HP’s Fatal(?) Gaffe

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Last week HP announced that it is spinning off its PC business, along with its mobile device business.

The first is too bad. HP offered a good alternative to Dell, Lenovo, Sharp, and, yes, even Apple computers. The second is the result of a strategy that was too little, too late.

I believe this shift may prove fatal to HP for two reasons:

1. If you don’t provide handheld devices and PCs, why would I buy your printers (and your ink)?

2. Why walk away from the only markets that aren’t shrinking? The small and medium business market?

Why Abandon PCs and Mobile Devices? In understanding why HP “has to” divest itself of PCs and handheld devices, I like Horace Dediu’s analysis in his post, HP’s Decade-Long Departure:

  • “On September 3, 2001, HP announced that they would acquire Compaq.
  • On October 23, 2001, Apple announced the iPod.

The rest, as they say, is history….”

“… As it turns out, the path of sustaining and the path of disruption diverged that moment in time a decade ago. Companies like HTC, Apple and RIM were embryonic in their device businesses vs. Goliaths like Microsoft, HP and Dell. But they grew, at first slowly, but at all times profitably.”

“By the time their success was worth noticing, in 2004, HP and Dell decided to dabble in devices. But all their efforts were half-hearted. They did not crave profits but growth and share. HP’s PDAs and phones never received management attention. How do I know? Because they relied on off-the-shelf components for everything including software. It indicated that the value to be offered was in “leveraging” (there’s that word again) their brand and distribution. The value of HP was not to build something great–something that required blood, sweat and tears.”

“The result was a set of mediocre experiences while the (now incumbent) Apple was iterating rapidly into new directions. By the time the future was self-evident, it was too late to build foundations. HP did the right thing to acquire Palm, but they did it far too late. In 2010 the game was over.”

~ Horace Dediu, Asymco

Granted, the commodity PC and mobile device business is hard to run profitably, particularly when you insist on doing so through channel partners. And I get that HP has had difficulty winning customers’ hearts and minds away from Apple. But there is still, IMHO, an opportunity to serve the mass market in the PC/handheld space—a mass market made up of consumers, many of whom are also businesspeople. And, if you don’t play in the consumer, mobile device business, tell me why I’d buy your printers? Buying an HP printer to go with an HP PC makes sense. Buying an HP printer to use with my Lenovo, Dell, or Apple doesn’t seem like such a good idea. Where do most of HP’s profits come from? Ink!

Why Move Up Market to Focus on Enterprise Customers? As the economy stays dismal, why are all the big IT suppliers retreating “up market” to enterprise-only sales? To my mind, enterprise IT is no longer a “safe haven” for ensuring higher profits. Most companies are cutting back and putting lots of apps “in the cloud” and/or using SaaS.

Oracle, IBM, SAP, Microsoft are the remaining players in the Enterprise IT market. HP apparently feels that it has to focus on enterprise in order to retain its relevance. But HP has been dismal in software forever. Software is not in HP’s DNA. Acquiring Autonomy isn’t going to change that.

Providing cloud-based services and software is the wave of the future, and it’s a direction HP has to take (just like IBM, MS, et al.), but it’s not going to be easy for HP to make the transition from selling big servers to providing just-in-time access to state-of-the-art software that’s well-integrated into customers’ existing systems.

I believe that much of the action in our semi-moribund economy is actually at the low end of the market, as small businesses stay nimble and scrappy and as people out of work set up their home businesses. They are being well-served by commodity PCs, handhelds, and cloud-based apps as small businesses and independent contractors compete with larger firms for scarce resources—often winning, due to low overhead.

If I were the CEO of a major IT supplier that has both enterprise and consumer divisions, I would not want to bet my IT computing services business on rapidly consolidating enterprise clients only.

At a time when computing is being consumerized, does it make sense to turn your back on the consumer—and, by extension, the small business market—and the millions of end-users in large businesses who are also using consumer devices to get their work done?

Republished with author's permission from original post.

Patricia Seybold
With 30 years of experience consulting to customer-centric executives in technology-aggressive businesses across many industries, Patricia Seybold is a visionary thought leader with the unique ability to spot the impact that technology enablement and customer behavior will have on business trends very early. Seybold provides customer-centric executives within Fortune 1 companies with strategic insights, technology guidance, and best practices.

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