A Tale of Two Companies

HP has lowered its forecast for the year, and the threat of that move that broke yesterday caused tech stocks to shudder.  It raises a serious question about just what’s going on in tech, a question that doesn’t have any easy answers.  That means the future of tech as we know it may be…well…uneasy.  To understand the issue, we need to tell a Tale of Two Companies.

When companies like HP and IBM were founded, they were profitable based on the sale of business technology.  There was no personal computer, no tablet or smartphone.  In 1980, IBM and HP were duking it out for a growing business computer market, and Digital Equipment Corporation was number two, between these two giants.  Then, in 1982, IBM launched the PC and the market (and world) changed.  Within a decade, PC competitor Compaq had bought DEC, whose market position was compromised because its CEO couldn’t read the handwriting on the wall.  HP bought Compaq.  IBM shed its PC business—the business that started it all—to Lenovo and became a pure business computing play.  HP tried PDAs, bought Palm to take a run at smartphones.  IBM shed its networking group, and HP bought networking giant 3Com.  It sure seems like IBM and HP have gone in opposite directions, and certainly their current financial position seems very different.

Should HP have never gotten into personal computers?  IBM bailed, and won on that bet.  Same with networking.  But remember that IBM launched the PC and rode the PC wave convincingly for a time, and IBM networking (SNA) was the bastion of enterprise networking during the formative time of distributed computing.  IBM didn’t avoid new things, but they avoided things that had seen their best days.

For everything, there is a season.  The cost of consumer technology has fallen steadily, and that’s the most critical trend in the market.  With the price of gadgets falling from a time when they cost a worker an average of six months’ income to the point where they cost half-a-week’s income, people jump in and out of trends with alarming speed.  There’s no financial inertia to overcome.  IBM saw that, I think, and decided that market wasn’t going to sustain margins and was going to require making an increasingly large number of risky strategy bets (buying Palm comes to mind).  So they pulled back, betting on the more stable business market that they’d never walked away from.  HP, during that same period, had re-focused on the consumer, and it paid off for a while.  Not now, nor likely any time soon.

Consumers are now, so the classical wisdom goes, “abandoning PCs”.  Not so; they’re just doing what they’ve always done, which is to spend to self-gratify.  Every year PCs get more powerful, and yet every year the range of things you do on one has diminished not expanded.  PCs used to be the gaming system of choice, but they’ve been displaced by low-cost game consoles and portable devices.  They used to be powerful productivity tools, and we’re now dumbing them down to thin clients because we can’t afford to support their complexity.  If power doesn’t matter in PCs any more, what does matter?  Cheapness.  IBM didn’t want to be in that kind of market, and HP doubled down its bet there.

Would IBM be where it is today without the PC.  No way.  Would it be where it is today had it focused on the PC as HP did?  No.  IBM would also have wasted a zillion dollars and management cycles trying to defend a position in networking.  So what IBM did right wasn’t to avoid consumerism, or avoid new things, but to jump on the bus when it was going IBM’s way, and off when it took a strategic detour.  HP has, in contrast and all too often, gotten on too late and gotten off way past their stop.

What could HP do at this point?  There’s no easy answer if one defines “easy” as being facile to execute.  There’s an easy one in terms of ease of discovery, though.  They need a strategy, a vision, that unites their purchases.  IBM, whether in mainframes or PCs, in networking or out, always had that vision and still does.  HP never had a unifying mission for its elements, only a unifying theme of making money from them.  They couldn’t be symbiotic because there was no ecosystem to cooperate within.  That made the sum of the parts less financially valuable, and more risky, than the whole.  And it’s going to be darn hard to fix this problem quickly.


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