Thursday, September 22, 2011

The Wreck of Hewlett-Packard

An early Hewlett-Packard Oscillator
Hewlett-Packard is sort of The Rolling Stones of Silicon Valley.

The early HP was a groundbreaking, innovative company that didn't just kick out great products, they helped create and validate a whole new way of doing business.

They were the original "garage-based start-up", a scrappy pair of guys who had some incredible hits in the early days. Bill Hewlett and Dave Packard had impeccable tech cred. They were also smart people who studied under Frederick Terman (whose father, Louis Terman, is a pioneer in gifted education).

They espoused The "HP Way", a noble and empowering mindset which many successful Silicon Valley companies still emulate.

But much like the Stones, middle- and old-age haven't been kind to HP, and they've never been the same since the founding members left.

The company went from cranking out its own innovative products to slapping a brand on mediocre-at-best Windows boxes. It has made some incredibly bad decisions over the last few years, and despite (or perhaps due to) being enormously large and recognized, HP seems locked into a long-term death spiral.

I heard today from one analyst "the company is just too big for any one person to comprehend". Yet there are other big companies that are more successful and still comprehensible.

HP used to be awesome. What happened?

Partying in 1999
HP was founded in 1935. It went public in 1957, after a long slow climb. Its early decades were somewhat unfocused, but the company managed to bang out enough success to keep going.

It missed a few great opportunities (Steve Wozniak designed the Apple I while at HP, offered it to them, and they passed), but by the mid-80s was going strong. They did manage to get on the internet very early (1986!).

The 1990s marked a big shift for HP, as they moved into consumer markets, instead of just professional tools and devices. This culminated in 1999.

1999 was a big year for HP. They spun off all of their tech businesses not directly related to computers, storage, and imaging. That spin-off (Agilent) was the largest IPO in Silicon Valley history.

They also appointed Carly Fiorina as CEO. Carly Fiorina was the first woman to lead a Fortune 20 company. Her most notable achievement at HP was the acquisition of Compaq, which helped establish HP as the largest shipper of personal computers - most of them being middling Windows boxes.

She was quite controversial and not very popular at HP, and eventually shoved out the door with a $20 million severance package. The stock price dropped 50% during her tenure, though much of that was arguably due to overall market conditions and not her leadership. Regardless, she's been called one of the worst CEOs of all time by Conde Nast Portfolio (whoever they are).

Making a Small Fortune on WebOS (out of a large one)
Once upon a time, there was a company called Palm Computing. They created something called the Palm Pilot, which was a pretty kick-ass little "personal digital assistant", or PDA. It was stylus-based and an excellent combination of (then) state-of-the-art technology and solid product design. It did what it was supposed to, reliably, and quickly displaced the paper Fil-o-fax as the weapon of choice for biz people.

It was a big hit. But like many companies (and bands), after the first big flush of success, Palm sort of lost their way and became complacent. They stopped worrying, even as other devices came after them aggressively.

In a few short years, Palm was the worst-performing PDA manufacturer on NASDAQ, despite having revitalized the category. Their stock lost 90% of its value in a single year. Many corporate shenanigans ensued, but the end result was a "new" Palm dedicated to building a new OS and new devices to compete with the now-dominant Blackberry and iPhone in the smartphone market.

The new thing would be called WebOS. The OS was highly thought-of, even if the hardware it was initially presented in was lacking.

But good reviews alone don't matter. A little over a year after WebOS launched, the struggling Palm sold to HP for over a billion dollars.

And then, in a single phone call, HP destroyed much of the value of the ecosystem. Once then-CEO Mark Hurd said HP "didn't buy Palm to be in the smartphone business", pretty much every independent developer working on the platform threw in the towel.

Without 3rd-party apps, platforms don't make sense for users, especially as Apple developers kept cranking out hit after hit.

Less than a year after the sale, HP backed out of offering OS updates to devices in the field and then turned around and announced a bunch of new devices.

6 months later, HP would announce they'd be selling their consumer devices group, and not shipping any new devices for users.

The Unstoppable TouchPad Crash-and-Burn
Despite having irreparably damaged tech faith in WebOS, HP announced the TouchPad: their "tablet" computer based around the now-irrelevant and unsupported WebOS. You may have heard how that turned out: The company launched it on July 1, 2011 and 7 weeks later, on August 18, 2011, announced they were going to discontinue it and all WebOS devices.

This was only 5 weeks after launching in the UK and other Euro countries, and only 3 days after launching in Australia.

They started blowing the inventory out at $100 (for a device that had been priced at $500 and which, by most estimates, cost over $300 to build, not including the costs of developing and designing).

Even after the company canceled the product, I kept seeing lavish TV ads appearing everywhere I went. Apparently the marketing juggernaut was unstoppable, even after the head had been cut off.

But it gets better.

Not even 2 weeks after announcing they were killing all WebOS products, HP announced it would do another production run of the TouchPad. This might be a way for HP to mend relationships with component vendors, but it sure looks like a poor business move.

Rotten at the Top
Mark Hurd was CEO for 5 years. He resigned in 2010, not because he had totally blown up WebOS or mismanaged the company. He resigned because "expense account irregularities" were uncovered and sexual harassment alleged.

Of course, a company's culture comes from the top. That doesn't just mean senior management - that also means the board of directors. If the board is wise, they choose good management and provide appropriate feedback, controls and guidelines. If the board is foolish, they let management run unsupervised, or micro-manage product details based on their own preferences and whims.

The behavior of HP's board of late is appalling. Not that long ago, HP's board engaged in activity that was not just immoral and unethical, but illegal. That should have been enough to clean house.

But the culture was set. A new HP way, I suppose. That culture is ultimately responsible for the wreck that HP's become. To give you an idea of how that negligent culture manifests, HP's board didn't even bother to interview the CEO they hired a year ago and then dismissed.

Now, the board is supposedly considering Meg Whitman as the new CEO. One hopes they'll actually talk to her this time.

Bad Products
My own experience with HP shows what happens when marketing passes innovation:

In the late 90s, I needed a fax machine, scanner, and laser printer for my recording studio and record label businesses. I went to my local Fry's electronics and purchased a multi-function HP device. It did everything I needed, it was compact, and it carried the HP brand. And it was the right price - about $400 if I remember correctly. A tiny bit more than I wanted to pay, but it seemed like a substantial investment.

Took it home, installed it. Worked great.

For about a year.

Then it stopped properly feeding paper through, either to scan or print. The roller just slid over the paper. I started trying to track down issues on HP's disaster of a website. It became clear many other users were having the same problem. HP's response was to shrug and say it wasn't built to last.

There was a class-action lawsuit. HP agreed to ship out a "fix kit" to all users who jumped through hurdles. I jumped through the hurdles. I got my fix kit. I carefully, properly installed it. It sort of worked, though not reliably. Still better than junking the thing.

About 2 years after that, Microsoft released Windows XP, a big step up from Windows 95, 98, and 2000. I upgraded. My HP device no longer worked. Back to the website.

Turns out you had to BUY a driver disc from them for about $20 in order to get XP drivers. So I bought it (since I couldn't find the drivers online anywhere). I used that device for a few more months until the toner cartridge ran out. HP charges a lot for toner and doesn't want any competition in that market.

I was happy to be rid of the device, and I vowed I'd never again purchase anything from HP.

What can you say? HP is huge and profitable, for now. Companies that big achieve a kind of failure-proof critical mass. They'll be around for a long time barring complete catastrophe, but it's hard to see them ever innovating again, or ever having hits again. They're just another big, dumb, slow company.

There's worse things for a garage start-up to end up as. There's better, too.

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