There have been no shortage of studies of how Bill Hewlett and David Packard, working out of a garage, built a great company that helped make Silicon Valley what it is today. And in the years to come, there will be no shortage of studies of how former HP (HPQ) CEO Mark Hurd destroyed shareholder value and ripped apart that once-great company.
Today's news that HP would look to spin off its PC business, while shuttering its Palm and tablet division was predictable. Yet the sad part is that HP was positioned to succeed in tablets, but they followed the wrong strategy.
It's clear that HP totally misunderstood the market. They looked at the iPad from a technical perspective - features and capabilities - without understanding the emotional response that Apple products generate. No one will buy an iPad wannabe that's priced $100 less than the original.It's why you don't see *skips* priced $5 less than a pair of Nike Air Jordans. In reviewing their marketing site, the biggest advantage they pitch is better multitasking than the iPad. Seriously?
There were three ways to get tablet market share, and HP chose to follow none of them. As I see it, the options were:
1) Be super-low cost. This is a tough one, as it costs HP (and anyone else) more to create a tablet than Apple pays, due to the volume Apple is selling and that it has locked up agreements with the big suppliers. Yet, if HP really wanted to go after the consumer market, they could have subsidized the purchases by pricing their tablets at $249, half the price of an iPad. They might have lost $250m per year for a few years, but they could have bought their way into the market. This would not have been my preferred approach, but it would have worked and been less costly than the current writedowns.
2) Innovate. Another way to gain market share is to do something truly innovative. This would be a big challenge, in that much of the innovation around the iPad comes from the ecosystem of developers. There's a big iOS development community and a growing one for Android, but nothing there for WebOS. But, there are always things you could do. What if HP struck a deal with a movie studio to push releases out to the Touchpad before they were on DVD? I think this would have been the toughest course for them to take, as it would have to be a game-changer to draw an audience away from Apple.
3) Focus on a different market segment. This is the strategy that I believe HP should have pursued. There are a number of b2b opportunities for tablets that are not being fulfilled by Apple or Android devices. In particular, I'd start with the medical community. I've no doubt that in a few years, all nurses and doctors will use tablets to capture and maintain patient data. But with HIPAA privacy laws, an open platform like the iPad wouldn't work. HP, meanwhile, has deep relationships with hospitals and health care organizations who use its servers and software for various applications. It would have been easy for HP to go after that segment. Other interesting segments could be legal, government, aerospace, etc, where specialized needs and high security are critical. HP was better positioned than any other vendor to take that market and they instead tried to beat Apple head-to-head.
Building great products is important. But more important is understanding your markets and choosing to go after segments you can win. HP has clearly failed.
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