September 13, 2011 at 2:37 pm | Blog
Hewlett-Packard (HP) announced on Thursday, August 18 that it is taking its heavily-touted TouchPad tablet PC offer the market, only 2 months after it was launched, and that it plans to get out of the PC business altogether. (CNNMoney, “HP kills TouchPad, looks to exit PC business,” Aug. 18, 2011)
This is a rather shocking, humbling moment for HP, and it poses significant questions about how technology companies can stay relevant in what they are selling.
Several questions came to my mind when I read this story.
First, why did HP go to market with the TouchPad in the first place? Apparently they were trying to compete with Apple’s trend-setting, market-dominating iPad tablet, but consumers weren’t interested. HP tried to compete on price, cutting prices on the TouchPad by $100 each, but sales were still sluggish. This is yet another example of how cutting prices is not the answer: competing on price is a loser’s game; instead, look for ways to add value, and offer a distinctive product that people are happy to pay more for.
Did HP do any significant market research or testing before they decided to launch the TouchPad? (If not, they should have – they would have saved a lot of money on launching – and then quickly abandoning – such a heavily promoted, high-profile product.) Or, if they did do their customer research, did they actually listen to what customers were saying?
I’ve seen it happen often with some of the big companies. Often, companies make decisions about whether to offer new products based on “hunches,” or for “political” reasons, rather than understanding what their customers want.
I’m also not clear on what the strategy was behind the HP TouchPad. According to a recent blog post in Wired, there are two strategic models for success in the tablet market: “Go Big” or “Go Home.” Apple has succeeded in “Going Big” on the iPad, with rich features, a big app store, a big screen, “big” everything. Barnes & Noble has a successful tablet of its own, the Nook Color, which sells very well, but has a totally different strategy than the iPad; the Nook is focused on “Going Home,” appealing to a narrower target audience, offering smaller screens and less-elaborate features.
The HP TouchPad was unable to fulfill either of these strategic choices, and as a result it got caught in an uncomfortable (and unprofitable) middle ground. Why buy a TouchPad when you could buy an iPad?
So what are the lessons for the rest of us from the HP Touchpad debacle? Here are a few:
- Technology (and the times) are a-changin’ fast. 10 years ago, HP spent $25 billion to acquire Compaq in order to enter the PC market. Today HP intends to sell their PC business. 10 years ago no one could have envisioned an iPad; today they’re undermining the market for PCs. HP is not the only American computer manufacturer to stop making computers; IBM sold its PC unit to Chinese computer maker Lenovo in 2004.
- You can’t be all things to all people. HP bought smart phone maker Palm (the company whose webOS operating system was the basis for the TouchPad tablet) in 2010 in an effort to expand its offerings of smart phones and mobile devices. However, with this latest setback, it looks like the Palm acquisition will go down in history as another example of how the reality of integrating a company post-merger can be more time-consuming and costly than most executives expect. This is another common syndrome with executives: they often only want to see the “plus” side to mergers. But the reality is that many mergers fail to lead to better results, and many are an outright waste of time and money.
- Focus on what you do best. HP is getting out of the increasingly unprofitable consumer PC business to focus on creating software and services for businesses. The same day they announced the end of the TouchPad, HP announced that they have purchased Autonomy, a British enterprise software developer, for $10.2 billion – an 80% premium. So far, investors have not been pleased. HP’s share price plunged 20% the day after the announcement of the TouchPad exit and Autonomy acquisition. What does the purchase of Autonomy say about HP’s understanding of the future – does this push them in the right direction? Or will this be another overpriced merger that fails to generate the expected benefits?
Time will tell whether HP’s latest moves will put the company on track for long-term growth. At the very least, perhaps they’ve learned their lesson about being all things to all people and are now focused on the right strategic direction. But in the short-term, HP will have to clean up a lot of damage from a poorly-conceived product that never found traction with customers.