Thoughts on the recent HP news

I was baffled by the news coming from HP last week. Having just left the company and having worked for one of the divisions affected, I thought I’d write down my thoughts on the topic. A ‘view from the field’, if you like.

HP announced that they were buying Autonomy, thinking of selling off the PSG (Personal Systems Group) and were killing their new tablet device, the TouchPad. From my position of probable ignorance, I find all these decisions odd.

Let’s start with the purchase of Autonomy, a UK company that does ‘corporate search’. Selling this software doubtless involves a lot of pre-sales time, knowledgeable and skilled staff – a consultative, solutions driven approach.

This approach doesn’t exist in the HP I saw. This doesn’t mean that Autonomy won’t carry on being successful as an, erm, autonomous division within HP – I just can’t see anyone in the existing divisions selling it.

So what’s the point of buying Autonomy? They are a successful software company doing something fairly niche. HP are a systems company with almost no software that sells, beyond their systems management suites. I see no fit whatsoever, aside from buying Autonomy being an investment that will yield a return if they are left alone to carry on as normal, albeit with a bit of extra clout behind them now – I just do not see how Autonomy will drive sales of HP kit in any significant way. The situation reminds me of Sun buying MySQL, another strange decision that seemed more of a vanity purchase than anything else. Both acquisitions make me think of a middle aged man buying an expensive electric guitar he can barely play, just because he’s sort of always wanted one and it looks good in the living room.

Autonomy will have to work hard to avoid the traditional acquisition path –

– Exciting, nimble company that does cool stuff gets bought by large corporate that doesn’t really know what to do with it.

– Millions of requests for help from sales teams across the world flood in with unqualified, time wasting leads.

– Sales drop as a result.

– The good people start to leave as their souls slowly die, sucked into an interminable round of infuriating processes, badly designed corporate expense claim tools, conference calls, reports and other tedium.

– Charismatic leader who built the company up in the first place leaves his VP position and uses his billions to start up a new, exciting nimble company that does cool stuff.

– The acquirer ends up with some source code, real estate and the people who couldn’t find better jobs elsewhere, as well as some furious customers who see their investment ruined as the product shrivels and dies.

I genuinely wish Autonomy all the best, especially as they are a British success story. I am not optimistic.

So what about the PSG announcement?

I don’t know if there are some legal requirements to announce that you are thinking that you might sell off part of your business. If not, why announce that you might be selling the division off? Can this not be kept quiet until there are more concrete plans? Maybe there are some concrete plans around the corner.

Regardless, an announcement like this is going to hurt business, especially in the Middle East.

Granted, choosing what PCs to buy is not the same as picking, say, your strategic datacentre platform for the next five years. Lots of companies have a variety of PC vendors. Customers like knowing that there is a future for the products they are buying though – any hint of a question mark over a vendor’s future will have Middle East IT managers worried that they are buying something that is not 100% assured and which might cause them issues in the future, technical or administrative. These concerns affect IT managers anywhere, but this region, the Gulf especially, has a particularly conservative set of decision makers who do not want any danger of making a decision today that will make them look bad in the future.

Why sell PSG at all? The general consensus seems to be that it makes money, but not as much money as HP might like.

Selling PSG doesn’t seem to be the answer to this problem. Customers love the fact that HP are able to provide everything from mice and keyboards up to massive mission critical systems. In reality HP function very much as separate companies – PSG don’t really work with the x86 server guys, who don’t work with the Unix guys, who don’t work with the storage guys, who don’t work with the consulting guys. This means a customer can get bombarded with lots of meeting requests from various HP people who all work out of the same office but who have never actually met. I genuinely believe that customers sometimes buy HP as they are simply bombarded by millions of annoying salespeople and a purchase order is the only way to get them out of the office.

The customer is still buying from ‘one HP’, however, even if the different divisions within HP operate very independently. Sell off the PC and laptop business and you have another vendor in front of the customer, with different partners with different interests.

People point to IBM’s sale of Lenovo as an example of how this might successfully be done. Lenovo seems to be doing well, as are IBM. My feeling, being part of the desktop world, is that it makes IBM salespeople’s lives difficult not having a complete portfolio – not impossible, but harder than it would be if their PCs and laptops were still made in house.

I would be asking how to make PSG more profitable. If the margins don’t get anyone excited, how can we increase those margins? I think there are some clear areas where PSG could be made more profitable, so it can be kept part of HP proper, with the benefits that entails for HP and HP customers and partners.

The concept of ‘value add’ has been a running joke between me and friends for a long time now. It’s a cliche that is constantly trotted out. The usual irony is that what people call ‘value add’ is often referring to the basic value that a product or service brings. The ‘value add’ should be some extra bits that make the basic product or service more compelling.

