Is HP even stupider than Sony?
For months, I’ve been stunned by Sony’s apparent complete ignorance of — or inexplicable disregard for — even the most basic security concepts.
But HP may have leapfrogged Sony with its sudden dumping of WebOS and TouchPad, for which it bought Palm for $1.2 billion just last year. Experts praised the Palm purchase because it enabled HP to use its marketing muscle to build an Apple-like tablet and smartphone experience:
HP can offer a complete hardware, software, and service solution for mobile computing. Now HP can control its own mobile future.
I think it will be a successful marriage, with HP becoming a mobile powerhouse over time.
But HP has given up after scarcely a year!
Building a successful platform and ecosystem (think Facebook, XBox, PlayStation, iPad/iPhone, etc.) takes years, and early losses are normal. You sell at a loss to build a community, which increases interest in and demand for your platform, and the excitement keeps building on itself till you’re printing money, like Steve Jobs Tim Cook.
Some experts applaud HP’s decision: “According to Wharton faculty, leaving the PC business is a good move in the long run; it is marred by intense competition, low profit margins and the popularity of tablets such as Apple’s iPad.”
But HP-Palm was pursuing an Apple-like marriage of hardware and software, and Apple’s profit margins are anything but low. Apple’s market capitalization is tied with Exxon Mobil’s for #1 in the world.
HP was either stupid last year to pursue the strategy or stupid this year because it did not give its strategy sufficient time to succeed or fail. HP also failed to price its product at a discount to the market leader (iPad) that would entice people to try it and write apps for it.
HP’s schizophrenic management believed last year that HP could carve out a sizable niche alongside Apple but — just a year later — decided Apple is a black hole against which HP could not compete.
It’s as if HP didn’t understand the business logic of its calculated gamble a year earlier when it purchased Palm. Palm/WebOS wasn’t a magic elixir that would instantly boost quarterly profits. It was a lottery ticket that cost cash upfront but gave HP a chance to win big.
There’s little evidence HP’s bet was losing. In fact, evidence suggests it’s still possible HP could win:
HP has a clear and present opportunity to leverage this glut of TouchPad sales into legitimate relevance for webOS — the only question is whether it cares to do so….
Most respondents were frank about the fact that the TouchPad’s clearance $99.99 / $149.99 price structure actually fell below the maximum price that they would’ve paid. The median price buyers gave me worked out to $224.50, which splits nicely between $199.99 for the 16GB model and $249.99 for the 32GB. Some said it would be worth more to them — as high as $400, for a couple folks — with the knowledge that the platform would continue to be actively supported….
So, did HP leave money on the table? My best guess is that they did, yes — at least $50 per unit, if not more. At $150 to $250, they may not have caused the same level of mass hysteria over a 48-hour period, but I have little doubt they still would’ve been able to sell through inventory in a reasonable amount of time….
Should (and could) the TouchPad have launched at a too-good-to-pass-up price? As I mentioned before, the idea is right out of the game console manufacturers’ playbooks: for the first year or two, HP would eat some extraordinary cost per unit — several hundred dollars, perhaps — in an effort to build and lock in a legitimate webOS ecosystem by any means necessary. A brutal game, yes, but a game that a select few (HP included) could likely afford to play….
Three-quarters of buyers I spoke to said they would’ve bought a TouchPad just as quickly if it had launched for $99.99/$149.99 — in other words, if this was a permanent price, not a clearance — and another one in five said they would’ve eventually bought one….
And thus would begin the virtuous cycle: users lead to developers, which lead to apps, which lead to users. The tablet market would presumably be larger overall, and HP would’ve owned a chunk of it. Granted, that chunk would’ve come at a monumental operating cost, but right now, tablet vendors urgently need to be thinking in terms of generational platform leadership — just as Windows’ dominance today grew out of a seed planted by MS-DOS, PCs, and PC clones over a quarter century ago…
webOS is on that very, very short list of platforms with enough promise to deserve that kind of no-holds-barred approach to building market share. Most of my respondents were of the opinion that the TouchPad is worth $99.99 on its hardware merits alone, but — in a market utterly dominated by iOS — nearly half still want to give webOS a shot.
By flooding the market with TouchPads, HP has planted plenty of seeds to grow a vibrant ecosystem around WebOS. The question now: “Will HP water the seeds or let them wither?”
Ironically, HP wants to move into consulting services. Instead, HP should have paid McKinsey a fortune to show them the PowerPoint slides on sunk costs creating barriers to entry, increasing returns to scale, and network effects. I’m sure every McKinsey junior associate straight out of college has those slides on their laptop.
Faced with an entrenched market leader like Apple, HP needed to either go big or go home. Buying Palm and building the TouchPad was swinging for the fences. But, halfway through their big swing, they suddenly quit and walked home.
My hunch: HP CEO Leo Apotheker is a Steve Jobs plant on a secret mission to destroy WebOS. ;–)
Posted by James on Tuesday, August 23, 2011