HP: What Were They Thinking?

By  Jessica Binns — August 23, 2011

News in the mobile world is flying fast and furiously. First, Googlerola. Now, Hewlett-Packard is killing its fledgling TouchPad, putting its webOS operating system up for sale, and exiting the PC business altogether.
 
At a time when the world increasingly is migrating to mobile form factors, why is HP dropping out of the smartphone and tablet game? Will it regret the seemingly hasty decision in the future? Will another OEM or vendor snap up webOS and give it a second chance? And what can we make of HP’s decision to withdraw from the hardware business?
 
webOS never had a chance
When it comes to the enterprise, webOS certainly wasn't a major player. “webOS was never considered an enterprise-grade platform,” says Dan Shey, practice director, mobile services, ABI Research. “It was never considered secure.”
 
“webOS was three years too late to matter,” adds Jack Gold, founder of J. Gold Associates. “Even with HP’s overwhelming market presence advantage, they could not make it work. That’s not to say it was a bad OS (it had many advanced features). But catching up in a market moving at lightning speed is always hard to do.”
 
But Andrew Borg, senior research analyst, wireless and mobility, Aberdeen Group, laments HP’s decision. “I think they’ll regret that they’ve lost control of webOS. It made sense in terms of cloud services to have the best endpoint platform—and webOS is designed for that. It’s more technically sophisticated than iOS, Windows Phone 7, or Android in terms of being tightly integrated with all essential Web services and HTML.”
 
Is webOS really dead?
HP announced that webOS is up for sale—to the tune of $1.2 billion. Is anyone in the market for a struggling operating system?
 
“Will someone pay $1.2 billion for webOS?” asks Shey. “I don’t think so. The next question is: will developers rally around webOS if they already have four or five other platforms to develop for—BlackBerry, Apple, Android, Microsoft, Symbian?”
 
Peter Crocker, founder of and principal analyst for Smith’s Point Analytics, says, “I don’t think that webOS has a prayer in the enterprise without HP. IT departments are not going to want to support a declining platform and it is not cool enough (like the iPhone) for CEOs to force them to.”
 
Perhaps the business world doesn’t need another OS, but Gold sees life in the consumer market. “webOS could have a future as an embedded OS for things like printers and other consumer devices that HP builds. So it may not be a total loss for HP in the long term.”
 
“webOS may be more of a challenge to be licensed now,” adds Borg. “It has the kiss of death on it. I don’t see the benefit of webOS without a cloud strategy behind it.”
 
Denise Lund, senior analyst, Yankee Group, offers a mixed analysis. “The success of a mobile device these days is highly intertwined with the particular mobile OS, as opposed to just being successful on form factor. The ecosystem that each mobile OS brings to the table is a key part of that.
 
“I don't have the sense that webOS has meaningful brand value or a wave-making, enticing, market-facing ecosystem,” she explains. “So, I don't see much hope for this in the enterprise devices to be procured for or by employees.” HP could possibly find partners in the appliance manufacturing and automotive industries, says Lund. In these arenas, consumers wouldn't care about which OS their washing machine or sedan is running, so pursuing this avenue is a “reasonable endeavor for HP right now,” she adds.  
 
But Crocker says webOS has its upsides. “I think the real value of webOS is that you can write apps in HTML and Javascript. The ability for web developers to create applications that can run in an HTML5-compliant browser and be easily ported to a myriad of devices that are running webOS such as phones, TVs, refrigerators, cars, gaming consoles, MP3 players, etc., is a pretty compelling value proposition.”
 
Potential suitors
Still, some competitors may see this as a good opportunity to pick up an operating system with a cult following at a reasonably low price. Which companies would benefit from acquiring webOS?
 
“I think that HTC and webOS could be a good match,” explains Crocker. “With the announcement from Google and Motorola, Android licensees will be looking for alternate platforms to reduce their exposure to Android. Samsung has Bada but HTC has nothing proprietary.
 
“Amazon could also be a potential buyer. They could integrate the OS tightly with their cloud offerings and license the whole package to OEMs. Amazon could also put it on the Kindle so similar apps can run on your Kindle and mobile phone,” he continues. Moreover, abandoning the TouchPad makes sense, he adds, because it takes off the market a device that could compete with a webOS-powered Kindle.
 
Gold disagrees that there are buyers for the OS. “As for others licensing the OS (like Samsung, LG, etc.), I don’t see that happening for several reasons. First and foremost is the lack of support. With HP pulling the plug, the vendors would have to license the OS and take it forward themselves. This is a major undertaking. Samsung already owns its own OS (Baidu), which isn’t that competitive, and LG probably would have problems taking on the OS wars by itself."
 
He continues, “Also, since the OS has no market presence, there is no real advantage to these vendors licensing webOS—it would be a hard sell to get consumers to buy it, in my opinion.
 
