HP's decade-long departure

HP’s sudden departure from a business model that has sustained the company since inception is symptomatic of the passing of an era. Yesterday HP announced that it would exit the PC and tablet computer business, focusing on higher-margin “strategic priorities of cloud, solutions and software with an emphasis on enterprise, commercial and government markets.” In other words, HP is fleeing upmarket, away from a core that it will abandon to device makers.

HP management conceded that the disruptive impact of the iPad forced their hand but that hand was already quite weak from a decade of over-serving the market. The last decade offered plenty of opportunities for incumbent PC companies to adjust to the realities of mobility. However only one computer maker made the transition.

Why is that?

Consider how HP and Apple faced the changes in the PC market almost exactly a decade ago.

  • 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.

But what would any reasonable person have done? The PC industry was no longer young but still thriving, why not consolidate? Consolidation is a natural and well-reasoned practice for maturing industries. You get rid of over-capacity, you consolidate overhead, “leverage synergies” and boost margins.

And it’s not like they were ignoring innovation. Compaq had a growing line of PDAs, so there were plenty of diversification opportunities. Microsoft was offering Pocket PC and the Phone edition was on the roadmap. HP was clearly watching mobility carefully.

Contrast that with Apple’s predicament. Which aspiring manager would want to deal with the disaster that was Apple at the time? Apple was struggling with a declining Mac business and had just re-booted it with OS X but it seemed a quixotic effort. Moving to music players seemed desperate (and late). Margins were low, commodity vendors were lining up, record labels offered resistance, they did not have any IP or any DRM and nothing but Mac users as target audience.

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.

How cruel.

But that’s the nature of unforeseeable growth: you cannot foresee what will happen and plans never work out. Data and planning don’t help. The lesson is that you need to plan for that which cannot be planned. When you are at your peak you must assume failure is imminent and when you are at the trough you must assume success is inevitable.

All failures of strategy are rooted in the assumption that outcomes are predictable.

This is why I expect Apple is now working on shaping the post-iPhone world.

Update: This article has also been published in the Harvard Business Review blog: HP’s Decade-Long Departure – Horace Dediu – Harvard Business Review

  • Andrei Eftimie

    Very nice read!

  • Is this a slight deviation from the norm in that the disruptors were profitable from the get go?

    • asymco

      Disruptors should be profitable from the very beginning. Profits allow you to survive the natural business cycles which buffet all projects. If you make losses and are young, you'll be the first on the chopping block when times inevitably turn bad.

      • Amen.

        I should have framed my question better. Profit margins were good from the beginning, at least for Apple. So incumbents must have had their heads buried deep to ignore new product classes with high margins from a high profile company.

        On the other hand, even if they noticed the disruptors, may be the processes/Values were not in place.

      • " They did not crave profits but growth and share." That explains it all.

      • CndnRschr

        I'm not really sure that this is true. Apple maintained their higher than norm profits and have never gone after marketshare as the leading indicator. They've never discounted. They do use last years models as a means to appeal to the price-conscious but it’s a quiet effort.

        The differentiator is vision, or should I say depth of vision. Apple seems to have at least traced out possible scenarios on a 5-10 year horizon. HP, on a 2 year horizon. Apple doesn't seem to care what others are doing, or what the market is doing. Like good investors, they ignore the chop and look to the calmer long term – that takes self confidence and imagination. You cannot predict the weather, but you can predict where you would like to be and start charting that course.

      • Hamranhansenhansen

        Steve Jobs said Apple is always on a 20 year plan. (At D Conference, 2007.)

      • asymco

        I did not notice that. Thanks.

      • EWPellegrino

        Depends on the business iTunes is a great example, Apple has never sought margins in selling music or video or apps, instead they've sought market share as a means to gain profits elsewhere in the business – but for iTunes itself the leading indicator was clearly market share.

        Sometimes they go for marketshare even in hardware, the iPod shuffle is the obvious example but arguably the iPad is another – they certainly set the iPad's price at a very aggressive level.

      • CndnRschr

        Very good point, iTunes, AppStore, etc. are all about low profits but they are also the means to sell hardware. Apple uses software to sell hardware. Apple's profits predominantly come from the hardware. Whether this will change over the longer term is unclear. My bet is that it will, but Apple does not want to piss of the content providers so will be reading carefully. For example, I am sure Apple could easily do an exclusive deal with Disney for early access to content but has chosen not to for various reasons. The key to having a thriving device ecosystem is that content is available for it. That's one reason why Apple hated Flash because it made their hardware look bad. They didn't want to support it and, in effect, had to kill it. Adobe, to give them credit, handled the attack well by supporting HTML5. A dumber company would have entrenched and pinned their future on the PlayBook, Android tablets and WebOS TouchPad (ahem).

      • Kgb

        Excellent post….calmer long term

    • asymco

      The Clayton Christensen mantra is: "Be hungry for profits, be patient for growth".

      • FalKirk

        Very nice quote.

        Sort of the opposite of what Android is doing, right?

      • CndnRschr

        "Doing" is the word. Android development seems very much like Windows development. Do everything, be all things to all people, let the market (literally the Android Marketplace) decide on what is going to stick. It's the antithesis of iOS. There is ABSOLUTELY room for both extremes and we are all the better for it. Indeed curated universes have some inherent vulnerabilities (single-mindedness, small pool of contributors, etc) and can benefit from adopting the better ideas that emerge from the maelstrom. However, the uncurated chaotic universe benefits far less from the curated – except at the beginning. You cannot retrofit consistency, system underpinnings, etc. with causing massive upheaval. Reminds me of Windows.

      • Hamranhansenhansen

        The Web is uncurated, therefore having a curated alternative in native apps is valuable. Android Market adds nothing.

  • Dick Applebaum

    Wrong year for iPod.

    • asymco

      Yes, thanks, fixed.

  • Nick P.

    I agree wit that this. I would add that HP simply decided to move to an area of IT which supported large margins and several players: enterprise software.

    Interestingly, Apple & Google are working hard to make software (all software) into a commodity. They give their OS for free or very cheap and have driven the price of "professional" software to an all time low. As Salesforce and other expend, even traditional enterprise software is destined to become a low-margin business.

    HP may have to pivot again in 10 years.

    • asymco

      Exactly. Enterprise will only offer temporary relief. The disruptors will take that for themselves in due time.

      • Erik

        Bingo. Apple is not chasing the enterprise, but is nibbling away at the fringes in an incremental fashion. Extrapolate out all of the current generation of students entering university today that grew up on OS X when they become the next generation of middle managers with input into enterprise buying decisions.

    • Dick Applebaum

      Interesting observation about the price of software trends. I can remember the early day of the Apple ][ where we sold a game for $19 — A cassettte tape, a boilerplate sheet of paper in a plastic refrigerator bag.

      Then VisiCalc for $79 — A floppy disk, user manual in a sudo-leather folio case…

      That spawned the business software that followed:

      OSes costing several hundreds of dollars, Office suites the same — and speciality apps costing several thousands of dollars.

      Today, I can buy an OS for $29, a Spreadsheet app for $19 (or the office suite for $60) — speciality apps in the $50-$500 range.

      Net, Net… the entire industry will need to pivot, not just HP.

      • CndnRschr

        Currently, the industry is pivoting on its foot and tripping over. This is an industry that is pivoting on the precipice and there are several unbalanced players. What will become of Dell? It's teetering like the Greek economy and no one is going to value its products. It's tried to move upmarket and failed miserably. It's dabbled in entertainment and failed miserably. It is hurting from the Taiwanese makers who have, like Hyundai and Kia, moved from purveyors of cheap and nasty products to purveyors of cheap and sleek. Dell is done.

      • handleym

        "Today, I can buy an OS for $29, a Spreadsheet app for $19 (or the office suite for $60) — speciality apps in the $50-$500 range. "

        And Mathematica for what, $3000 now? and effectively about $1000 a year to stay current…

        There is still money to be made in software — but you have to be so damned good that people are willing to pay that price, and no-one is capable of acceptable competition. Sadly for my wallet, Wolfram are in such a position.

        Wolfram stands curiously alone in being so completely without competition (IMHO — I'm sure there MathCAD and Maple and Octave users who would disagree, but let's be real here). Is there other software in such a position? Perhaps in really specialized niches like Hollywood effects?

      • EWPellegrino

        Agreed, lots of software still commands serious prices, but not generally stuff that the average consumer would ever use. There is a genuine movement down in price for consumer software and we increasingly see prosumer software like FCP-X that brings a significant chunk of pro functionality down to consumer level prices.

        But enterprise software still exists, invariably alongside consultancy businesses because it requires significant system integration to make it work. The consultancy costs alone to introduce some of this software can run to seven figures, so you can imagine what the license fees are like.

    • Wikipedia has a nice history of HP. I first got to know of them when they made top-tier test equipment. Their vacuum tube voltmeter was iconic for many; their oscilloscopes were to die for and Tektronix's were clear knock-offs. Then came the programmable calculators and the soon, overwhelmingly dominant RPN calculators that displaced slide rules for the pocket-protector set. Pc's. Printers. Services. Near-mainframe-class 64-bit machines.

      Over its 75+ year history, HP has pivoted more than once. It has prospered, or at least dealt more or less successfully, with the rise of Silicon Valley and the rise of Japan undercutting its advances. Now, perhaps largely in part due to horrific Board and Executive Suite mistakes, it has lost its way in the rise of China, the smartphone tsunami and the glamorization of consumer products. A company that was once a leader, agile and forward-looking, can't find its current strategy papers to know what it was doing.

      Apple's role here is as a contrast to HP's missteps, not the cause. IBM saw the handwriting on the wall in 2005, long before Apple's ascendancy.

      • addicted44

        Good point. HP is trying to do an IBM, but 6 years late. And I also think IBM foresees the decline in the value of software. Which is why they are investing tremendously in open source software, but largely giving it away for free (classic example is Eclipse). Instead, they are using their expertise and talent to help enterprise, governments, etc. make great use of this software.

        What is interesting about IBM is that at the same time, they are investing tremendously in future technologies, like much better AI (e.g. Watson, and the recent computer that thinks like a human brain). These investments by IBM seem to fall under the "preparing for the unpredictable" category that Horace talks about.

      • barryotoole

        "be where the putt is going to be, not where it is".

      • Erm, puck. Different sport.

  • westech

    I love the juxtaposition of the Compaq acquisition and the introduction of the iPod.

    Th iPod is an insanely great product, as is the iPhone, the iPad and the MBA. Clearly HP did not regard making an insanely great product as being important to success.

    • pvt_zim

      you may also like this ironic coincidence from august 2:

      1) Web-based access to Ovi Calendar is going away

      2) Not Only Do iCloud Web Apps Exist, They’re Beautiful

      and the great quote from Nokia PR:
      "This was a business decision to help us focus on our core Nokia service offerings and drive momentum for disruptive experiences to come."

      • asymco

        Amazing. I have a toy hypothesis that a sufficiently sophisticated PR phrase analyzer can be used to detect strategy failure.

      • pvt_zim

        agree. it may not even have to be too sophisticated. possibly just buzzword count? 😛

        you may want to check the comments section of 1) if you haven't already.

      • CndnRschr

        It seems that the PR people are also worried about their jobs. Their capacity to obfuscate the messages that underlie their news has evaporated. Perhaps this is an issue of observers now having enough examples to decrypt the spin effectively. Our politicians should start to worry. There is no need to spin good news and the spin around the Google/MMI deal is starting to unravel. There is a clause that MMI cannot solicit other offers. Google was clearly supremely confident that it had MMI in its pocket, not.

      • pvt_zim

        i also believe — hope — that we as a society are getting better at seeing through the smoke screen, both corporate and political. and can do something about it.

        there are some promising signs. well, at least the problem is being identified:
        We The Insane – blog maverick

  • Dick Applebaum

    A poster on another forum pointed out that the iPad revolution is 18 months old. 18 months old! 18 months.

    … just consider the acceptance and disarray caused by that single disruptive device — in 18 months.

    The pc revolution took decades.

    • Luis Masanti

      Well… iPad is a 18 months revolution, but based in a previous revolution made 3 years before, the iPhone, that was helped (in the mass production side) by the experiencie taken from a 6 years before (from inception), the iPod. Also, the software behind the iPad is based in the iPhone/App store, that is based in Mac OS X, that is more than a decade old! Also, the Apple Stores are a decade old.

