HP's acts of desperation

Since last week’s huge news about HP I’ve been hoping to write something, but I was traveling and didn’t time to collect my thoughts. Even after five days, the news still doesn’t make sense, other than as the death throes (or at least mortally wounded throes) of a once-great giant.

Yes, HP has serious problems. It’s been unable to find a decent CEO since its founders (NB: Apple, Microsoft). Simultaneously chasing both Dell and IBM, it caught and passed Dell for a prize it no longer wants, while it seems unlikely to ever catch IBM (at least in my lifetime).

The HP board and CEO Léo Apotheker seem incapable of dealing with the current challenges. It has come to having HP’s chairman bad-mouthing Apotheker’s predecessor for “under-investment” in the core business.

But this is only the latest desperate effort in more than a decade of throwing one Hail Mary pass after another. Its $1.2b purchase of Palm and webOS was (as predicted) a major mistake. It allowed the (previously dying) Palm cellphone business to die, and meanwhile the efforts to establish the TouchPad as a viable iPad rival has failed miserably (much like RIM) with Best Buy selling less than 10% of those ordered and HP writing off $1 billion in losses on the webOS hardware business — most of that on the TouchPad.

Yes, a couple of things make sense from the announcements. Yes it’s time to cut the losses on the webOS acquisition (Perhaps claiming it has a future as a consumer embedded OS postpones the inevitable write-down, but competing against a no-royalty embedded Linux will be difficult at best.)

And at some level, the divorce of the low margin PC business from the potentially high margin software/services business has a business logic. Mark Hurd was the right man to run the commodity business while Apotheker prefers higher margin services, and neither was suited to run both together in a single company.

The problem is that the current HP is a conglomerate of the leading commodity PC maker, the leading (increasingly commoditized) printer maker, and a hodgepodge of largely second-tier software and services businesses.

Under Hurd, the company had embraced commoditization — executing on Carly’s Compaq acquisition and doing an exemplary job of competing in commodity markets. The only cost was the heart and soul of Bill and Dave’s company, ripping it out as the company shed workers, perks and the exemplary culture that once inspired Steve Jobs and Steve Wozniak.

Then the HP board panicked over Hurd’s poor judgement and forced him out, replacing the successful commodity numbers weenie with just the opposite: a software guy that was presiding over the dying SAP franchise. Apotheker had not solved SAP’s problems — coasting on the inertia of its once-invincible lock-in rents in the BPR segment — so he was rewarded with the reins of Silicon Valley’s oldest and most storied company.

A completely different CEO meant a completely different strategy, which in turn requires a different portfolio of businesses. (It also requires different competencies up and down the line, which the latest moves pointedly do not address.)

Even if exiting PCs now makes sense, as others have noted HP has completely bungled the planned PC spinout. IBM’s decision to sell its division came as a bolt from the blue with the buyer already announced. Apparently HP shopped the PC business and didn’t get its desired price, so now the uncertainty around the PC division (the born-again Compaq) will cause it to hemorrhage customers and market value until it’s finally dumped.

In the end, I have to lay the current problems on the board, which brought us the infamous spying scandal, melodrama over the last 3 CEO appointments and of course forcing out its best directors, Tom Perkins (of Kleiner Perkins fame) and George Keyworth. As Perkins noted in a 2007 video and his memoir, the board groupthink forced out any dissenting view — which (to further mangle metaphors) is a recipe for marching lockstep over a cliff.

Who’s on the board? Two insiders, three private equity investors, a failed startup technologist turned investor (Mark Andreessen), a former consumer products exec (Meg Whitman), execs of two failing telecom companies, the CEO of a successful software lock-in business, CEO of a major consulting company, chairman of a specialty chemicals business, and Larry Elison’s longtime sidekick (turned nemesis and Kleiner Perkins managing partner).

Oddly, while the board has exemplary gender diversity it lacks the obligatory university professor or president. I suspect Intel benefitted greatly from the advice of longtime director David Yoffie — even if I didn’t always agree with his analysis. (If HP goes looking for an academic, Tim Bresnahan of Stanford has understood the economics of platform businesses longer than anyone.)

