by jurvetson

HP’s Decade-Long Departure
[Via HarvardBusiness.org]

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.

[More]

In his classic 1996 paper, Increasing Returns and the New World of Business, – published the same year Apple bought NeXt and started its drive to success – Arthur discussed the difference between decreasing returns seen in 20th Century companies and the increasing returns seen for the newer companies. I’ll talk more about this paper later but here we have a perfect example of a company living by diminishing returns and one living by increasing returns.

He ends the paper with a series of  questions for managers. Think about how Apple answered these questions versus how HP answered them and you will get an idea of why Apple succeeded and HP failed based on where they were 10 years ago.

Do I understand the feedbacks in my market? Which ecologies am I in? Do I have the resources to play? What games are coming next?

HP failed at properly answering each of these questions, believing it was operating as a 20th Century company in a 21st century Market. HP never really presented a compelling case for why its technology was better than a competitor’s. They provided commodities for people to buy.

Apple created the iMac, an all-in-one computer like no others that provided integration of new technologies like no other –  it got rid of the floopy drive and added USB, something HP, or any other PC maker, would not do for years.

Apple created the iPod, an MP3 player like no others that provided integration of new technologies like no other – it created an ecosystem of a computer and Apple’s iTunes, something HP, or any other high tech company, have been able to recreate.

Apple created the iPhone, a smartphone like no others that provided integration of new technologies like no other – it created an ecosystem of a computer, Apple’s iTunes and the App store, something HP, or any other high tech company, have been able to recreate.

Apple created the iPad, a tablet like no others that provided integration of new technologies like no other – it created an ecosystem of a computer, Apple’s iTunes and the App store combined with a novel used design, something HP, or any other high tech company, have been able to recreate.

Apple took 5 years before the first real product of its strategy arrived. HP canned its ‘strategy’ after a year.

Apple works to provide the best experience for its customers and will take years to really get it right. Everyone else just seems to push out stuff and hope. Thus why HP is throwing in the towel and Samsung is seeing its products given away.

Microsoft and Google both look for hardware makers to create their own ecosystems of mobile devices and software.

See a pattern here. Apple deeply understood the feedbacks; it not only knew which ecology it was in, it went so far as to create new ones; it hoarded its resources until it had enough strength to play; and it has been on top of what is coming next, riding the bleeding edge of high tech as it focusses on what the market wants.

The rest of each industry – HP, Samsung, Google, Microsoft, HTC, etc. – have been reacting to Apple. They have not been driving their own vision of the future. They have failed to answer the critical questions.

They do not understand how much things have changed. The asteroid has his the planet but the dinosaurs do not realize yet that they are doomed.