HP has lashed out. When it paid $11billion for a UK software company that produced a search engine that no one really seemed to understand, some said they didn’t understand what HP was up to.
Back then the PC company was under the leadership of Leo Apotheker. A former boss at SAP, Mr Apotheker was a software man. His big idea for HP was to move it into software. Hence the purchase of British software company Autonomy.
If you want to know what Autonomy does, the best description may be search engine with knobs on. Is its product any good? Well HP thought so, so it must have been.
Except that a few months later Autonomy, under the HP banner, looked like a pale shadow of what it once was, and the company’s management team, including founder Mike Lynch, had been given their marching orders
Then HP decided it didn’t want to be in software; it was a PC company. Err no it wasn’t a PC company, it was a printer company. Err no it wanted to be a tablet company. Err no it was a consultancy like IBM. Errrr.
So Leo went, and in came Meg Whitman, who shined a light of certainty on the company. Now HP is absolutely certain it doesn’t know what it is.
But one thing it does seem to be certain about is that buying Autonomy was a mistake. Now it is alleging that the British company cooked the books, put certain costs down as marketing costs when they were unit costs, and booked sales to distributers as sales to end users. Mike Lynch denies it of course. He may be right, or HP may be right.
But what is for sure is that HP panicked, and still seems to be panicking.
Okay it still sells a lot of PCs, but its margin on each sale is tiny – around $22, according to IDC. Contrast that with the profits enjoyed by Apple, which is making money out of the fact that its brand name justifies a premium. Compare that with the profits enjoyed by Google, which rakes in the dollars from adverting when Androids are sold. Or contrast it with Amazon, which counts the dollars as it sells books and other goods from its stores on the back of the Amazon Fire.
The truth is that the PC market may not be dead like a dodo, but it is like the Siberian tiger – on the endangered list.
Chastened IBM saw the signs and got out, became a consultancy, and now Big Blue is back, and for a while this year enjoyed a higher market cap than Microsoft.
But for PC companies like HP and Dell, change is required but what change?
This is classic innovators’ dilemma, or what Clayton M Christensen called the “technology mudslide hypothesis.” In his model, established companies in a position of market dominance reinforce their position of strength through their specialisation, but when a new so-called disruptive technology emerges, they miss it. They get relegated to backwaters or go out of business.
Christensen himself took the disc drive industry as an example, and looked at every major change – for example from 14 inch disk drives used for mainframes to 8 inch disks for mini computers, 5.25 inches with the emergence of PCs and then 3.5 inch disks as laptops were developed. He showed that with the emergence of a new disc drive standard, there was a change in market leadership; previously dominant players started doing dodo impersonations.
What is especially interesting about the Christensen study is that the companies themselves were often aware of the danger, researched the new burgeoning technology, but their existing client base showed no interest, and urged them to stick to what they already knew.
Kodak fell victim to innovators’ dilemma. It even flirted with new technology before the rest of the field; it was, after all, a pioneer in digital photography. It still failed to change, however.
HP saw the changes coming too, which is why it bought PALM. It didn’t know what do next, however, and actually cancelled its PALM based products about the same time as the Autonomy purchase.
Err, that was not a good move. Still, when all else fails, it can always blame the accountants.
©2012 Investment and Business News.
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© Investment & Business News 2013