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HP has recently announced a complete overhaul of its strategy, and the critics (as well as investors) have immediately started bashing the company. To recap, HP recently announced that it was getting out of the laptops and PC hardware business, focusing on enterprise software by paying big bucks for Autonomy, a big enterprise software company, and killing the webOS platform it bought when it acquired Palm.
In the Journal, columnist Al Lewis trashes HP’s board and its strategy, going back to the fiasco of the firing of Mark Hurd over expense reports and a sorta-sex scandal.
Here’s the deal: whatever the merits of firing Mark Hurd, that happened and there’s nothing HP can do about it now. Since then, HP has hired a new CEO, Leo Apotheker, from software giant SAP. Presumably HP’s board was aware of the fact that Apotheker’s background was enterprise software, not consumer electronics.
Apotheker spent some time learning to know the company, and then decided on a new strategy for the company. Will this strategy pan out? Maybe, maybe not. But give HP time to execute on the new strategy.
Was HP wrong to shut down webOS? Absolutely not. As we argued recently, HP could not compete with platforms like Android, iOS and Windows, at least not without huge further investments. Does it look silly to shut down a billion-dollar acquisition a year later? Only if you fall prey to common misperceptions such as hindsight bias and the sunk costs fallacy. It’s obvious that mobile software is one of the most important trends in the technology industry. HP made a bet in that direction. It quickly became obvious that it was either double-down or fold. HP decided to cut its losses and focus elsewhere. There is absolutely nothing wrong with that. What would have been wrong would have been to let webOS limp on, drawing resources and attention away from businesses where HP has opportunities.
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Why is HP selling off its laptopts business and focusing on software? Here’s what we think is going on. Über-VC Marc Andreessen recently argued (also in the Journal) that software is eating the world. In the technology landscape, and elsewhere, the value is shifting from objects to bits. And he’s probably right. And Andreessen happens to sit on HP’s board. Some company somewhere is probably going to make lots of money making commodity hardware at razor margins. Can that company be HP? Maybe, maybe not. It looks likely that that company or those companies will be based in Taiwan or Shenzhen, not Silicon Valley. Most of the commodity hardware guys like Asus and Dell are hurting because people just won’t stop buying iPads. Meanwhile, there’s a ton of value to be grabbed in software and HP’s hardware business has stopped growing. Autonomy, the British software HP is buying, isn’t doing any kind of software, but big data analysis software. This is a huge growth area where there will be a huge shift in spending from enterprises.
What HP is doing makes a lot of sense. It’s ditching doomed (webOS), or low-growth, low-margin (laptops) businesses and focusing on where there’s growth and where it has a competitive advantage by being a big company based in Silicon Valley with a tradition of R&D and a huge enterprise sales force.
Is it the “right” strategy? Maybe, maybe not. HP’s bet on Autonomy is speculative and expensive, and while it’s nice to see big, staid companies make big speculative bets, it’s too soon to tell whether it’ll pan out. But it’s certainly not a crazy strategy. In fact it’s a strategy that, if executed properly, has a lot of potential to be seen as visionary and far ahead of its time in a few years if Dell and others keep getting hammered in commodity hardware and if big data enterprise software becomes a huge market.
But the point remains: HP’s strategy is audacious, it’s certainly not crazy, and most importantly it was just announced.
It makes no sense to bash HP now. We won’t know for several years whether the strategy pans out or if it was, indeed, a gigantic blunder. Leave HP alone.
Previously: HP Needs To Shut Down Palm →