      Why I say that? Because it seems to me that Apple is the only one company that builds brick over brick in its product's development. This is the hard lane. Others, including HP, want the fast lane, mergers&aquisitions.
      Apple is like "raising children in a family" with its products; the others, like looking for a carefull mom in a single's bar: possible but very improbable. (With all due respecto to single's bar's attendees!)

      But, yes, the iPad is an incredible disruptor!

      • " like looking for a carefull mom in a single's bar: possible but very improbable."

        What are you talking about? I see your mom all the time in singles' bars. 😀 [j/k obviously] OK, maybe she's not that careful.

    • Nangka

      So true.

      I was still taking in Motorola when HP's stuff hit me.

      What I can think of the difference between PC & iPad revolution is the PCs were forced upon most of us while with the iPad, we are the initiators.

      • asymco

        Make no mistake, the changes of this week are deeply rooted and are based on pressures building for years. Nearly all the charts on this site are about these pressures. Like in an earthquake, pressure builds up gradually but is released suddenly.

      • CndnRschr

        Great quote. The pressures have caused the whole industry (bar one, maybe two players) to fart uncontrollably and they are clearing the room. Dell has stomach cramps and is hoping no one notices but the capital markets are migrating to the fresh air outside.

      • That brought a tear to my eye. Your wonderful way with words, not the farting.

    • asymco

      The short life of the iPad is more evidence that HP's exit is not entirely due to it.

      • pk de cville

        My view:

        With the short life of the iPad, HP had 'bright enough' strategy which showed them the writing on the wall:

        Let's get out while we can still find a buyer.

      • Dick Appllebaum

        Yes, the iPad was like a slap or a splash of cold water in the face — it got their attention

      • CndnRschr

        I still find it utterly remarkable that the TouchPad was on the market for literally 7 weeks. The 64 GB "white" version was released this week! This was a desperate move to cut losses as they knew that they could not sell TouchPads with negative margins for long. This is a significant win for Apple as people must be concerned about the longevity of other tablets other than the iPad. HP showed us what's going on under the sheets of the tablet market and it is butt ugly.

      • EWPellegrino

        The Touchpad seems to have been the worst performing of all the alt-tabs – consider the end-user sales from Woot.

        Touchpad – 612
        Xoom – 2288
        G-Tab – 1755 (sold out)
        viewsonic 10.1 – 10452
        asus eee pc – 3137 (sold out)

        It's only a single retailer but it gets the message across. The alt-tab business may be bad, but the touchpad was by far the worst.

      • CndnRschr

        MacRumors is reporting that WebOS runs twice as fast on iPad2 hardware as on the TouchPad (which was released 4 months after the iPad2). So its pitiful sales performance matches its real life performance. Yet HP still released this POS??

        HP has set aside $100 million to write down (now unsellable) TouchPad hardware. At least there were only a few people suckered into buying it.

      • davel

        if this is true it means hp has issues. i have read of other large companies that killed their own products by doing stupid things like this.

        its a computer. why ship year old stuff as new?

      • nns

        The thing is, the iPad doesn't yet exist that has a faster processor or more RAM than the TouchPad. It boggles the mind why the performance was so bad.

      • Hamranhansenhansen

        It is also the $999 MacBook Air. Is HP going to invest in technology to make millimeter-thin notebooks with flash storage and Thunderbolt for $999? For $799 to get under the Apple price? No. It is no longer a white box generic tower PC game.

        And Apotheker is from a software background. He knows Microsoft is taking too much of the profit on each HP PC sale. He wants to stop competing with Jobs and being Ballmer's chump.

      • Isn't it interesting that Apple owns all the profits in this “dying” category?

        Halo effect be damned: Apple has consistently invested in enhancing the value stack, while HP and especially Microsoft let their offering stagnate by treating them as cash cows.

        Mr. Market seems to think that this is good news for Dell; I'm sure many firms will now presume to buy a Dell without considering “offshores.” And I imagine that in a year or two, Apple's Enterprise sales of Macs will have doubled.

      • EWPellegrino

        Well not quite all the profits, Intel and MS take a fair amount.

  • You have pointed out that currently in the smartphone segment & tablet segment currently most of the profits are flowing towards Apple. They have implemented a similar tactic with the MacBook Air and it seems other hardware manufacturers are having trouble hitting the same price point profitably there as well.

    Does the fact that HP could not achieve nor foresee significant profits and profit growth in an integrated phone/OS environment foreshadow similar difficulties for the G00-Moto marriage? Does Apple's ability to achieve pricing advantage at the beginning of a product cycle AND their ability to achieve scale and super profits point toward a very, very rocky path for a Google profits in the phone/tablet arena?

    • EWPellegrino

      You have to figure in the fact that HP made a LOT of unforced errors. Look at the Touchpad, it was released to meet an arbitrary deadline rather than when the product was ready, resulting in poor reviews – even if they had just waited for the software patch to be available that would have helped.
      It was a 1st Gen product when everybody else had moved on to a second gen product – they should have done a Samsung and started a hardware redesign as soon as the iPad2 was launched.
      They had the pricing wrong, then doodled around with temporary price drops that became permanent price drops.
      They Osborned themselves with the announcement of the 4G product containing a better CPU.

      All you can really learn from the HP/WebOS debacle is that HP is terrible at consumer product development. the fact that they're talking about selling their PC division indicates that they've realized it too.

      • David

        You've got to hand it to Samsung. Seeing the iPad 2 and coming back with a thinner device showed excellent copy chops. The may not be very original, but they are agile.

    • asymco

      For Google to succeed with Motorola, it will require a superhuman feat. But we need to remember that Google believe they are supermen.

      • Dick Applebaum

        It is interesting that the tech market tubed yesterday… and looks like a repeat today… Everybody: Apple. IBM, Google, Microsoft, HP (especially HP) is down multiple percentage points.

        The big exception is MMI it is hovering just below $40 — much higher than a week ago.

        Oh, that's right — MMI has a $2.5 Billion insurance policy underwriting its stock price!

      • davel

        It will be difficult. I do not believe that Google has the knowledge to integrate the way Apple does. In fact in looking at their products they are all balkanized.

        If Google truly is going to make phones I think that is the end of Android. No good hardware manufacturer will stand to be second fiddle and spend resources to prop up someone else's brand.

        I am curious what if anything they do with the other assets like set tops and the like.

      • “If Google truly is going to make phones I think that is the end of Android. No good hardware manufacturer will stand to be second fiddle and spend resources to prop up someone else's brand.”

        Well, yes.

        But where is HTC or even Samsung going to go? WP7 could be out of the frying pan and into the fire, and I have yet to hear anybody claim Bada is competitive in developed markets. I don't imagine them deciding to go out of business. Perhaps they retreat down-market, where they have advantage; perhaps they attempt to conquer Europe where they have a better brand and they can confidently predict Goommi will NOT out-market them. They're not big enough to go standalone.

        Methinks they're constrained to lump it and like it. But in fact, Google's economics are NOW all tied to low-cost, fiercely competitive OEMs so that Google's ad dollars are the biggest share of the user's “expenditures.” So I don't imagine MMI is anything more than a plaything, spitting out occasional concept phones and maybe “reference designs” intended to further reduce costs.

      • davel

        they might try webos. buy or lease. in the item i posted above the claim was that it ran faster in a browser than on the tablet hardware it was shipped with. perhaps someone who knows how to make good hardware can make a decent phone out of something that many believe is a good os.

      • westech

        Yes. Yes. Yes. And their ego and disdain for anything not Google is destroying them.

      • They disdain anything they cannot buy (for whatever the reason).

      • Horace, a question.

        How much licensing could 12.5 billion bought Google from Apple, MS and Oracle? Apple may have been willing to settle if a few key things were removed from Android. Could that have been a cheaper/safer route for Google?

      • Joe_Winfield_IL

        Microsoft maybe.  They like the annuity they get out of Android OEM licensing.  However, they still have ambitions of uniting mobile with PC Windows and returning to glory.
        Apple doesn't need Google's cash.  They are interested in vanquishing Android, not in finding harmonious balance with Google.  I don't think any amount of money could have gotten Apple to call off its legal dogs – keep in mind Apple is still fighting with the memory of Windows/Mac.  They feel like things could have gone differently had they defended their IP better the first time around.
        Oracle is a different story.  They don't compete in the mobile space and don't have ambition of jumping in.  Their suits are more basic since they don't involve competition.  I imagine a big enough pile of money would get rid of the Java problem.

      • WaltFrench

        Cogent. But what was the price Oracle paid for Sun, the great majority of which is for the IP that is at the heart of the dispute here?

        As long as Google can give away the IP that Oracle would like to license to others who would run java phones, Oracle's java investment is worthless, or maybe a negative from support requirements. I'd think they'll ask for a hefty sum for intentionally taking the IP (and guess, that they'll get the right to ask), and then ongoing per-unit royalties comparable to what they'd get if they were licensing out java.

        This will change the economics of Android, but not to kill it, I'd think: the alternatives are quite unattractive to the HTCs et al. And saving a few dollars by licensing WP7, but not selling any units is hardly the answer. Even turning MMI into a favored shop doesn't change the economics for the manufacturers, who will hang on as long as they can.

      • I think it's the carriers that are the bottleneck for WP7. They're just not on board with MS, prefering Android because they can tweak it and monetize it to their hearts delight. If Android were to become patently toxic (as it well might), and if MS showed more flexibility in giving the carriers what they want (at the expense of the user, of course), WP7 might get a little traction. It feels weird to say this, but the WP7 team has actually come up with something different from iOS and Android, something, dare I say, innovative?

        I also don't think Apple is out to destroy Android. They just want to strip out all the parts that infringe on their patents and trade dress. 😀 After those parts are removed, I don't think Apple cares all that much. Remember what Jobs said at his first keynote after he returned to Apple: For Apple to succeed doesn't mean MS has to lose (or words to that effect). I think Apple would be fine with a non-infringing Android. Jobs was fine with Android when it was just a Blackberry clone.

      • WaltFrench

        AT&T seemingly gave Microsoft a fine introduction to the world, and the results have essentially been zippo. I am quite certain that Sprint, T-Mo and a whole host of not-already-dominant carriers in other countries would be thrilled to have a unique offering that customers wanted.

        Oops! There's that darn customer thing again. Microsoft has created a product line that leverages their Enterprise reputation quite well. (The Office connection is pretty weak and maybe WX8 or whatever it is will fix that.) But unfortunately, most consumers hate the time they're chained to Windows and do NOT look to it for their fun or identity. And even in the Big E, firms are shifting to a BYO model that denies Microsoft the leverage. Fail/fail, methinks.

        Finally, the carriers have long practiced and still love, the “barefoot and pregnant” theory of allowing no manufacturer to gain sufficient power to negotiate hard with them. Another 5%–10% share vendor would be ideal for them, and if MS were really hungry for this market they would quickly find the right terms. I think the actual problem is that MS wants to constrain availability so they have plausible deniability for the low sales.

      • EWPellegrino

        Do the maths basically. First off Moto comes with 3BN in cash, so the price is more like 10BN, unless we value the ongoing business as negative. Then if we assume an eventual $20 per handset royalty then you're talking only 500mil handsets, which sounds a lot but really isn't given that they're currently selling at a rate of around 200mil per annum.

        Adjust according to your own estimate of license fees.

      • addicted44

        Well, for one thing, Motorola HAS been losing money for the past few quarters. Additionally, Google is still not off the hook for those licensing fees. The MMI acquisition has done nothing to help them against Oracle (the IBM patents OTOH will be useful). Apple and MS both seem to believe they have a good hand against MMI's patents, which is why both are suing them.

        So by not going the licensing route, Google may have spent ~9-10Bn, on a loss making entity, and might still end up having to pay those license fees. Also, by acquiring an Android manufacturer, they have also assumed all the patent infringement liability Motorola is at risk of.

      • EWPellegrino

        It is loss making in the last few quarters but not material amounts, 56mil in the last quarter.