PSG should start delivering some ‘value add’ in the true sense of the word.

From where I sit, PSG’s value is that they have what corporate customers need, it is in stock, a bit dull (a good thing in corporate IT), but does the job and is well priced. PSG do this extremely well. I found it very interesting to see how the business of selling boxes worked. The colleagues I worked with were paid to sell boxes and they did it brilliantly.

Shifting boxes does not usually mean high margins and PSG deliver near zero value add that might increase those margins.

Everything was driven by what the customer asked for, with very little guidance going on. There was near zero input in terms of advice around which models were better, near zero focus on how customers might manage the boxes sold, no providing services around assessing a customer’s business requirements, etc.

The result is that a customer would buy 5,000 units of a current mid-range PC, demanding that HP meet the specs they had decided on. An ideal situation with higher margins for HP would involve some consultative selling. That would have meant the customer would keep his price per unit the same, but buy, for example, 3,000 lower end PCs for users who didn’t need the power, 1,000 thin clients for his call centre, 1,000 workstations for his users who needed more number crunching, along with some installation and management services.

I was part of the ‘value team’ for my region. We focused on selling the higher margin thin clients, workstations and point of sale devices that had higher margins. Those higher margins obviously went towards a more profitable division. They could also be used to subsidise key projects where commodity PC pricing meant margins were low or negative.

Teams like ours were definitely a step in the right direction, but I felt we were fairly unique in HP in general, as well as up against a culture of box shifting. I was responsible for thin clients, a sales cycle that usually takes six to nine months and involves selling not just the device that goes on the desk, but defining a number of different requirements along the way. I was paid on thin clients, but needed to help sell all the bits inbetween, whether they were HP products or not. My take on things was that we as HP had to own the total solution, show we knew what we were talking about and make sure that we drove things forward rather than have to rely on other vendors to help us. This was the approach that helped me and colleagues be very successful at Sun when selling thin clients.

Doing this at HP proved to be quite tough. To be fair, I made some progress and had good support from my boss, but it was harder than it should have been. I was astonished to hear statements from salespeople that ‘their customer had not requested thin clients’. I then astonished them by saying ‘I don’t care what the customer wants’. Of course, I cared very much what the customer wanted – the point I was always trying to make was that a customer who has not been told about the solutions you sell is not going to ask to buy them from you.

The PSG approach I saw would never have sold any PCs back in 1981. They would have returned from customer visits saying ‘the customer requested some more typewriters’.

One of the key things that is driving new PC sales over the coming months is customers migrating from Windows XP to Windows 7. This often involves buying new hardware. If you have large installations or want to manage things properly regardless of the size of your userbase, this migration will also involve using various Microsoft or third party tools to deploy, patch and generally manage all these PCs.

Most customers need help with all this.

HP had some services built around Windows 7 migration, but they were sold by a different division and were not really suited to our region or to smaller customers.

PSG offered nothing in this space – in Dubai we were trying to put something together that would help customers along their Windows 7 migration path. In return we expected to get services revenue, better knowledge of customers and their future plans, a chance to sell our higher margin ‘value products’ rather than yet another tranche of mid-range PCs, etc, etc.

Another problem, which we were making progress with but which seemed endemic all over the place, was a lack of co-operation between PSG and the server teams. Thin client sales involves servers and storage, but the different divisions didn’t really seem to work together at all.

So, in summary, if HP want to improve PSG margins when selling to corporate customers, they need a more consultative approach to selling, they need to kick the different divisions up the bottom and force them to work together and they need to compensate the sales people in a way that helps encourage them to be less reactive and more involved with being a real vendor who helps a customer drive his IT strategy, rather than just reacting to ‘requests’. Selling PSG will cost money and time and leave HP with a gaping hole in their product line and their key value proposition of being able to deliver everything a customer needs from top to toe.

I can understand HP selling their consumer PC and laptop division, however. Tiny margins, little opportunity to improve margins with ‘value added’ services and so on.

I upset some of my HP colleagues on a couple of occasions, by openly stating what I think is clearly the truth. In terms of their PC and laptop products, HP make boring kit that is unlikely to set the consumer world alight. Their corporate kit is equally boring. HP’s value proposition is that they have what you need, it’s well put together, well priced and is in stock via a large number of partners.

That’s it – dull kit, but it does what’s needed.

There is nothing wrong with this, at least in the corporate world – the PSG division that sells PC and laptops does this very well. As I’ve mentioned already, my colleagues were selling well and meeting their targets. A travelling salesman’s laptop or an accountant’s PC doesn’t need to look cool, it just needs to work, have a good warranty and be well priced.