Apparently I’m not the only one fed up with the HP board. After the 20% drop in HP stock Friday, fellow Seeking Alpha contributor Vitaliy Katsenelson wrote:

Anger and frustration are the two emotions pulsing through my veins as I write this. HP (HPQ), once the symbol of innovation, is being dismantled by its high-pedigreed board and the CEO of the hour. … [In] the early 2000s, when Carly Fiorina, then CEO of HP, engineered the HP merger with Compaq. … [N]ine years and two CEOs later HP has announced that the PC business, the one it so desperately wanted just a decade ago, is too hard a business and that it will look for ways to get rid of it. Almost in the same breath HP announced that it will kill WebOS devices, a business it acquired in April 2010 for $1 billion; and management, possibly missing the irony in those two announcements, went ahead and announced another acquisition, which this time will for sure transform the company.
…
I don’t need to have a great imagination to envision another conference call in August 2015, where a new CEO decides that the software business is too difficult, and HP needs to come back to its roots (maybe going back to making calculators) and will spin off the software business into a new company, take an enormous charge, and then maybe announce an acquisition that the same highly pedigreed board will rubber-stamp.
…
HP’s stock sold off not because the company disappointed Wall Street but because Wall Street grew tired of the overpriced “must-have” acquisitions. Wall Street has smartened up and assumed that this acquisition, as with many other “transformative” acquisitions, will do nothing of the sort.

I’d like to hope that HP will turn around some day, but I can’t see how to get there from here. It would require an entirely new board, one with more winners than losers and more big company operating experience. HP and its board are too big to be threatened with a hostile takeover, and so will muddle along — acquiring baubles with the shareholders’ checkbook — without a coherent long-term strategy or market niche.

Twitter: we control your redirects

Starting this morning, Twitter seems to have pre-empted all URL-shortening services in favor of t.co for all Tweets sent through its network. I noticed this not only because all the tweets I follow are t.co infested, but also because Tweets I sent this morning shorted via bit.ly were re-shortened via t.co.

This is not exactly what Twitter said it was doing. The most recent (August 5) posting to the developer blog by (“developer advocate”) Taylor Singletary announced:

Beginning August 15th, when a user tweets or sends a direct message containing a URL 20 characters long or greater (the length of URLs wrapped with t.co), the URL will automatically be converted to a t.co-wrapped link. We will eventually wrap all links, regardless of length, but until then there's nothing you need to do to support this change. When we're ready to wrap all links, we'll give you plenty of time and make another announcement.

OK, so it’s 2 days early. But more importantly, the 20-character limit means that effectively all links are being rewritten: bit.ly, lat.ms, nyi.ms. (Note that the “http://” costs everyone 7 characters, whereas “www.” only costs 4)

Interestingly, the tweets are being sent with the t.co, those tweets link to the t.co if you copy the link on the Twitter website, but are being shown using the original URL. So the tweet I sent this morning from @openITstrat looked like this when I sent it:

NYT obit: CCNY prof Daniel McCracken (1930-2011), who wrote best-selling Fortran and Cobol texts http://nyti.ms/rjixBb (I owned both)

but on my client looks like this:

NYT obit: CCNY prof Daniel McCracken (1930-2011), who wrote best-selling Fortran and Cobol texts http://t.co/PpFFjXV (I owned both)

On Twitter.com, it looks like this:

@openITstrat
Joel West
NYT obit: CCNY prof Daniel McCracken (1930-2011), who wrote best-selling Fortran and Cobol texts nyti.ms/rjixBb (I owned both)

with the nyti.ms actually a t.co link if you click on it. (Of course, the website tweets are shown in the extra-ugly “New Twitter” that I fought to avoid for months.)

TechCrunch said that this week would include a test of the new service, but this appears to be no longer a test.