        The license fee liability is relatively low because Moto simply hasn't sold all that many smartphones (hence the losses). Somewhere between 10 and 20 million android handsets total, so tops another half a billion if we go with a $20 royalty estimate.

        Ignoring Oracle, the MS+Apple combo could easily add $20 per handset in costs, so if Moto even allows Google to reduce that to $10 it would still be cheaper within 4 years.

        We won't really know how wise this purchase was until the MS & Apple vs Moto suits are settled.

      • WaltFrench

        This is an interesting line of argument that I haven't seen elsewhere in my scouring the intertubes. But unless Google bought MMI totally on impulse and/or for reasons utterly unrelated to actual IP value (“and” likely to me), surely some financial analyst at Google spent at least 30 minutes running these numbers, no?

        So my “PR” theory for the purchase (essentially, Google couldn't countenance MMI suing its “partners” over “bogus” patents, nor could its reputation tolerate its main squeeze failing financially) or some other logic is still needed to plug a gap of a few billion dollars ± a couple billion dollars between the acquisition price and its benefit to Google.

        Is this a fair characterization of your thesis?

      • Hah! I almost broke my back as a kid by thinking I could fly off a construction-site roof to a nearby pile of sand. (Hurt for a month, but my parents had forbidden me to play there, so I kept silent.)

        Hope that's as bad as it gets for those wanna-be super people.

  • kwyjibo

    The PC business has not sustained the company since its inception.

    • asymco

      I know. I meant selling hardware.

      • kwyjibo

        Their imaging division lives on. They'll still be building stuff, but we all know the profits there come from the ridiculous price of ink.

  • Pingback: Macdrifter » Blog Archive » Business Models: Apple and HP [Link]()

  • Dick Applebaum

    Here's a link:

    and 2 paragraphs from an article about how GE has implemented a sophisticated app on the iPad. The gist is that there was a need — and the iPad filled that need. Case closed! No need to look for alternative solutions! Let's move on to the next…

    I suspect that this is very similar to the approach HP will use with its software offerings!

    Here are the paragraphs:

    GE Healthcare this week unveiled Centricity Advance-Mobile, a native Apple iPad application designed for primary care physicians in small practices that are using the Centricity Advance cloud-based program to access their patients' EMRs.

    GE chose to develop the iPad app because the tablet is used by more physicians than other tablets on the market, according to Mike Friguletto, vice president and general manager of GE Healthcare IT's Clinical Business Solutions. It's no surprise then to hear him say that the company has no current plans to put Centricity Advance-Mobile into other mobile devices.

    • r00tabega

      The iPad is really poised to take huge leaps of the medical informatics devices market.

      Right now I see so many PC carts in hospitals where an iPad would do much better. Keyboards are a bacterial infection nightmare, wheareas you can wipe an iPad clean (and if you're really paranoid, you can encase it and wash the enclosure).

      Add to this many cases (EMR) where even a "tablet PC" is a horrible form factor (fans, spinning rust, overheating processors in addition to non-sanitary surface) and there's a lot of upside here for both Apple and companies (like GE) who take time to deliver a App+iPad solution.

  • Kan

    HP biggest problem in the notebook division is its riddled with MBA groupthink – way too many models at too many pricepoints. Their is this need to create models for market segments – the gamer, the light user etc. Then on top of that to differentiate their notebook they add a multitude of bloatware. In the end you have a sub optimal experiece for the user. Building notebooks is not rocket science – this is more a failure of strategy than the industry falling apart as the tech analysts are trumpeting. HP et al concentrate on speccing up their laptops when most users want something that has decent battery and looks nice and is slim.

    When Steve says it's a post pc era you all buy that up like gospel. He is going to say that as he now makes more money from i-os devices than mac sales.

    • EWPellegrino

      It's not just groupthink that produced the HP laptop product lineup, it's the nature of the Windows PC industry. There is practically no differentiation between the windows PC vendors, so they can't take the Apple approach of aggressively reducing SKUs.

      The bloatware is a function of the razor thin margins. If a software firm is willing to pay you a few dollars to ship with a trial version of their crap then you take it, because those few dollars represent a big increase in margin.

      Users in the windows marketplace aren't getting sold crap because vendors are too dumb to offer good laptops, they're getting sold crap because they prefer to buy crap if it's cheaper than non-crap. How do we know this? Because windows users could just buy Mac laptops and run windows exclusively on them – but very very few people choose to do so.

      • Hamranhansenhansen

        Actually, running Windows on the Mac is very popular. Apple maintains the drivers which makes it much easier. MacBook Pro is rated the fastest Windows notebook. Running Windows was a key reason the Intel Mac was successful. Apple took almost all high-end Intel PC sales and pushed HP and Dell down into $450 ASP territory, where it is now killing them with iPad.

      • EWPellegrino

        Do you have any actual data to show that significant numbers of people buy Macs to solely or mostly run Windows? In my experience most people use bootcamp just for gaming or for a small number of apps.

        The low ASP for Dell and HP predates the intel MacBook so that wouldn't count.

      • … or for an insurance policy, since everybody tells them they're crazy to jump ship.

      • handleym

        One piece of evidence in favor is that Apple continues to maintain Boot Camp. This is the same Apple that has been ruthless about killing off PPC, then Rosetta and the 32-bit Intel line.
        The fact that they continue to maintain Boot Camp suggests that some fraction of users care about it.

        Follow that up with the fact that the users Apple is supporting this way are presumably naive users who don't need Windows much, because power users buy Parallels or VMWare.

        Note that "Running Windows on a Mac is very popular" is a different claim from "Buying a Mac to run Windows is very popular". One is a claim about the universe of Mac users, one is a claim about the universe of Windows users. Hamranhansenhansen is claiming the first, you are arguing the second.

        Finally, for the argument to be interesting, we have to define terms. For example, do we give a damn about the 100 million (or whatever it is) PCs that are sold every year in the 3rd world? It's great that those people get PCs at a low price; but do these sales have any relevance to the issues we care about? They make no-one any profit, and they have no effect on the future direction of the tech world.

      • Kan

        The margins are razor thin because HP et al have been competing along the wrong lines – other manufactuers have followed suit. When have they competed on support / customer service?

        Forget the trial versions – most vendors ship their own bloatware ontop – they don't get anything for this other than the misplaced beleif it is a differentiation that consumers want.

        Vendors are too concerned that their competitors will undercut them so always aim for lowering the costs. Yet consumers are willing to pay a bit extra for a better experience.

        HP et al have got into their mindset that they need to just shift huge volumes of PC at the lowest price – they can capture more of the consumer surplus.

      • airmanchairman

        The margins are razor thin because WinTel (Microsoft and Intel) inhale upwards nearly all the profits accruing to the gargantuan eco-system constituted by the OEM's, offering in return only token discounts that are little more than cattle-prods to keep the hardware vendors in line.

    • asymco

      Are you suggesting that all PC competitors colluded to fail simultaneously?

      • Kan

        What PC makers are all faiing right now? __Unit sales are still increasing from last year. If that's failure then it seems don't let fact get in the way of a pithy quote.__It says that it now expects 385m units to be sold worldwide, as consumers show less interest in PCs (and especially less in netbooks) and businesses become the prime engine of sales as they replace machines still running Windows XP.__The forecast compares to just under 350m PCs sold worldwide in 2010, by Gartner's figures. IDC says that 346.5m were sold that year – but its forecast for 2011, of 361.6m, is noticeably lower than Gartner's 385m. __But lets take your pithy quote at face value – the PC market has low margins primarlily because the PC makers are all doing the same thing concentrating on the product and not the customer. Just look at any of the PC makers websites it's hard enough to find the right PC that meets your needs as there is always a compromise somehwere – it's similar to Nokia approach build as many similar but slightly different phones and confuse the hell out of the consumer. Is this a reflection of the company strategy or the wider market. I would clearly say its the company strategy.__

      • David

        Are you kidding? Sales are down across the globe. Look, when IBM sales its PC unit, less than 10 years later the largest PC manufacturer in the world bails out and Dell is lowering forecast, you don't need to be a canary in a mine to know that the business has issues. The fact that the 10yr old XP needs to be replaced doesn't imply that the business is sound.

        It's not a company strategy when call companies use the same software, chips, and components. The nature of the business is the issue.

      • Unit sales mean nothing if the margins are too thin. Investors rightfully expect to see decent profits and also want to see profit growth. They often look at revenue growth to try and predict profit growth further down the line.

        You contradict yourself when you say that a problem you notice industrywide (failing to get the PC that meets your needs) is a problem with individual companies' strategies. There is a reason why all these companies are using the same strategy that fails to meet your needs (and which seems to be failing over all, or the PC box makers would have been able to maintain their profits). You seem like a pretty bright person, so I'll leave you to ponder why all these companies have similar strategies and similar problems. (It wouldn't hurt to read some of Horace's post on modular vs. integrated, maybe research a little about products becoming commoditized, stuff like that.)

  • MattF

    Something to note, just by-the-way… HP has always had a perfectly good in-house UNIX (HP-UX) but it apparently never occurred to them that this major asset could be leveraged for consumer applications. The contrast with Apple is obvious– I have little doubt that eventually all Apple OS's will be built around the same UNIX core.

    • Dick Applebaum

      Apple does use a Unix variant (iOs or OSX) for all its devices and they share common components where needed and possible (allowing for different hardware). This includes Macs, iDevices, AppleTV — anything that needs an OS. This has been true for quite a few years. I remember JailBreaking an early click-wheel iPod and running the Apache Web Server on it.

      • handleym

        You are essentially correct — iOS and MacOS use the same OS core.
        You are wrong to imply that the iPod (non-Touch line does likewise). iPods run Pixo, which is a very different OS. Even the newest nano, which looks like a mini iPod Touch, runs Pixo.

        (This is part of Apple's essential coherence, that they use the same graphic design language across all their devices — they specifically DON'T do the thing other companies do where the Pixo-based group decides they're going to make their baby look completely different from the rest of the company, just to show what individual studs they are.
        Not only do they make the decision to use a unified visual language, they then make the effort to do it well. Occasionally they screw up, and customers give them hell for it, but for the most part the icons are EXACTLY the same, as are the fonts, the spacing proportions, etc — all the little details.)

      • Brenden

        I got a big kick out of Apple's use of the "Chicago" font in the original iPod UI. This was the same font used in the original Mac UI, and it gave the iPod a familiar retro-Mac appearance.

    • EWPellegrino

      The phrase 'perfectly good' isn't what comes to mind when I think of HP-UX, it had for many years a bad reputation in the unix community.

      Even if HP-UX were the best of prop unixes it would still be unsuitable for the consumer market. If HP were to create consumer unix machines they'd use Linux, for the simple reason that applications that consumers are interested in already compile for Linux and have support along with drivers for graphics cards etc.

    • asymco

      This is a very good point. I remember HP-UX and how trusted it was in the workstation/minicomputer era. Why HP did not see it fit for adaptation into adjacent domains is another one of those twists of fate that is inexplicable to the layman.

      • davel

        They did. Years ago. I found HPUX to be ok. Their math libraries were different. They were part of the FUD with unix to kill Sun when ATT used Sun to build Unix 4.0. They also put out an API to mimick windows UI. A big problem with Unix was ATT wanted to unify it and IBM/HP/DEC wanted to balkanize it because they were scared of Sun.

        The troika succeeded and Unix never had a common base. Shortly after Windows moved up and became good enough for the enterprise and wiped out the unix desktops.

        I think the problem with HP was the problem with IBM. They were in a lot of markets and wanted to protect all of them. So you naturally stunt the growth of the smaller segments to protect the more profitable ones.

      • claimchowder

        One major problem with UNIX on the desktop that is shared by all UNIX variants except OSX is the use of the X "window system". This is not really a window system but more of a terminal multiplexer, having no standardized abstraction between application and display. I.e. in any "real" window system the programmer writes code for an abstract device, then flushes that device to whatever output device is active: screen, printer, file, fax etc. In X the programmer has to write code for each output device, and for the paste buffer as well. That has traditionally put a huge burden on the programmer, leading to lots of programs that have no direct support for printing, nor for copy-paste of marked-up text and graphics.

