Cold, dead fish

I started my career 30 years ago at Hewlett-Packard. Back then, HP was almost completely engineering-driven--so much so that the saying at the time was that "HP would market sushi as cold, dead fish." HP's marketing may have been lacking, but its product development capabilities were undeniable. Turn the clock forward to 2011, however, and the HP of today is a company with only one real strength--its printer division--and a management team that's almost completely lost the trust of the company's investors.

Yesterday, in addition to releasing its financial results, HP announced that it was killing its webOS-based tablet, the TouchPad, which had been shipped less than two months earlier, and its line of smartphones. Not only did the company announce that it was killing the products, but it was also immediately ending support, leaving customers who had purchased the products as late as yesterday in the lurch. HP then said that it was considering what to do in order to "maximize the value" of the webOS software. HP also announced that it had made an offer for Autonomy, the U.K.'s second-largest software company, and that it was looking at "strategic options" for its PC business.

These may very well be the right decisions; rumors have been floating that the company has considered getting out of the PC business for years, and those rumors picked up over the last six months. HP's acquisition of Palm was questionable to begin with, and the company bungled the launch of its new webOS products, along with the management of the webOS Developers Program. The acquisition of Autonomy will push HP further into the software business, with an emphasis on "big data" analysis applications. The problem isn't with what HP announced, but how it announced it.

The decision to kill the webOS products came just two weeks after the company launched a major promotional campaign dropping the price of the TouchPad tablet by $100, and while HP was running a national television advertising campaign to promote the device. I saw two HP TouchPad ads on national television last night, after HP had announced the decision to kill the product. HP announced that it was reserving $100 million for returns of TouchPads, but it said nothing about what it was going to do for recent purchasers of the HP devices. Should they return them to where they purchased them for a refund? Should they send them to HP? Should they keep them but send proof of purchase to HP? Would HP do anything at all to make them whole?

Update, August 20, 2011: Late yesterday, HP reduced the retail price of the 16GB TouchPad to $99 (US), and $149 for the 32GB model. Some resellers, most notably Best Buy in the U.S., have chosen to return the tablets to HP rather than sell them at the lower price. Best Buy has also extended its return period from 30 to 60 days in order to cover all sales of the TouchPad from when it first shipped.

Yer another update, August 21, 2011: Best Buy, which had initially decided to return the TouchPads in its U.S. stores, has instead decided to sell them at the prices suggested by HP. Purchases will be limited to one per customer, with no returns or refunds allowed. Customers who purchased TouchPads from Best Buy at higher prices will still be allowed to return them for a full refund.

As for keeping webOS viable, I would have expected HP to have a definitive announcement: It's selling it to another company. It's open-sourcing it and making it available for anyone who wants to use it. It's setting up a Mozilla-like foundation to take it over. But instead, HP said that it didn't know what it was going to do.

The PC announcement had at least the same level of uncertainty. Leo Apotheker, HP's CEO, said that the company was considering spinning out, selling or keeping the PC business, but that no decision would be made for as long as a year. Again, you would have expected HP to say "The PC business is being sold to X", or "We're spinning the PC business off to our investors", or nothing at all. The indecisiveness of HP's statements make the decision look like it was taken at the spur of the moment, without a lot of thought.

Even the acquisition of Autonomy was couched more as "Yeah, we're considering buying them", then as "We've made a definitive offer to acquire Autonomy for $10 billion", as has been reported. The entire set of announcements feels as though it was designed more to deflect attention from a mediocre earnings report than as a well thought out strategy for turning the company around. The investment community responded by driving HP's stock price down to its lowest level in years, dropping almost 21% in a single day near today's market close.

Making the announcements that it did, while leaving so many questions unanswered, did nothing but increase doubts about the competency of HP's management team. This is the wrong time, and the wrong stock market,  for HP to make its future plans so uncertain.

HP buys Palm, but why?

Earlier today, HP announced that it will acquire Palm for $1.2 billion, a 23% premium over Palm's market value prior to the announcement. HP has more than enough cash on hand to complete the transaction without issuing more stock. The question is, why did HP buy Palm? What value do they see in the company, and what does this mean for the future of Palm's products?

Many people don't realize that HP has sold smartphones for some time under the iPaq label, but the company has miniscule market share. Growth in most of HP's businesses has been slowing; it needs to get into new markets, but it was getting no traction in smartphones by itself. By buying Palm, HP gets an existing line of smartphones sold through all the major U.S. mobile operators, along with some international distribution. The distribution agreements might actually be more important to HP than the existing Palm hardware line itself.