The colleagues I upset seemed to think that HP’s laptop and PC range was exciting in some way, whereas I thought it wasn’t. I had a couple of conversations about why people bought Apple products – one senior HP colleague in particular couldn’t understand why anyone would buy an Apple laptop when the HP equivalent cost a bit less and had ‘a larger SATA drive’. This thinking appeared to be fairly dominant and showed to me that there was little understanding of how to make consumer kit that people liked.

The way HP display their wares, in the Middle East at least, encourages customers just to buy on price and specs. Tens of models, crammed together, screensavers displaying Ghz and RAM and disk sizes. Two inches away, a similar display from Asus, another from Acer and so on. The Apple section, meanwhile, has three models laid out on a nice white table with plenty of space. Specs are available, but aren’t displayed on the screen itself, leaving you to appreciate this lovely box that’s in front of you. Yes, it’s more expensive, but the whole sales experience encourages you to buy the MacBook, even if the grey HP thing in the same shop costs less and has a bigger SATA drive.

So ditch the consumer stuff. I don’t have the figures in front of me, so maybe I am doing this division a disservice, but if you don’t like low margins and there is little way of improving what is now a total commodity market, maybe it’s best to get out of it. The corporate world could clearly have some changes made that would improve profitability.

This brings me to the HP TouchPad.

I am amazed that HP just cancelled this product so quickly. Before I left there were still lots of rousing emails being sent by chief execs about how the TouchPad was going to revolutionise computing. As The Register mentioned in one article, HP’s PR company were still arranging the shipment of demo units to journalists on the day HP announced they were ditching the things.

I always felt that HP were being a bit unrealistic with the TouchPad. What was the likelihood of HP creating something as cool as the iPad? Probably near zero. Why even set yourself a goal like that? You are doomed to failure. My prediction was that the TouchPad would be ‘a bit crap compared to the iPad, but it’d be in stock, reasonably priced and would pretty much do what was needed’.

Aside from initially being overpriced, that’s exactly what it was – and there’s nothing wrong with that.

Consumers were always going to be unlikely to buy the TouchPad. Corporate were surely the target market. The average IT manager has management and employees badgering them about tablet computers. There are mixed reasons for this – some people just want a free iPad from work, others could genuinely benefit from the form factor of what The Register has wonderfully christened ‘fondle slabs’. IT Managers also have the problem of people bringing in their own iPads and Galaxies and demanding that they be able to use them.

HP are (or were) perfectly positioned to clean up the corporate tablet sector. Customers buy lots of stuff from HP already – here’s another device that does what’s required, along with the tools a corporation would need to embed them into their current set ups. The only criticism a user might have of it is that it’s not an iPad. Well, users, just as the IT department gives you boring but functional HP laptops that cost half what a MacBook would, you’d be getting a boring but functional tablet that would also be well priced when corporate pricing comes into play. Unfortunately, it’s not an IT department’s job to give us all the toys we’d all like to have.

The TouchPad was the perfect fondle slab to use to keep users happy and to provide a tablet when a TouchPad type device was genuinely needed.

The TouchPad has gone though. As has a lot of management credibility and the trust of employees who now look like idiots after having talked the device up to their customers for several months.

A lot of the corporate messaging at HP reminded me of the last days of Sun. HP’s slogans and statements just didn’t really match what it did well and didn’t seem to resonate with customers who loved HP for its solid kit. Just as Jonathan Schwartz was warbling on about open source and MySQL, something in which the customers who generated the company’s profits generally had little interest, HP was talking about ‘Everybody On’. Everybody On is supposed to be HP’s vision for getting everyone connected. I am not sure who ‘Everybody On’ is supposed to speak to. Consumers don’t think of HP as being a cool company whose message they would take notice of. Corporate customers want boring but reliable kit and do not care about ‘context aware’ connections to the internet.

Maybe I am being naive, but if Sun’s marketing had played more to its strengths, we might still all be there, still happily working for a great company. I wonder where HP is heading?

There’s a damning article here that probably says things more succinctly than I have in this slightly rambling post.

I wish my HP PSG colleagues the best of luck. I really enjoyed working with most of them, but I am quite glad to be out of the commodity business and back in the world of solutions that solve business problems.


2 Responses to “Thoughts on the recent HP news”

  1. yabba Says:

    HP is buying lots of businesses worth billions of dollars which is adding more confusion on their product offerings. EVA’s competing with 3Par themselves, While IBM is selling their old hardware with clarily and confidence, HP is selling new, untested products. In the years to come HP will die!

  2. Jens Says:

    Nice writeup, thanks! Makes me appreciate again to have been getting out of corporate IT twelve years ago… 🙂

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