now have sessions for mobile developers with in-depth sessions and hands-on labs to explore the capabilities of iPhone 2.0 software, including the iPhone SDK and the App Store.

Apple engineers will be on hand to work with developers on all aspects of iPhone, including hardware. Developers will be shown how to take advantage of the iPhone's Multi-Touch user interface, animation technology and APIs, including programming interfaces for Core OS, Core Services, Media, and Cocoa Touch technologies, built-in three axis accelerometer and geographical location technology.

While the iPhone is the new kid on the block, Apple is still a computer company with its Macintosh. The Mac will play a huge role in this year's event with engineers discussing interface design and implementation, application frameworks, security, localization and networking.

Apple will have over 150 sessions for Mac and iPhone development during the five-day event.

While Apple is notoriously quiet on its plans, it's seems reasonable to assume that attendees of the keynote will get to see iPhone 2.0 software demoed during the presentation.

Announced in March, iPhone 2.0 software will allow users to take on the Blackberry. The iPhone will have more enterprise friendly features like "push-based" e-mail, calendar info and contact management; additional support for VPNs, including Cisco IPsec; and two-factor authentication, certificates, and identities.

Apple may also shed some light on recent iPhone shortages during the keynote. Apple's online and brick and mortar retail stores are all currently out of stock for the iPhone.

HP Tuesday announced its plans to acquire EDS for $13.9 billion in a deal that would double HP's services business and revive EDS' position as a leader in global technology services. The acquisition will catapult HP's annual revenue for services from less than $20 billion to nearly $40 billion and position HP as the second largest services provider in the world. Here is a look at what is happening and why now.

[ Special report: HP scoops up EDS ]

What are the basics of the deal?HP will purchase EDS at a price of $25 per share, or an enterprise value of approximately $13.9 billion. HP expects the deal to close in the second half of this calendar year, and the company reports the terms of the transaction have been unanimously approved by both HP and EDS' boards of directors. HP intends to establish a new business group to be branded EDS and located at EDS' Plano, Texas, headquarters. After the deal closes, EDS will continue to be led by EDS Chairman, President and CEO Ronald Rittenmeyer, who will report to HP CEO Mark Hurd.

What does EDS bring to the table for HP?"In a word -- big revenues," says Ben Pring, research vice president at Gartner.

EDS is the No. 2 vendor in IT services (behind IBM), reporting $22.7 billion in revenue for fiscal 2007, according to Pring, who says by acquiring EDS, HP will immediately more than double its revenue for services. HP reported its fiscal 2007 services revenue at $16.6 billion. While Big Blue brings in about $54 million in services revenue, the EDS acquisition will enable HP to quickly accelerate its position in the global technology services market.

"IT services are a big and strategic part of the marketplace and they influence technology purchases downstream," Pring says. That means if IBM Global Technology Services is working with a client at the services level, there is more of a chance the customer will buy IBM technology. If HP can get its foot in the door with more services customers, hardware and software sales could follow.

"If HP had a bigger professional services umbrella and footprint, they would get greater access to a very strategic marketplace," Pring says.

What is the overlap between HP services and EDS offerings?HP services today primarily focus around product support. EDS offers broader services that include data center management, network management and application outsourcing. The overlap could be minimal, Pring says, and enable HP to move beyond professional services designed to get its products up and running in customer IT shops to offering large-scale outsourcing services.

"They don't have a huge overlap with the other business. There will be some stripping out of overlap and overhead to be sure, but HP will be getting a new set of services expertise to offer," Pring says.

Why do this deal now?

HP isn't shy about spending money on acquisitions; it purchased Mercury Interactive for $4.5 billion, and some say the vendor overpaid for Opsware when it put down $1.6 billion for the automation software vendor.

In the past decade, EDS has seen some hard times and perhaps the company didn't bounce back to its former glory quickly enough to compete with IBM.

"EDS had a rough ride earlier in the decade when everything slowed down," Pring says. The company in 2003 brought in Chairman and CEO Michael Jordan to "right the ship" and he helped the vendor mend contracts with the U.S. Navy . But Jordan in the last year has been passing duties onto Rittenmeyer, which hasn't reenergized the business as much as many had hoped.

"EDS has been losing out in big deals to competitors in its peer group, IBM in particular, and the company's share price has been lagging for the past six months," Pring says. But since talk of this acquisition began to spread, industry watchers say the prospect of HP buying EDS will please many EDS stockholders.

"Stockholders are looking at this deal as a good exit strategy for EDS. There is a lot of excitement around this," Pring says.

What will this deal mean to the IT services industry?IT services providers will compete against a stronger number two vendor in the market, and IBM, specifically, will face off against HP more directly in another market.

Pring says the deal could also drive HP to invest and develop a stronger offshore workforce to enable the combined company to service multinational clients. EDS' offshore model is not as strong as IBM's and for IBM to truly consider HP a competitor, HP will have to quickly ramp up to better serve global customers.

"IBM is going to look at the scale of this deal and the potential integration headache and argue that it will be a good 18 to 24 months before HP is able to take advantage of the acquisition," Pring says.

As for the Indian offshore providers, such as Tata Consultancy Services and Wipro Technologies, Pring says such vendors will continue to position themselves as an alternative to IBM Global Technology Services and now HP.

"This deal will only reinforce the Indian companies' portrayal of themselves as another option," Pring says. "This deal represents consolidation at the high end of the IT services market, and the Indian providers are increasing their presence in the U.S. and Europe by positioning themselves as an alternative to these U.S. companies."

What does HP have to do now to make this deal a success?Despite having several large acquisitions under its belt -- Compaq noted as the largest -- HP will run into issues integrating the two companies.

"HP will say it knows how to do such large integration based on its Compaq experience. And they all say they don't, but companies do tend to take their eye off the ball when they are challenged to integrate companies and cultures with a deal of this size," Pring says.

For one, this is a sizeable IT services deal. It's considerably larger than IBM's $3.5 billion acquisition of consulting firm PricewaterhouseCoopers in 2002, but of less monetary value than HP's $23 billion Compaq buy.

"We have never seen anything of this scale in IT services," Pring says. "They will have to work hard to put the two organizational charts together in a meaningful way and really prove they have learned the secret sauce of big-deal acquisitions."