        Just try copying formatted, colored, boldface text from OpenOffice into your email client's compose window, or a piece of a nicely formatted web site into your system's graphical text editor, and you'll see what I mean. IMHO this use of X as a replacement for a real window system (like Display Postscript) is a large factor of what kept Linux and other X based systems from succeeding on the desktop.

    • Hamranhansenhansen

      iOS and Mac OS already run on the same OS X (Unix) core operating system.

  • Erik

    The key phrase: "But they grew, at first slowly, but at all times profitably". With an eye to ensuring profitability before other ephemeral indicators like market share (a completely useless statistic in a commoditized market) it means that the company is always oriented in the correct direction. Growth and market share are meaningless if they come with smaller and smaller margins over time.

    • Dick Applebaum

      I agree that growth and market share are meaningless to some extent, but they are important:

      1) if you grow profits

      2) if you need an ecosystem of accessories or applications — to attract developers

      That's one of the ways Microsoft parlayed their advantage,

      In the case of Android, though they are meaningless.

      • addicted44

        Marketshare is important in industries which have network effects. Facebook is a classic example. Marketshare is also relevant in computing, however, only to the extent that it is enough to sustain a strong developer culture. Mac OS X for the past decade is an example of this.

      • asymco

        Don't confuse market share with a large installed base. Market share is defined as a percent of a market which itself is artificially defined. A "market" is bounded by arbitrary measures. If a business benefits from network effects, it can do so with a small market share but large user base where large is defined as enough to keep growing.

        Case in point is the phone market. If you have 200 million active users that translates to only about 4% share. But 200 million profitable users is a great success story that can make your company the most valuable in the world.

        On a more personal note, having an audience of 20,000 (or even 100,000) for this site makes it a very low "market share" of the entire web audience. Does that make a failure?

  • George Bailey

    HP and Google are taking opposite paths. HP recognizes its predicament, cuts its losses, and regroups. Google is dazed and bewildered by its predicament and makes panic-laced moves that take it down the road to ruin. A road where the exits are unmarked, unlit, and sparse.

  • Luis Masanti

    Two considerations:

    1) I loved H-P! It was an incredible creative company, from the original RF oscilator (just known by history) to the marvellous handheld calculators (I still have my 1976's HP-25A) and the first desktop calculators (the 9000 series) and minicomputers…
    Then, it felt in the PC business…
    But it also create its printing business…
    What had happen to the creative HP? I think it lost its way.
    Horace, maybe you can analize the different branches of HP.

    2) I "smell" that HP is following IBM's path. The difference, is that IBM was a big company when it entered, correction, created the PC world and then leave it having a strong foot in the software sector.
    Horace, maybe you can compare both evolutions.

    • Hamranhansenhansen

      IBM did not create the PC world. They were years late and contributed less than nothing.

      • Luis Masanti

        The PC was not invented by IBM. IMSAI and others invented it… in a hobbiest way.
        The Apple // existed before the availability of the first spreasheet, Visicalc. Visicalc was what launched Apple and personal computers to the fame.
        But the advent of IBM in 1981 was the catalyst that allowed computers in the business.
        In that sense I say that "IBM invented the PC."
        Or we can say that it introduced it to the business world.

      • davel

        I will quibble here.

        IBM invented the IBM Personal Computer to compete with all the personal computers that were already at their enterprise sites.

        However, by inventing the IBM PC and standing behind it they validated the personal computer for the fortune 500 and created the ecosystem to allow the explosive growth that followed.

      • airmanchairman

        Correct, sir… IBM created 3 competing internal departments and charged them with the task of creating an IBM PC from off-the-shelf components readily available in hardware and electronics stores. Jonathan Estridge's group handily won that contest and the IBM PC went on to create the gargantuan ecosystem that shaded the earlier PC efforts into virtual irrelevance.

        Not to forget the Winchester drive which was the genesis of the hard disk drive as we know it today, among other inventions attributable to "Big Blue".

        I have a sense of foreboding that Karma may be waiting in the wings to catch up on Compaq/HP and the role they played in unseating the IBM PC as the giant on whose shoulders WinTel expertly mounted to ride to the Unaided Bounty of Usurpation…

        I wonder how tech history would have changed had Jonathan accepted Steve Jobs' offer to helm Apple (he was first choice ahead of Sculley) rather than deciding to continue in IBM where, sadly, he met his end in an air crash while on company business. Maybe in a parallel Universe somewhere…

  • Amit Kandpal

    Horace, been meaning to request you for some time for your take on Enterprise software in the 'post pc era'. Do you follow/track this market? Would it be too greedy to ask you for a dedicated critical path episode? Thanks.

    • Amit Kandpal

      and If not, it would be great to hear about your recommendations ,if any, on blogs/thought leaders on enterprise software. Thanks.

    • Dick Applebaum

      Very good point Specialty enterprise software is a key to the post-pc market. We already have an acceptable "office" suite with easy connection to the cloud or corporate servers — for additional content or more-robust general-purpose apps.

      I do not believe that most people want, or need, to run full-featured apps like Excel on their mobile devices. Rather, they want access to the data and results — to perform ad hoc operations on them, or just to compare alternatives and make decisions.

      • unhinged

        People want answers to questions, as efficiently as possible. We're now in an era of distributed computing which means that the access point – the device you have with you – is leveraging the rest of the system to provide the solution. Enterprise software is going to continue down the path that was blazed by the web.

  • Steve Setzer

    In 2000 we recommended, and used, only Compaq ProLiant servers. In 2001 we followed them to HP and got HP ProLiants for years. That's what we usually bought our customers.

    From 2007 to 2010 most of our new servers were VMWare instances. In 2011, a lot of those have migrated to Amazon cloud instances.

    Same pattern at our partners and competitors. HP's decision makes sense from the enterprise hardware perspective also.

    • Hamranhansenhansen

      And a huge number of client systems have changed from Windows to Mac and iPad since then also.

  • Magicfinger

    “The lesson is that you need to plan for that which cannot be planned.”

    Sadly I have to say that this isn't up to your usual standards.

    HP did the perfectly rational thing and stuck to the business they knew, for as long as they could, and when they couldn't any longer, they got out (cf. IBM & Lenovo). As the largest PC manufacturer by volume, they could reasonably argue that they are selling at peak value.

    If you'd framed this in the Disruptor's Dilemma it would have been more interesting – at what point should HP have jumped from their existing products (with steady, if declining revenue forecasts) to products with lower current revenues (and possibly dramatic future revenues). And yes, the value of the disruptive technology will only be known once any residual value in your old product has been totally lost.

    Apple consistently chooses market disruption over market maintenance, but I don't think that makes 2001 a good reference point for comparison. At that point they were so close to death that there effectively was no downside to choosing disruption or maintenance over the other. The culture of the company predisposed them to disruption. If they'd committed to maintenance with the fervor they did disruption, they'd probably have turned out like any mid market occupant over the last decade.

    None of this howevr supports waffle such as “planning for the unplannable”.

    • Luis Masanti

      The comparison with Apple maybe will be worhtwhile.
      But we should see the three stage of Apple:
      1) 76-85: Jobs introducing the Apple I, II and the Macintosh & GUI.
      2) 85-96: Sculley et als.' era: rebuilding the same thing many times (with the exception of Newton).
      3) 96-today: Jobs introducing iMac, Mac OS X, iPod, iTunes, iPhone, iPad…

      You can compare share's value and market cap to see which stage is better.

    • asymco

      I stand by that waffle as precisely the core of the disruptor's decision making process. The decision must necessarily be based entirely on faith.

      • EWPellegrino

        I wonder if that's really the case, or if in fact the real issue is that so much of business planning that passes for being rational is in fact faith-based and that the disruptor operates by abandoning that faith.

        Take the iPhone, the arguments that it would fail were essentially ones of faith. That consumers wouldn't jump to a new entrant in handsets was just faith. That Apple wouldn't produce a compelling product was faith. That people wanted a hardware keyboard was faith. That people wouldn't pay a significant amount towards the handset was faith.

        Apple's decision seemed to be madness to those who had stopped questioning their assumptions, but it seems entirely rational and planned once you consider that by the time they decided to commit to the iPhone they had prototype devices and a prototype OS. They had a huge PMP market where people paid $200 for a high quality music player. They had tested capacitative touch and could see that a soft keyboard was more viable than ever before. etc. etc.

        So perhaps it's not that one must plan for the unplannable, but that one must never stop questioning the assumptions that go into one's plans?

      • Synth

        But true faith doesn't completely defy all logic and common sense. Yes, there is the element of the unknowable, but not having "faith" requires a certain amount of faith as well. MS and Intel had faith that everyone would be forever bound to Office, Windows and Intel CPUs, so much so, that they thought those three ingredients would be their ticket to mobile nerdvanna. That faith was (and still is in my opinion) so great that they never took the necessary steps to fix the problems each of those components faced in the mobile space–battery life, battery management, mobile interface for the apps and OS, cost of chips, etc.

        Then Apple, ARM and Android came along in 2007 and showed them how baseless their faith in the Wintel religion really was, yet they are still in denial. MS still doesn't want a mobile OS on their tablets, for example. 220 million iOS users later, suddenly people realize that Windows, Intel and Office aren't really that important to their computing happiness.

        OTOH, Apple didn't need a lot of faith to see that mp3 music players, cell phones and tablets were seriously flawed. It took more faith to believe otherwise. Apple faced reality (in contrast to the Wintel empire) and came up with a clear and realistic plan (i.e. financially feasible) for fixing the issues in all these devices while everyone else was clinging to their absurd faith in the way-it-had-worked in the PC era.

      • Magicfinger

        Horace, having reread what I wrote, I'd like to apologise. I let my frustration at not understanding your argument become a judgement of your writing.

        I struggle with 'planning for the unplannable' for a number of reasons. Firstly, at face value it's a tautology. Secondly, it's the kind of bland management speak that gets used specifically because it's meaningless, and lets the speaker avoid responsibility for whatever happens next. Thirdly, it suggests that the best course of action is to go out there and do _everything_ except whatever the current course of action has been, and that is something that neither HP nor Apple have done historically.

        HP made low & medium grade, medium quality consumer computing goods. Apple have, since the return of Steve, made medium & high grade, high quality consumer computing goods. HP had something good (consumer computing goods), and they rode it into the ground. When it was dead (and that was readily visible to all), they got off it, and moved on with another horse (Enterprise). Apple on the other hand, just keeps switching horses mid stream (eg, the 6800/PPC/Intel/ARM transitions, Floppy drives/USB, iPods/iPhones), and well before the general consensus that the existing horse is out of puff. In both cases, it's reasonable to say that at a strategic level, Apple & HP have been consistent in their behaviour over long periods of time and that the leadership of each company is responsible for that behaviour and the degree of consistency. In other words, they each have a long term plan.

        I think I understand the evidence, (the bulk of the original post), and I support the conclusion that Apple has privately moved on from the iPhone (which is utterly characteristic of them). But I'm stuck with the argument bridging the two: the future can't be foreseen, data & plans don't work, at peak assume failure, and at trough assume success.

        Since I'm successfully emulating two short planks, can you tell what you meant by 'planning for the unplannable'?

      • berult

        Acute radial awareness lightening up a context's event horizon.

      • asymco

        Planning for what cannot be planned is another way of saying that success is unforeseeable. The unforeseen nature is what allows a company to "surprise" and hence to create value–the very thing that allows a stock go up beyond what is discountable.

        If we take this at face value: that no value is created unless that value is unforeseen then it follows that you cannot engage in deliberate planning.

        What then can you do?

        I alluded to faith, but it's more subtle than that. Planning for what cannot be planned is not being random. You cannot plan your children's future since far too many things affect a life. Instead you do everything you can to teach them the right lessons and let them learn.

        So it is with a great business. You need to create space for something to emerge, for learning to take place. It's not just cut and dried decision making but nurturing, refining, learning, adjusting and having that ultimate vision guided by principle.

        In other words, it's a thousand little things tied by an over-arching faith in a core value proposition. I don't have the exact figure but maybe 90% of startup business plans fail and almost all that succeed are different than what the plan was when they set out. Statistics like these tell you that deliberate planning simply does not work. The only plan you should make is a plan to learn.