HP has said that it will increase Palm's R&D investment, and that it plans to port Palm's WebOS operating system to more devices. However, I wouldn't be at all surprised to see Palm go back to its previous strategy of offering phones with more than one operating system, when it sold different models that ran Palm OS and Windows Mobile. We could easily see Palm phones that run Android and Windows Phone 7 alongside WebOS-compatible models. This would make the Palm product line more appealing to mobile operators.

Will we see tablets running WebOS? Perhaps, but I wouldn't count on it in the near future. A lot of development work will have to be done to make WebOS work well on tablets, in the same way that Apple had to significantly rethink its iPhone OS to make it work well on the iPad.

Finally, will HP's acquisition of Palm make a big difference in the number of applications available for WebOS? Developer interest will be driven by sales of Palm's phones, not the acquisition of Palm by HP. If Palm's market share increases significantly, more developers will write for the platform, but the acquisition isn't going to open the app floodgates by itself.

Palm: Dying by self-inflicted wounds

Today, Engadget ran a long post about what Palm needs to do in order to survive. The article reads more like a list of things not to do when you launch a product. Most people agree that when the Palm Pre was first shown at CES in January 2009, it had an innovative operating system and a decent, if not great, hardware platform. However, from CES forward, Palm made one major mistake after another. Here's the summarized list from the Engadget article:

1. Palm waited six months to ship the Pre after it showed it at CES; by that time, much of the initial interest had cooled.
2. Palm shipped the Pre only days before Apple announced the iPhone 3GS, which immediately stole most of the Pre's thunder.
3. Palm's exclusive partner for the Pre launch was Sprint, probably the weakest of the major US wireless carriers. Palm should have done whatever it had to do to get the Pre into AT&T, Verizon or both.
4. There was no Software Development Kit available for the Palm Pre when it shipped. It took a long time for Palm to ship the SDK, so only a handful of applications were available while the iPhone and Android were gaining apps tens or hundreds of times faster. Also, Palm has only recently gotten around to shipping a PDK that enables access to the low-level functions of the Pre and Pixi.
5. Palm had awful marketing at launch, especially an incomprehensible advertising campaign that told buyers nothing about what made the Pre special or why they should buy it.
6. When Verizon finally got the Pre Plus and Pixi Plus, it advertised the phone as suitable only for housewives from the 70s. Palm should have done everything it could to nix Verizon's campaign, but whatever it did wasn't enough.
7. Rather than develop its own content management application or license something from a third party, Palm deliberately broke USB compatibility rules in order to make the Pre look like an iPhone to iTunes. Apple promptly retaliated, closed off iTunes and got the USB Implementers Forum to order Palm to stop masquerading as Apple.
8. The Palm Pixi makes no sense--it can't compete with other phones at its price point, and it was deliberately underpowered by Palm so as not to compete with the Pre.
9. The Pre had lots of hardware problems, most of which Palm refused to acknowledge or take responsibility for.

I'm going to stop there. My point isn't that Palm shouldn't fix these problems, but rather that it never should have had these problems in the first place. Everyone makes mistakes when they launch new products; we're all human. Palm, however, made so many disastrous mistakes that the company is now probably too far gone for any survival guide. Writing a survival guide for Palm is like telling the deceased at a funeral home to stop smoking. It's already too late.

Why I Bought an iPhone 3G S Instead of a Palm Pre

The day after the iPhone 3G S was announced at Apple's Worldwide Developers' Conference, I ordered one from AT&T. The Palm Pre was released a few days earlier, and it has a number of features that I frankly prefer to the iPhone, including true multitasking, a very simple way of intelligently integrating (not just merging) contacts and managing email accounts. Most importantly, the Palm Pre has a hardware keyboard, while the iPhone's keyboard is on-screen.

The new iPhone 3G S does video, which the Palm Pre doesn't yet do, but what really clinched the deal for me was the 50,000 applications available for the iPhone, compared to the 20 or so that were available for the Pre at launch. I certainly didn't expect the Pre to have anywhere near the iPhone's application count at launch, but by severely limiting developer access to the Pre's WebOS SDK, Palm virtually guaranteed that its opening-day assortment of applications would be paltry.

The Palm Pre and WebOS are a very impressive platform, and I'm not going to speculate about how successful Palm will be long-term. However, Apple is well on its way to building the same kind of overwhelming network effects lead in the smartphone business that Microsoft has built in personal computers. No matter how good the Pre and subsequent models are, they probably won't be able to overcome Apple's lead in applications and installed base.

Palm needed to put a full-court press on developers from the day that the Pre was originally announced. Instead, it assumed that the functional superiority of the Pre/WebOS combination would overcome a lack of applications at launch. That was true for some customers, but as in the PC business, it looks like applications are driving purchase decisions.