“So for the most part, I think webOS as a mobile device platform is dead.”
 
Borg agrees. “I think OEMs may move towards Windows Phone 7, if anything.”
 
HP kisses PC business goodbye
Perhaps HP’s most out-of-the-blue announcement was its decision to simply stop building hardware. In lieu of manufacturing PCs, laptops, tablets, and smartphones, HP seems to be doubling down on software, services, and support.
 
“I see this more as a redirection by HP management than market forces,” explains Gold. “Sure, the margins in the PC business are thin, but they have been for many years, and HP did make a profit, especially during Mark Hurd’s tenure. The new CEO [Leo Apothekar] is a software guy—he headed SAP—and he seems to be reforming the company to be a more serious competitor to IBM. Of course, they have been moving in this direction for several years through acquisitions (ie, EDS).
 
“The bigger issue for me is: Why didn’t HP just sell off or spin out the division without all this bad press?” Gold continues. “Once you announce you are exiting a business, it becomes much harder to get value out of that business. I believe the HP PC business has value to several PC OEMs, but once you announce you are selling, that value goes down.
 
“And what enterprise—which was a huge business for HP—will want to stick with HP as its PC provider?” asks Gold. “This should help Dell and Lenovo in enterprise PC sales.”
 
Lund sees HP as being in a somewhat unusual position. “HP had choices, whereas some other vendors may not. HP is in a unique position in the market; in addition to being known for hardware, it is seen as a company integral to business productivity following the likes of Microsoft, Google, and Dell and ranked above Oracle and SAP, mobile carriers, and RIM. 
 
“Add to that professional services, and system integrators as a category are the second most trusted type of provider of an end-to-end managed mobility solution to the enterprise, with 31 percent of IT Decision Makers indicating this,” she adds, referring to the Yankee Group Enterprise IT Decision Maker Survey, July 2011. “This is behind mobile carriers at 55 percent. 
 
“So HP has market trends in its favor, such as the continued interest by enterprise decision-makers to look to professional services companies for holistic solutions. HP also has a brand image that supports heading in this direction,” says Lund. “It is a reasonable move on HP’s part. It is not, however, without major competition from the likes of IBM and even mobile carriers and managed services providers.” 

Shey thinks HP's making a mistake. "I understand that in the PC business there is lots of competition, margins may be thin, etc., but the PC business also provided another touchpoint for HP within the enterprise from which to sell a bundle of software and services."
 
The post-PC model
The webOS operating system seemed particularly suited to a post-PC world in which mobile interfaces are the perfect conduit to cloud services. “It’s about the new paradigm for computing,” says Borg. “It’s an ecosystem and infrastructure play. It’s about cloud access via mobile devices.”
 
Lund believes HP made the right choice for its business.
 
“I wouldn't say this type of high-profile company repositioning signals a major shift in computing to greater adoption of mobile devices,” explains Lund. “The shift to highly mobile devices being part and parcel of every person’s day-to-day life has already happened and been proven. We are seeing new mobile device categories, such as tablets and e-readers, being additive to the connected device portfolio any one person has. 
 
“What HP’s move does signal is its own ability to think critically about its core competencies, brand advantages, and market needs and to make major changes to pursue opportunities,” she continues. 
 
Taking the TouchPad off life support
Just more than six weeks after launching the TouchPad tablet, HP abandoned its webOS-powered slate. Did it give the device a fair shot at success?
 
“I think pulling the plug on the TouchPad makes sense,” says Crocker. “The market is so crowded that it will be hard for non-iPad manufacturers to gain much attention or traction. You may see one or two manufacturers stick it out to compete with Apple, but it will probably be Samsung and Googlerola, not HP.”
 
Borg disagrees. “HP appears to have made the mistake of conflating webOS with the TouchPad. They saw what happened with BlackBerry and the Playbook, how they got themselves in trouble. HP seems to have gotten cold feet with tepid TouchPad sales.”
 
What’s more, HP’s TouchPad fire sale this past weekend “created a lot of chaos in an already unstable market for tablets,” adds Borg. Retailers such as Best Buy cleared out their TouchPad inventories, offering the tablets for $99 (for the 16GB model) and $149 (32GB)—a considerable drop from the original prices of $499 and $599, respectively. The tablets sold out quickly, according to news reports.
 
HP singlehandedly destroyed the non-iPad tablet market, according to Adrian Kingsley-Hughes' ZDNet report.

Borg adds, “With the $99 'fire sale' price point, they have inadvertently tapped into the expectation in end users that that’s the right price point. There will be a coming wave of cheap Android tablets from China selling for $97. They’re not sanctioned Android tablets, but they have the basic hardware.
 
“It seemed like webOS had such potential synergy with HP’s cloud services offering and we expected them do something great with webOS,” he continues.
 
“It’s the jewel in the crown and they threw the jewel on the floor.”
 

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