    • siralevine

      I think you are proving the point. "market disruption and market maintenance" are after-the-fact business school descriptions of what transpires in the real world. It is what Nassim Taleb refers to as the "narrative fallacy:' an attempt to derive patterns out of what are essentially random events. Even the question you are asking reflect this: "at what point should HP have jumped…" To where? To do what? To wait for the next innovation and then try and acquire it?

      Apple doesn't choose "market disruption," they choose innovation. Because they can. Because they have they recognize the direction technology is taking, the opportunities this presents, and a development and delivery organization to fully exploit those opportunities–at a profit. If market disruption results, that is an effect not a cause. Yet in hindsight, people will say "connect the dots," apple was intending to disrupt the music industry.

      • “ Because they <s>can</s>… must.”
        Only the Paranoid Survive. And they have to be clever, perhaps also lucky, too.

      • Magicfinger

        Western Union was offered rights to the Telephone. They declined, fearing the loss of profitability it would cause to their main product – Telegrams. Bell/AT&T bought the rights, and became a monster. There are any number of command line companies (Visicalc, etc) that didn't make the GUI transition, and there are transitions within the storage market happening today (HDD vs SSD) where the incumbents have _no_ position on the emerging technology. Microsoft accomplished the same with Windows, which also swept all CLI OS and competing GUI OS before it.

        None of these transitions happened quickly. In the case of recorded music, it took over a decade (if you start the timeline at Napster) for the industry to get its head around Online. As an industry it was based on licensing distribution rights within geographical regions, which Online destroyed. In Newspapers, the classified advertising river of gold has been lost, and subscriptions & display ad revenue is simply insufficient to cover the costs of gathering and publishing the news (be it in print or online). This has been the case for several years. Banking faces similar issues with banking online (makes branches as a physical distribution network of cash an expensive obsolescence) and the emergence of large social networks which have the scale necessary to provide financial services, but without the legacy IT costs, regulatory burdens and hostile customer service practices of the existing banks.

        These are all disruptions to the business model of the respective companies, and recognising them as such does not "rule out sources of uncertainty and drive us to a misunderstanding of the fabric of the world" (aka 'narrative fallacy'). The companies involved can choose to seek/develop innovative responses to the disruptions they face, or choose not to, or, more often choose to ignore the disruption and pretend it isn't happening.

        The precursor to the iPod had been shopped around several companies before Apple bought it and launched it as the iPod. The Kinect controller for XBox was shopped around before Microsoft bought it. They chose to buy it. Tablets had been around for almost a decade before Apple launched their version of one. In hindsight, it is plain that the scale of consumer demand for the iPad is disruptive to the tablet market.

        My question to Horace was simply if HP had behaved as Apple seem to towards innovation, at what point would he have expected HP to jump technologies. They did after all buy PalmOS, and develop WebOS from it, and then chose not to execute on it.

        That I was rude when I asked the question is not a reflection on Horace declining to answer, or the question itself.

    • Dick Applebaum

      Maybe it's just the wording…

      How about "provide for the unplanned" or "allow for the unplanned".

      I think that one the things about a disruptive technology is that it just appears on the scene. You need to be lucky enough to encounter it, astute enough to recognize it, and wise enough to see its potential… Then you must be daring enough to risk failure to exploit it.

      The ability to risk failure is very important… maybe most important!

      To some extent, you can set up your life or your corporation (division, department, platoon, workgroup) to expect or seek out the "unplanned" opportunity and be open to deal with it as warranted.

    • Dick Applebaum

      Oh, I meant to finish my comment about the wording with:

      "plan for the unplanned" or somesuch, may be a little "cutesy" — but it does grab your attention and make you pause a moment and think about it… as it was planned to do.

    • Chandra Coomaraswamy

      Of course you can plan for the unplannable, but most corporate executives don't have the stomach (as in guts) for it.
      You begin to plan for the unplannable by ditching all the assumptions on which your existing plans are based and starting again. You ask yourself some questions and remind yourself about a few things that are all too often forgotten.

      What is is our business franchise?
      What are the forces in play (or in the making) that could disrupt our franchise?
      What does the market need and want (today and 5 years from now)?
      What is our aim (maximum share or maximum profit for example)?
      What if we were a startup with the skills, knowhow and all the resources we have acquired during our story-so-far?
      Many other bedrock questions of fundamental importance here btw.

      It is this kind of thinking that keeps you hungry for success and fuelled by paranoia.
      In the current frenzy of innovation that is the tech jungle, the pace of change, it is the only (uncomfortable, disruptive thinking) way to devise a strategy – not just for survival but for differentiation, for growth and for sure, profitability.
      Apple's success is due entirely to its obsession with its differentials. It is single-minded in this.
      I have said it before: Apple is the largest perpetual startup in the world. They love what they do and they do not believe in second-best.

      Moving on:

      And, btw; going back to an earlier thread in this post: the seminal (if low-key) event which underlies the change in Apple's thinking and underpins its enduring success ever since was the 2001 strategy presentation on the Digital Hub. You can find very poor quality video clips of SJ's presentation at

      . It wasn't a particularly slick presentation but its ramifications are tearing the PC and media industries asunder today… just one brief decade later.
      None of Apple's competitors paid attention to the Hub strategy as they were too intoxicated on the wine of complacent self-absorption, resulting from their huge, but all too time-limited transient successes. 2001 was the start of so many things for Apple and, arguably, the earliest origin of the irresistible move towards mobility-computing. Along the way, the Digital Hub strategy gave consumers full control of all their media assets, much more usefulness out of their digital gadgets. Along the way, they also democratised (and hugely reduced the cost of) the purchase of 'wanted' music……….
      It is the fault of every one of its competitors that their CEOs were too absorbed in perpetual self-admiration to observe the early trending of the Hub strategy and to understand where Apple's thinking might eventually lead the whole market. The same could be said of the leaders of the media industries.
      The Digital Hub was all about consumer computing. How to put people in control of the things they (mostly) did with their computers (music, pictures, video etc) and the related devices and media (CDs, DVDs, cameras, camcorders etc). People were astonished by the extent of the power, control and ownership that Apple put into their hands with the iPod and apps like iTunes, iPhoto, iMovie and more. Why would Apple not sweep the board of consumer choice as the Hub and its devices got better and better, and the cost of a love of music and other media collapsed. People don't forget Apple's customer-centric thinking. The taming of the music industry is but one example. There is much more to come, I believe. And as a small example: I got three great songs free from Apple last Christmas. A few decent apps too. Why would they do that, do you think? They didn't need to do it. Why do they keep reducing the price of their software? They don't need to do that either.
      Apple has strategies in place that befuddle its competitors.
      Plain and simple.

  • Nangka

    "They did not crave profits but growth and share."

    So very true sadly, that this is the Microsoft model that almost all others have aspire to become & copy. And this is exactly why most of them are failing or will fail eventually. Nokia has failed with this strategy. HP is the latest victim with Dell can't be far behind. RIM of late has been dumping BB just to maintain shares.

    At the other end of the spectrum, there's the Apple model of profits before everything else. So even though Apple's share in PC market is minuscule, its Mac division has always been healthy. The upside to having a small market share with healthy profit margins is there's a LOT of upside. (Steve did say when Macs were 5% that if they get just another 5%, they'll double their market share!)

    And we shall see an Apple that's the majority of not only the MP3 player market, but also the mobile phone as well as the mobile computing (laptops & tablets) markets, while still reaping profits so obscene that'll turn all other competitor CEO's stomachs multiple times over. Some may say it's already happening.

    "The lesson is that you need to plan for that which cannot be planned."

    Apple since the return of Steve Jobs, has been doing just that. Even the success of iPhone & certainly the iPad have taken them by surprise.

  • Travis Lewis

    "They did not crave profits but growth and share"

    This is a great quote from Mr. Dediu as it is 100% true. This has spilled over to the media and Wall St analysts who love looking at top line or revenue growth only. Many examples can be seen from AMZN with having negative profit growth Y/Y (ttm) or even MMI, people said it's qtr "really wasn't that bad" They had $3.3B in revenue and a ($59M) loss. Yeah, I'd say that real bad.

    I have no clue why people even care much about top line growth when profits is the line that matters.
    (Yes, I know why need top line, just making example)

  • Justin

    It is interesting that at a time when the world is talking about the consumerization of IT, that HP decides to give away its consumer business. I know there are new markets (with high margins and growth) with big data and other cloud services targeted at businesses, but to remove yourself from the consumer, who is driving the shape of the mobility market, seems strategically unsound.

    • Luis Masanti

      "…to give away its consumer business…"

      I do think that HP's PC business is (was) mainly "enterprise." As a side effect, people who used HPs at work bought HPs at home, like user of Windows at work > home.
      The main point being that in enterprise business one person takes the decision for a lot of people.
      In the consumer business you have to convince every buyer to buy your product: that's Apple Stores mission!

    • Hamranhansenhansen

      HP is not a Consumer Electronics company. Part of the consumerization of IT is that IT companies like HP stop making the devices that are now CE gear. They don't magically become Apple.

  • Duncan

    Quibble: "HP’s sudden departure from a business model that has sustained the company since inception…"

    HP started out in 1939 and didn't even get into the computer business until the 60's. I'm not clear on what you mean by 'business model' in this larger context.

    • asymco

      The business model that is being abandoned is selling hardware in favor of "cloud, solutions and software".

      • duncan

        Well, they're still selling hardware in other divisions, so they're not completely abandoning a business model. I would characterize it more as 'de-emphasizing'.

        Anyway, semantics and all that…

  • Steve Setzer

    Clarification: the exit decision WOULD also make sense in server hardware. I don't think the servers are at risk in the current changes, but I would watch that space in the next few years.

  • Dear Horace,

    This can be distilled down to two lines for me:

    "They did not crave profits but growth and share."
    "All failures of strategy are rooted in the assumption that outcomes are predictable."

    Most excellent, sir.

  • Pingback: The ultimate HP-Autonomy linkfest | Abnormal Returns()

  • FalKirk

    "This is why I expect Apple is now working on shaping the post-iPhone world."-Horace Dediu

    Agreed. While everyone is trying to respond to what Apple is doing today, Apple is working on creating a whole new and a wholly new tomorrow.

    • nns

      What I wouldn't give to see what they have in mind….

  • O.C.

    I keep hearing how smart phones and tablets are causing a slump in PC sales. You can't do any real work on a tablet or smart phone unlike a PC or a mac. So who seriously goes to a store to buy a PC or mac to work on and walks away with a smart phone or tablet instead? that's like going to the store cause you have no pants and walking away with shoes. One can't really replace the other. Unless your work consists or browsing, looking at pictures and playing video games.

    • There are any number of use cases in full public view that demonstrate the fallacy of viewing the iPad as a "consumption-only" device. Unless your knowledge of its user base is informed only by those who feel threatened by its popularity.

  • EWPellegrino

    While I don't think we can draw too many conclusions from the death of WebOS, due to HP's fumbling over the ball so many times, I still wonder if it's time to revisit the idea of

    It's only a month ago, but in that month we've seen WP7 continue to languish, we've seen WebOS die and we've seen both iOS and Android continue to strengthen. I think it's worth asking, at what point will we have to conclude that the post-PC era will not be multi-platform so much as a duopoly of iOS and android variants?

    Obviously we have to keep watching how Bada performs, how big an impact Nokia has on WP7 and how the Moto purchase affects Android but still the idea that Post-PC platforms will inevitably be more diverse has taken a big hit.

    • Amit Kandpal

      Have we seen webOS die? HP is planning to keep WebOS . Doesn't getting out of Hardware business prevents any potential conflicts of interest with other hardware makers?

      Whether it being a modular model and hence its ability to deliver superior user experience is a different matter altogether.

      • davel

        Yes it does, but having one OS or at least cousins running on different platforms linking everything together has a compelling vision. Very similar to Apple. I think if the CEO believed they could make it work but they had to take their lumps.

      • EWPellegrino

        A potential licensee has to believe that HP will continue to invest money in the platform even if it doesn't show immediate success, which runs directly against what HP has just done. Combine that with the fact that HP is unlikely to be willing to fully indemnify licensees against IP liability and I can't imagine anybody being interested as a licensee.

        Might somebody like HTC buy WebOS completely? They might but it would be more expensive than just forking Android and any new WebOS hardware will have to be launched into a market that now perceives the platform as failed. It would be like trying to make a big Meego launch, only more expensive.

      • newtonrj

        If you worked on the WebOS team at HP, knowing only what was said in public media in the last 24hrs, would you want to stay? Is WebOS in HP's vision an asset to them or an asset to sell off as quickly as possible? Are they curating the OS for its intrinsic value or for its resale value? -RJ

      • handleym

        Committing to a new device is not some sort of risk-less gamble. If HTC, to take an example, wish to ship a WebOS device, and HP give them the OS for free, HTC STILL have to design the device, validate it, go through getting the code working, make the devices, and market them. All with very little chance that they'll ever get their money back. What's the win in doing this, rather than trying to make your Win7 or Android device better?

        WebOS is in the same position as something like BeOS. Even if they release the source for free to the world, who really cares? Hackers are still going to get more value (in terms of cooler devices, and more people using their code) writing for iOS or Android, or figuring out how to jailbreak iOS or root Android.

    • Hamranhansenhansen

      Android has no stickiness. It could be replaced by another system fairly easily. It is Apple's App Store with the world's only mobile native C apps and only mobile tablet app catalog that is the only done deal as far as mobile platforms are concerned. Everything else could change.

      • I'll be very interested to see next year's churn numbers as early Android-user phone contracts expire in quantity.

  • davel

    I was stunned when I heard HP was killing Palm. I can understand getting out of PC's although it is linked. The margins sucked and the new guy wants higher margins. Also more importantly he wants to put his ego on the company and since the last guy was a hardware/operations guy and he is a software guy what better way to show this is my company than to kill the thing the other guy did?

    However WebOS seems up his ally. The one OS to rule the world thing is a strategy. They had made moves to link their printers to the cloud. It would give them a chance to differentiate themselves in the phone market and they have the scale to succeed. Google's recent move to get into the phone business is a potential opportunity to license WebOS to others.

    However it would take time to build the brand and the vision. In the end the new guy did not believe which I think is a shame. It would have been interesting to see how it would shake out.

    So I guess the new HP will be to sell servers to the enterprise and outsource services to India and China? Kinda boring actually.

    • Hamranhansenhansen

      The old HP was boring also, and inflicted bad computers on unknowing consumers. Better for them to sell their bring products to business.

  • CndnRschr

    Regarding the fact that there are now zero WebOS devices in the market, that the WebOS team including their execs had no pre-warning of yesterdays announcement and that HP neglected to secure a hardware licensee before killing their own WebOS devices, is an Operating System without anything to Operate, still an Operating System? Does a tree falling in a deserted forest make a noise?

  • qka

    “HP’s sudden departure from a business model that has sustained the company since inception is symptomatic of the passing of an era. ”

    I assume you are talking about the inception HP mark 2. The real HP, as founded by Bill Hewlett and Dave Packard, was renamed Agilent, and is alive and well doing what HP mark 1 has done since it’s inception.

  • r.d

    "They did not crave profits but growth and share."

    The profits were gobbled up by Intel and Microsoft.
    60% and 80% margin to be exact. The real indictment of
    duopoly that the biggest customer cannot make profit
    if they get one support call from their customer.

    HP is making plenty of profit in inkjet cartridges. This will suffer now
    with no bundling with their pc brand.

  • poke

    I think we're seeing the culmination of Apple's long-term strategy. Apple has aggressively sought out and dominated the high-end. The other PC manufacturers, like HP, have essentially ceded that high-end, high-margin market to Apple. Partly this is because they can't compete there due to the high upfront costs of producing high quality products (as HP has said) and, surely, partly because of the same dismissive attitude of Apple selling "overpriced fashion accessories" that pervades the tech media. This has meant the other PC vendors have been pushed into low-margin markets where their business has become unsustainable. Finally, Apple delivered a one-two blow by causing disruptive change at the low-end with the iPad. This is why it's wrong to underestimate the value of Apple's PC business. With their PC business they cut off their competitors' heads (the profits), then they kicked away their legs with the iPad. It's a classic pincher movement.

    • handleym

      This is too simplistic. It is viewing computers and electronics as separate devices that one company happens to sell — precisely the attitude of Sony or Dell … or HP.

      The real Apple story is much more interesting: To quote from a comment I wrote elsewhere:
      "iCloud is NOT, contrary to what simpletons think, a DropBox clone, neither is it the big jukebox in the sky. The essence of iCloud is that it is a set of APIs and services that allow a collection of devices to synchronize with each other. Synchronize what? Well, that's the point — each app synchronizes whatever it makes sense to synchronize.

      This is part of a larger vision: the issue is not whether a laptop with a keyboard is better than a tablet, or whether an iPod nano is better than an iPod touch. The issue is that the human body (which isn't changing any time soon) dictates that a number of different form factors are all optimal for different purposes. These form factors range from the very small and always present (imagine an iPod nano worn as a watch, using bluetooth so no cables, waterproof, recovering energy from body motion so no recharging necessary) to usually present (phone) to easy to carry everywhere (tablet) to heavier — but a keyboard is so convenient (laptop) to a beautiful large screen (iMac). Why choose between these? Isn't life better if you have one of all of them, and use the correct tool for the job?
      (And spare me the whining about cost. If you are still unaware, in 2011, that the cost of computing falls dramatically every year; and that successful companies aim for where the puck will be in three years time, not where it was three years ago, then your opinion is worthless to anyone.)

      But owning so many devices immediately brings about a problem — it's a hassle to keep all these devices in sync. I have to remember on what device I was reading this article, or watching that movie. And that is the problem iCloud is attempting to solve. Basically: make everything behave like IMAP.

      Compare this with Android or any other company, which are still stuck in the 1990s trying to figure out how to make an uber device (phone, tablet, laptop, whatever) that does every job possible — and does them all badly. Android at least have moved beyond MS in that they have this hazy idea that using the internet and cloud servers is a good idea; but they don't have a unified vision of the problem. So we have a few google hosted services that run on the cloud and we (belatedly, and only about five years late) have a single sign on that works across the google empire; but we do NOT have the deep and rich set of APIs that form iCloud, or the developer accessible storage backing up those APIs.

      Sure, these will come in time. I expect a few people at Google got the point as soon as Apple announced iCloud, and started working on their clone. Heck, maybe even MS got the message?
      But once again it seems to me perfectly obvious that there was a real VISION here — not just an attempt to sell crap this quarter to make this year's numbers, but an actual goal that is being aimed at, with a step by step plan for how to get there; and that no-one else in the industry has anything close.

      • poke

        I'm not sure how to take your reply as a response to what I wrote. If you're suggesting that PCs are natural form factors that will coexist with the tablet, I disagree. I think the laptop and desktop form factors will be marginalised to "truck" status. But regarding natural form factors: It's interesting that Apple's strategy recapitulates Mark Weiser's work on ubiquitous computing at Xerox PARC. His form factors, working from first principles rather than market realities, were the tabs, pads and boards. Tabs were essentially iPhone sized. Pads were iPad sized. Boards were essentially electronic white boards. Personally I think it will come down to iPhones, iPads and a television-based form factor for the vast majority of people. I think these are the natural form factors.

  • I think that there are three big issues being ignored in the discussions about HP.

    1) HP hires a senior guy from a European software company. Everybody is surprised when he tries to re-make HP as a European software company. This is the CEO's DNA, not HP DNA. And, I am cynical enough to wonder if the new CEO has any way to personally benefit from the deal.

    2) No one discusses the HP Printer business. The only place that HP makes money consistently. The HP printing business is a real American success story. Over the last couple of decades, HP has maintained a strong manufacturing business in a commodity market. This strength is not a quick acquisition – it is decades of learning by not outsourcing everything, and instead building quality in the hardware, software, consumables and distribution of printers. For HP to be successful with Palm/WebOS, it would need to make a similar commitment.

    3) I doubt that the culture of Autonomy will work with the culture of HP. Compaq was a poor fit. Palm seems like a poor fit too. I imagine a couple of years of infighting, as the European software CEO shows no respect for an American manufacturing business.

    • davel

      I agree.

  • Dick Applebaum

    Some quotes by Alan Kay are appropriate to this thread, the post-pc era and to the opposite approaches taken this week by two technology leaders:

    “People who are really serious about software should make their own hardware.”

    And, after the iPhone announcement when Steve Jobs asked him if the iPhone was worth criticizing: "Make the screen five inches by eight inches, and you’ll rule the world.”

    Here's one by Bill Joy: "Everyone in every corner of the software business could learn a lot from iLife,"
    — Bill Joy, co-founder and former chief scientist at Sun Microsystems

    Finally, a Paul Harveyism apropos to all the IP and legal activity (paraphrased): "we cannot all stand in a circle with our hands in each other’s pockets and somehow get rich."

  • jemmons

    "HP’s PDAs and phones never received management attention. How do I know?"

    Remember when HP actually sold an Apple co-branded iPod? With stickers that you could print out to "skin" it?

    In hindsight, that looks to me like the moment they gave up on mobile.

  • OpenMind

    With HP exiting PC business, who will take its 20% share of world wide PC? Another PC company, or tablet? If I were Microsoft, I would be worried about lose of a largest licensee. If some big chuck of those 20% goes to tablet, Microsoft will be in trouble too. Also what about Dell? Will they capitulate?

    • David

      Well, they aren't shutting it down. Someone will buy it or it will spin off, most likely.

    • Chandra Coomaraswamy

      I doubt any buyers will be in a hurry to buy their PC business.
      For Dell there could be a minor growth opportunity in what is, after all, a market in serious decline.
      I can think of no intelligent business case for abandoning mobile computing. Foolish indeed. It is the only fresh and promising thread in consumer and, increasingly, in business computing.

  • Horace, you hit this one out of the park.

    Most of your readership here is interested in Apple, but I think the contrast could distract us from your main point of long-wave economic, business and cultural pressures. I imagine there was a lot of teeth-gnashing at IBM in 2005 when they sold off the product with all the public recognition, and exited the business, much as HP is doing. If Apple was a factor in that, it was that Gerstner got a bit of help in watching where Apple was going, not that they were in any way competing.

    Apple is succeeding, yes, from building an exceptional design/build/market machine tuned to the realities of 21st century consumer electronics. Great execution, but near-faultless timing/vision. It allows their dog products, whether iAd, iWork, MobileMe, many more, to be ignored for the couple of oh-so-just-right huge successes. That's a form of retrospect bias that we, your readers, need to be careful about.

    • EWPellegrino

      Is iWork a dog? I agree that iAd and MobileMe bark and chase cars but iWork seems to be a mixed bag – not as feature rich as Office perhaps, but very creditable for the price.

    • Dick Applebaum

      I agree wholeheartedly with @EWPellegrino — iWork is a creditable offering for the price. Here are some advantages:
      — Keynote is superior to PowerPoint
      — Pages, though known as a WP program is an excellent graphics program
      —- Pages can be used to create collages — faster, easier and more flexible than programs costings $ Hundreds
      —- Pages uses shapes, masking, Bezier curves, and stacking or objects approximating layers
      — The iOS versions of the apps have most of the features of the OS X versions and can share files
      — All the iWork apps are robust enough to satisfy most users' needs
      — Keynote on an iDevice can be used to stream presos to an HDTV via AppleTV

      iWork is the most comprehensive office suite available across the desktop, smartphone and tablet devices.

      We haven't used MS-Office in 3 years

    • WaltFrench

      EWP and Dick A, I stand chastened by my quick characterization of iWork as minor league. In fact, my wife has used the iPad as reason to switch over and hasn't voiced any concern.

      I am remembering a long history of AppleWorks type products that did a minimal feature set with a simplified interface. And then were replaced by incompatible versions requiring me to Save As… into some other format, then import … uggh.

      I haven't seen Apple's long-term commitment to or investment in this class of software. Especially with Microsoft seemingly unlikely to revise the whole concept of sharing in the Mac Office products, there is room for a rather stronger version of iWork. I, for one, need to interoperate with the Enterprise, as so many do.

    • addicted44

      I'll help you out with some of their real dog products…

      As you mentioned, MobileMe, and iAd are certainly 2 of them (although they may do an iAd refresh, now with the head leaving, and with them building a corporate office in NYC). But here are some others:
      1) iPod HiFi (the boom box…yeah…it was that bad you didn't even know it existed)
      2) Motorola Rokr (irony…the company that introduced Apple to mobile will now sustain their largest competitor)
      3) Original Apple TV
      4) Ping
      5) Buttonless iPod Shuffle
      6) iWeb
      7) A whole host of terrible keyboards and mouses (mice?)

      As you point out, Apple has had a fair share of failures. However, the magnitude of their successes far dwarf the failures.

      • Chandra Coomaraswamy

        If you don't fall off your horse at all, it means you aren't riding it to the max, or words to that effect.
        I believe Alan Kay said it better somewhere.
        What is a mistake? There are no mistakes except to repeat them. Otherwise, there is only useful feedback. (NLP thinking)

  • Hossein

    "This is why I expect Apple is now working on shaping the post-iPhone world."

    This is why most of your analyses is not objective and at best serves to please Apple fans. Being an independent analyst is an opportunity and potential advantage that you can have over all those who are being paid by Apple, Google, Microsoft, etc. Why don't you take advantage of this opportunity, and provide independent views?

    • Kizedek

      One does not fail to be objective by giving more space to a single company than to others. Writing about all the players in the industry in equal measure, or being equally positive or critical of them all certainly does not ensure an independent or objective view. Being politically correct is about as far from independent as you can get.

      Horace has chosen to analyse the tech industry, particularly in the area of mobile devices. Apple is central to this. Looking at what is happening in this space in light of Apple is not a problem, if the quality of the analysis itself is high — as it is.

      In fact, this is precisely where pundits, those who spew talking points, and so-called analysts so obviously fail: they largely fail to factor in Apple and have to make up fairy tales since they choose to dance around the elephant in the room, Apple.

      It's obvious that one company has had some incredible successes. It's equally clear that most other companies in mobile devices are having varying degrees of trouble, some seriously. The causes for the succeses and the causes for the failures are related. Horace is analysing what goes right and what goes wrong. An obvious conclusion to the analysis is that the companies in trouble could have avoided some of it by learning some lessons from the successful company. Such conclusions do not make his views less independent or valid. Get over it.

      • asymco

        I mention my approach in the Critical Path intro where I say that I use Apple "as a lens" through which the entire industry can be observed. The lens itself is fashioned with disruptive theory so it embodies both a theory and a set of practical instances of its working.

        If you step out of the perspective the lens provides, then things are not so clear and you just try to make out what is visible, not what it means.

    • davel

      I find Horace's analysis to be very objective.

      He brings an engineer's perspective to bear on the marketplace.

      He brings up propositions that are unique and based on his own analysis. If you read the web news on mobile, Apple in particular, you will find him quoted extensively. His graphs showing the topic of the day is particularly used.

      He regularly contrasts the approaches by the two elephants in the mobile space, Google and Apple. He does seem to favor Apple's approach, but gives his reasons publicly for his choice.

      What is wrong with that?

      • David

        Apparently, one must find *good* things to say about all mobile vendors no matter how bad the product or poor the implementation.

        I applaud a willingness to call a spade a spade, such as it is.

      • Hossein

        If the analysis is objective, how does he know that "Apple is now working on shaping the post-iPhone world." And just pay attention to the words used in this statment:
        1. Shaping
        2. post-iPhone *world*

        I like most of what Horace writes, especially the visual analyses. But this post was did not contain much data. It was praising Apple because another company failed. Apple is only part of the reason. And the post ends with this dramatic statement: Apple is shaping the future world. Try publishing that in an academic paper.

      • addicted44

        Its a good thing this isn't an academic paper. Its a popular blog which seeks to educate.

        I guess good writing is too biased for you…

      • David

        I don't recall any definition of objective that precludes speculation. In addition, you seem to be criticizing the entire article because you don't care for four words in single statement.

      • Leo Apothaker just said words to the effect of "The Tablet Effect is real, our tablet product is a failure, so we're getting out of the PC business while the getting is good."

        When the #1 PC vendor is getting out of the PC business because of your hot new product, you are damn well shaping the present and the future.

        Whatever the competence of HP management, these are not men and women who hate making money. Their raison d'etre (raisin deeter) at HP is to make the company money, lots and lots of money. They are abandoning a part of their company that has in the past made them a lot of money because they don't believe it will in the future, because mobile devices, especially the iPad, are squeezing out PCs. The growth is in mobile. And HP has discovered, decided, or admitted that they suck at mobile.

        I am sorry if actual facts are not objective enough for you. Does math give you problems, too, or have you found a way to convey pure concepts without tainting them with signs or symbols?

        Really, it's not Horace's supposed bias that is bothering you. It's the facts that are causing your problems. You don't want Horace to tone down his words so much as you want the facts toned down.

      • asymco

        I appreciate your criticism. What I write can be seen as data driven but if you read enough of the posts I hope you come to realize that data is a necessary but not sufficient instrument to make strategy decisions.

        Perhaps the phrasing was poorly chosen, but the conclusion I came to is that because I see the iPhone at an apex, and if one believes that Apple's past patterns of behavior imply that they are not satisfied with sustaining their core (e.g. iPod and Mac being internally disrupted), then it must follow that at this time the planning should be well underway to disrupting the iPhone. (I would also point out that Steve Jobs foreshadowed this in January 2007 when he said the iPhone was five years ahead. Five years will have passed on January 2012.)

        Shaping implies that they are also working on a cohesive approach. "World" implies that they are looking at all pieces of the puzzle including media, operators and other dependencies.

      • Hossein

        Thanks. Your conclusion is sound. My objection is to the wording/tone of your last statement in an article that appears in Harvard Business Review blog. I do agree with most of your conclusions. In fact, I find them to the point and interesting. Most of them are descriptive statistics (only more visual — in a good sense).

        I picked that statement as an example of statements that can sometimes be found in your other posts as well. I can imagine they are very pleasing to most of the ladies and gentlemen who have been drinking from Apple's Kool-Aid and happen to be following your blog more than others. But this can be a slippery slope for you. I hope you continue your analysis and visualization of the *numbers*. Companies come and go, but a good/objective analyst is always wanted.

      • David

        I'm curious. Do you know the origin of "kook-aid" or do you just parrot?

      • Is "Apple's Kool-Aid" acceptable language for readers of the Harvard Business Review? Or is it merely a convenient expression of "objectivity" when you wish to insult people you don't know?

    • addicted44

      Let me guess…you also think that the truth always lies somewhere between the middle of what both sides are saying?

    • handleym

      Shorter Hossein: I want Horace to provide the same sort of mindless "journalism" that is provided by the mainstream US media — regurgitation of press reports, and bland mentionings that "opinions differ on the shape of the Earth".

    • asymco

      But I do believe that Apple is working on killing the iPhone. Saying otherwise would be dishonest.

      • Dick Applebaum

        I fully agree with this.

        The iPhone, while successful, has had to play in a game where the rules were set by others — and that limits its potential.

        Over the years, Apple has repeated the process of setting a standard then, killing (replacing) that standard with one more closely tied to Apple's vision of the Future.

        It goes as far back as the Apple ][ when Apple asked/answered the question: Who needs a Personal Computer?


        Who needs a Floppy Drive, Mini-Floppy, Mouse/GUI, CD, DVD, USB, Firewire, PMP…

        The iPhone is just the next success/victim in a logical progression.

        Who needs an iPad?

  • FalKirk

    "most of your analyses is not objective and at best serves to please Apple fans"-Hossein

    Here's the thing, Hossein. If you studied what Apple has done over the past five (ten?) years – watching as they step by step by step put all the pieces in place that now makes them nearly the largest company in the world – then you too would probably find it no leap to believe that Apple is now working on shaping the post-iPhone world. Apple is a long term planner. Only someone who didn't want that to be so would deny it. And Apple has masterfully set themselves up not only to be at the top of the mobile market just as that market is cresting, but to also be able to ride that market wave for a very long time to come.

    Let me put it to you this way, Hossein. For any objective person who was following the mobile markets, it would be hard to believe that Apple WAS NOT already preparing a plan to shape the post-iPhone world.

  • EWPellegrino

    What would we even mean by a post iPhone future? From the perspective of 2005 we're living in the post iPod future, because smartphones and tablets have killed all growth in the PMP market and indeed sent it into a terminal if slow decline – but it's hard to envisage a non sci-fi device that will replace the smartphone.

    Device convergence may kill point and shoot cameras, portable games consoles and lord knows what else but the smartphone is the device that they'll all converge onto, because it's pretty much already at the ergonomic limit for a device that we can use to make voice calls, and read email.

    The PC era was 30 years, the new era of smartphones and tablets could easily run for 20 more.

    • poke

      I think we're entering a post-iPhone future soon (2-3 years) where the "phone" part of the equation will become less and less important and Apple will start to seriously disrupt the hold the carriers have over the market. A SIM-less, non-subsidised data-only device that uses Apple's apps for voice, video and messaging will be, in some respects, post-phone. Whether Apple will choose to change the name I'm not sure. (Part of me thinks the move to Fall is because a device of this type is going to replace the iPod touch and the iPod name will continue on as the low-end disruptor counterpart to the high-end profit-stealing iPhone. But maybe it's too soon.)

      • EWPellegrino

        Even if all that happened it wouldn't be post iPhone, it would just be a different iPhone, and it's not going to happen. Not unless regulators force carriers to do it, and I can't see that happening. I'd say that the science fiction devices that forgo the screen and project the image directly onto your retina will be available before carriers give up control over their pricing in that way.

      • addicted44

        I think the point is that the "phone" aspect of the iPhone will become increasingly less important. At least not important enough to dedicate 5/6 characters in the name…

        I predict that a few years from now, the iPhone branding will change to the iPod. You will be able to buy an iPod (WiFi only) or an iPod 4G, much like iPads currently.

      • Can we imagine a device that would do away with the phone form factor? What is more mobile and easier to bring with you than a phone? What could be more ubiquitous than a phone? What other ways are there to interact with a device, inputting and receiving information? And does Apple hold or license the technologies to any of this?

        Are we talking voice input? HUD spectacles? Implanted devices? Wearable computers? Holographic displays controlled by gestures? Foldable screens? It gets very SciFi and incredible, but mobile phones, especially ones with the power of the iPhone and others were SciFi not too long ago. Even while clunky windows tablets existed, something like the iPad existed only in movies and TV. The Sonic Screwdriver was once a mere prop on a SciFi TV program. Er, wait, never mind about the Sonic Screwdriver.

        I don't see much of this stuff right around the corner, but who knows? Some might be implementable now or soon, other stuff might be further out or never. If the current tech is at or near breakthroughs on some of this futuristic tech, there's a good chance Apple is looking into it. This is the good part of the Chinese curse, "May you live in interesting times."

    • David

      Well, a different model of the iPhone perhaps or an era where the bulk of the revenue and profits is no longer generated by the iPhone.

      Hey, stranger things have happened.

  • unhinged

    Some more information from ZDNet, of all places:

    If HP is indeed moving to the data centre as its strategy, this would seem to be a way to avoid competing with Apple – fleeing "off market" instead of upmarket.


    • Maybe they see it as a remaining core competency with a future, while they don't see much future in their core competency in buggy whips, errr, PC manufacturing.

  • Bazz

    Yes but why? Why did HP do crap? What was in HP's genes to do poor products. Both Hewitt and Packard would die if they saw HP today.

    Microsoft and Intel I believe. WHY Wintel?

    The two did the thinking (for what its worth) all the PC makers had to do was join the parts. LOW level workers with no ability to innovate. When Apple showed the way HP had lost it intelligence and could only do simple tasks like retards (sorry but its HP retards) in a sheltered workshop. The CEO's were feminized so much that they could only see useful work for the low IQ workers as successful company policy!
    Apple's think different had no room in Wintel sheltered companies.

  • gprovida

    HP founders, who helped Jobs, had a culture HP-Way that made them successful and respected. Their successors having no sense or appreciation of what was built moved the company from premium to commodity. Recall HP in the first calculator days built quality and performance that commanded a premium, not unlike Apple.

    So HP is now merely a label for a big company that cannot build or manufacture hardware or manage innovative software.

    It does give pause regarding Job's leaving Apple or Gates leaving Microsoft or Dell or Walmart … Can Job's build the foundations for Apple's heirs. His current team seems to get it.

    I was struck by a comment he made regarding the stolen iPhone, that he did what he did because it was part of Apple core values otherwise he could not stay at the company.

    A couple of great books "Starting With Why" and "Drive" speak to this point for people and organizations. I suspect this is really the root problem for HP, Motorola, Dell, MS, Sony, and even Walmart.

  • Carsten

    Nice post. It also brings to mind a quote used by Jobs: “skate to where the puck is going to be, not where it has been”.

  • Chandra Coomaraswamy

    Thanks Horace.
    This is a very thought-provoking article on a very significant event in the computing market. I will continue to reflect on the many points you have raised here.
    When the biggest player leaves the game, you have to wonder whether the game itself will end sooner than everyone expected.
    imho: It is time for a new game. The PC game is well past its sell-by date. Premature decline due to astonishing failure to evolve and embrace innovation, quality, vibrancy and puissance.
    Fatal errors in this ultra-dynamic game.

  • JG

    Classic “innovator’s dilemma” scenario. Almost a textbook example.

    After 60 years of successful hopping, HP finally fell into the trap just the way we former HP employees said they would when they split HP and Agilent.

  • Re: “This is why I expect Apple is now working on shaping the post-iPhone world.”

    iPod’s 10th anniversary will be this October. The perfect opportunity to address consumer confusion with the terms “iPod”, “iPhone” and “iPad”.

    An iPad with 3G is called an “iPad + 3G”, while an iPod touch with 3G is called “iPhone”. Both the iPhone and iPad contain an “” which is both a music and video player, while an iPod touch contains “” and “” for the same. The shuffle and nano are referred to as iPods although they have very little in common with their big brother the iPod touch, which would make more sense to be grouped as a variant of the iPhone and iPad.

    If you ask me, this October on the 10th anniversary of iPod, I think Apple are going to retire the name “iPhone” altogether and renominate the iPhone 5 as simply “iPod”, both acknowledging it’s heritage, bolstering the brand name that has dominated the decade and derail any and all so-called “iPhone competitors”.

    After all, “like an iPhone” sounds intriguing for a competing device. “Like an iPod” is just New Coke.

    • EWPellegrino

      That would be very unlikely for any number of reasons

      1. The iPod is the best selling brand of smartphone in the world, why on earth would Apple just throw away the best selling brandname?
      2. The margins on the iPod are far lower than those of the iPhone. The last thing Apple wants to do is point this out to consumers by changing the names. AT&T iPad is only $130 more than wifi only. iPhone is $300 more than an iPod touch.
      3. There is absolutely no consumer confusion between iPhone, iPod and iPad. Did you ever meet somebody who accidentally bought the wrong one? Your proposed rename would actually introduce consumer confusion.

      Apple could have lauched the iPhone as the iPodPhone or similar back when the iPod brand was preeminent and didn't, why on earth do you imagine that they would rename it to that now that the iPhone brand is preeminent?

      • 1. "The iPhone is the best selling brand… why would Apple throw away the best selling brand-name?"

        They did it before with the iPod mini… I don't discount the power of the brand "iPhone", but you can't discount the power of the brand "iPod" either. They've got to do something with it other than let it come to stand for low-end, mp3 players with declining sales. Either transition it, or retire it before it grows stale. I favor the former, since the term "iPhone" is a misnomer: is just 1 of billions it can run.

        2. I don't think price has anything to do with what to do with the brand name, unless you're arguing that "iPod" has already come to mean "cheap" in eyes of the consumer. To your point about the iPad/iPad 3G price gap vs the iPod touch/iPhone price gap, I see that coming down drastically in the near future.

        An iPod touch with 3G connectivity (but no for traditional voice) is a much more compelling product today than it was in 2007. Back in 2007 everyone was still thinking along the lines of a "mobile telephone", whereas today data connectivity is growing ever more important.

        3. iPhone, iPod touch, iPad, iPad + 3G would be consolidated to:

        iPod / iPod + 3G
        iPad / iPad + 3G

        I don't see how that's more confusing? Also, it drives home the point that the iPod + 3G (currently known as "iPhone") is a much, much more powerful device than simply a telephone that has apps. Not to mention that all the other companies competing to make better (i)phones would find themselves suddenly digging in the wrong place.

      • EWPellegrino

        1. Not really since they just modified the brand. They kept the core which was iPod, the word 'Mini' was just a generic modifying it. iPod is now a far less powerful brand than iPhone, iPhones sell in places that never had significant iPod sales, a regular mid year quarter of iPhone sales is greater than the highest ever holiday season for iPod. Just because the Phone app is a small part of the functionality of the phone doesn't matter – it's the key part because a phone is the single device that everybody carries. This is the reason nobody put phones into cameras, they put cameras into phones.

        2. Why would apple needlessly destroy their margins? They may introduce a lower end phone but they'll keep the premium end, and it's far better to sell a value phone and associate it with a premium brand than to try to sell a premium phone associated with a value brand.

        3. You haven't even got a compelling name for the iPod+3G and it's far far simpler for a consumer to accidentally buy the wrong model of iPod than it is for them to accidentally buy an iPod when then wanted an iPhone.

        I think a lot of this is based on the mistaken idea that because the phone is only a single application on the device that the device shouldn't be marketed as a phone. That's a mistake because people don't think that way, the average consumer doesn't think – 'Oh I need a pocket computer that can also incidentally act as a phone' – they think – 'I need a phone and if it can also act as a pocket computer that would be cool'. In brand and ergonomic terms Sony attempted to converge the phone onto a camera and it failed. Similarly Palm effectively tried to converge the phone onto a PDA and it failed. Apple converged PMP and PDA onto the phone and it succeeded.

        Telephony is the killer app, people care about call quality, they care about dropped calls, they care about voicemail, they care about talk time. Apple understand this which is why they never attempted to market the iPhone as an iPod.

      • berult

        iPod is a relatively dormant, powerfully evocative name brand  …ready for a rejuvenating leap into buoyant, 'no frills-minimal costs', down-stream Apple Web Services …in a plankton-sustaining saline iAd solution.

        …ready-made for 'China-India-Brazil'-like emerging markets and up-and-ready to meet Google's commoditizing challenge with secular iPod gusto and market irreverence…!

      • EWPellegrino

        They could use the iPod brand for low end phones, but it's questionable whether it would be a good idea for precisely the same reasons why it wasn't a good idea when launching the first iPhone – consumers don't identify the brand with phones. It would potentially serve to keep the post-pay and pre-pay experiences differentiated, but I don't think it's necessary for that.

        iAd and web services aren't really relevant though. iAd is a failure with advertisers even with the current wealthy iPhone userbase, there's a huge glut of space already – adding millions more pre-pay customers in developing nations isn't going to materially improve iAd's profits. Online services such as iCloud and iTunes are designed to drive hardware sales, so using hardware sales to drive their services would be backwards.

      • berult

        The iPod thrives in the subconscious mind of a great many consumers. It's got a lot of mischievous deeds yet to throw at the competition; none to throw at its sibling …the iPhone. So no one, at least not me, is talking about a cheap iPod Phone. I'll leave it to your imagination to figure out what sort of lean and mean communication device I'm inferring about here…

        As for iAd, give it an appropriate environment within which originality can prosper and develop …and watch it take off… Google has poisoned the well …the web as far as advertising is concerned; entrapping consumers share no common ethics with attracting end users. The iPod's ecosystem alongside the iOS one just has to develop as a repository for the latter and as a repulsive force imposed upon the former. A gravity/anti-gravity consuming-field theory of sort.

        It comes down in the end to 'Land' management at which Apple has proven to be a congenial 'knock-out' artist; …they're just not built …between the ears …and below the belt to be sold short, iAd wise, stock market wise, pundit wise, and otherwise…!

      • EWPellegrino

        iPod If I have to guess what you're talking about then you aren't actually talking about anything. If you can't tell me what kind of product you're imagining then I have to conclude you aren't actually imagining anything specific at all.

        iAd: The only appropriate environment would be a completely different firm than Apple. Apple isn't an advertising led firm, and likely will never be an advertising led firm. You even seem to understand this point – apple attracts end-users it doesn't market them to advertisers. Originality is not what matters in advertising, what matters is tracking and targetting. You don't actually give an answer to that problem, instead you spout rubbish such as :
        'A gravity/anti-gravity consuming-field theory of sort' – it's sentences like this which make me routinely mark your posts down and skip them. It means absolutely nothing. Using such phrases only serves to prevent people meaningfully engaging with your posts, which defeats the entire purpose of this site. Perhaps you think it looks intelligent, I have to inform you the effect is quite the opposite.

        As for your final paragraph, Apple can fail, they've done it before. Sometimes as with MobileMe the failure comes back as a new product. Sometimes as with the Hi-Fi it simply goes away and is never mentioned again. iAd is a failure and in order for you to argue that it will cease to be a failure you need to provide a choherent argument for why, not just invoke some kind of magical Apple powers, or the language of a hack sci-fi novel.


      • berult

        The key to your first paragraph lies midway through your second paragraph:"- it's sentences like this which make me routinely mark your posts down and skip them. It means absolutely nothing."

        As for the thrust of your second paragraph, in advertising as in anything else the point of origin defines all further actions, be they tracking, targeting, creating, producing, editing, …or cashing in.

        Best regarding your conclusion, short term probing hiccups simply stagecraft long term resiliency. Countering 'Googletropy', long term failure should for no one be an option. If it sounds like a mantra and a creed, well it's because a tracked and targeted mind better be worried to whom it swears allegiance… 

      • @EWPellegrino all good points. I think we can just agree to disagree on whether telephony is the killer app, but I see where you're coming from.

        As an alternative scenario, I could see the iPod brand being spun off into wearable computing (or, more specifically "iPhone & iPad smart peripherals"). If you think about it, if the iPod touch were to be discontinued, the only products carrying the name "iPod" would be clip-on devices. There are some interesting things being done with the new Bluetooth 4.0 technology (that Apple just started shipping in the Airs).

    • pvt_zim

      i believe that it's not about what the product — let it be sw or hw — is capable of but more about what it's used for. i don't think people perceive the ipad as a phone so i don't think the 3g qualifier is confusing. on the other hand the iphone name gives a better idea of the nature of the product then ipod 3g would.

  • jim antonides

    I wish I could access the comments…

  • It's even more ironic when you realise that Compaq (it came out a DEC research project) had made the first commercial hard disk based portable MP3 player… and licenced it to a Korean company called HanGo back in 1999 for commercial manufacture

    • asymco

      Fascinating. I think IBM also had developed an early prototype MP3 player. At the time it was considered impossible for a computer company to sell consumer electronics so projects like these were either killed off or licensed.

      Apple's trick is to not automatically say no when distribution seems to be an obstacle but to not automatically say yes when another product variant seems natural.

  • pvt_zim

    writing on the wall? the elop syndrome?

    A Simple Explanation for Why HP Abandoned Palm and Is Getting Out of the PC Business

    "The thing is, Apotheker’s relevant experience was serving as CEO of SAP. What’s SAP? SAP is an enterprise software and consulting company. Honestly, we all should have seen this coming. You don’t bring in an enterprise consulting guy to turn around a PC and device maker. You bring in an enterprise consulting guy to turn a PC and device maker into an enterprise consulting company."

    the m$ – nokia deal was also a nobrainer in hindsight. that's two in a row.

  • MOD

    I'd like to see what Apple comes up with next in terms of "computer". That will kill the Wintel alliance. HP is jumping ship somewhat early.

  • MOD


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    "…Woz was still working for HP, and under the terms of his contract, all his work belonged to the corporation. The Apple computer was technically HP property. But Woz showed it to his bosses and they simply didn’t care about it. Woz was disappointed as his goal was to work for HP his whole life. He would have been delighted if HP had done a personal computer based on his design. It wasn’t Steve Jobs’ intention though."

    Now that's a cringing "what if"…

    • JG

      The ironic part: HP used to have an advertising campaign called “What if…” what was tag-lined thus.

      But the way Bill and Dave ran HP, they didn’t play the “What if” game in terms of lost opportunities. Those are sunk costs and irrelevant. You can only change the future and not the past.

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