As is common for Web 2.0 companies that use indirect monetization (NB: Google, Facebook), Twitter is being disingenuous as to their reasons for eliminating the customer choice and control over URL links. It’s not about saving 2 characters, and it’s really not about URL security. (The fact that they can remap a URL into a t.co and back shows that they can automatically detect what URL is being linked).

After Twitter announced its plans a year ago, Alistair Croll summarized the real reasons in a posting on the O’Reilly site:

Twitter has been open with its data from the start, and widely available APIs have created a huge variety of applications and fast adoption. But by making their platform so open, Twitter has fewer options for monetization.

The one thing they can do that nobody else can -- because they're the message bus -- is to rewrite tweets in transit. That includes hashtags and URLs. Twitter could turn #coffee into #starbucks. They could replace a big URL with a short one. And that gives them tremendous power.

Twitter recently announced a new feature that makes this a reality. The t.co URL shortener -- similar to those from bit.ly, awe.sm, and tinyURL -- might seem like a relatively small addition to the company's offering. But it's a massive power shift in the world of analytics because now Twitter can measure engagement wherever it happens, across any browser or app. And unlike other URL shorteners, Twitter can force everyone to use their service simply because they control the platform. Your URLs can be shortened (and their engagement tracked by Twitter) whether you like it or not.

In other words, Twitter wants to control all the web analytics for URLs sent via its service, as a way to increase it monetization to support its planned IPO.

Is there some reason why Twitter can’t just admit to this in an honest way, rather than wrap it in a rhetoric of psuedo-customer concern? Is there a shortage of honesty among Web 2.0 companies? (NB: Facebook, Google, etc.)

People know that free services have to be paid for somehow. Unlike Lt. Kaffee, I can handle the truth and I imagine most customers can too.

After 30 years, is the IBM PC reign ending?

Cross-posted from the IT History Society blog.

Thirty years ago, the International Business Machines company introduced its first general-purpose personal computer, the 5150. (The IBM 5100 and DisplayWriter were also personal computing devices, but most people don’t count them as a first.)

Although I have written about August 1981, I would have forgotten about the anniversary except my friend Tom Pfaeffle linked a BBC article on his Facebook account. Most significantly, the article cited a blog posting by Mark Dean, an IBM executive who was there at the beginning:

It’s amazing to me to think that August 12 marks the 30th anniversary of the IBM Personal Computer. The announcement helped launch a phenomenon that changed the way we work, play and communicate. Little did we expect to create an industry that ultimately peaked at more than 300 million unit sales per year. I’m proud that I was one of a dozen IBM engineers who designed the first machine and was fortunate to have lead subsequent IBM PC designs through the 1980s.

What’s grabbing the attention is Dean’s claim that we’re already in the post-PC era:

It may be odd for me to say this, but I’m also proud IBM decided to leave the personal computer business in 2005, selling our PC division to Lenovo. While many in the tech industry questioned IBM’s decision to exit the business at the time, it’s now clear that our company was in the vanguard of the post-PC era.

I, personally, have moved beyond the PC as well. My primary computer now is a tablet. When I helped design the PC, I didn’t think I’d live long enough to witness its decline. But, while PCs will continue to be much-used devices, they’re no longer at the leading edge of computing. They’re going the way of the vacuum tube, typewriter, vinyl records, CRT and incandescent light bulbs.

The remainder of the posting goes on to discuss IBM’s success in the “post-PC era” and his own career trajectory from IBM Research to become CTO for IBM’s Middle East and Africa operations in Dubai.

I wonder if the claims of the post-PC era are a bit premature. I own a tablet too, but I’m writing this on a (Mac) personal computer because it has a bigger screen and a keyboard. It’s possible that we’re heading to the post-Windows, post-Mac era — one where the personal computers have a slightly different form factor but a new (smartphone or tablet) OS.

Still, as Tim Bresnahan and Shane Greenstein established in the late 20th century, computing platforms decline (or die) only when replaced another platform. So the idea that the PC will be replaced by something new is nothing new, but just another round of Schumpeterian revolution that claimed minicomputers and workstations — not to mention the mainframe businesses of the BUNCH.

MetroPCS demonstrates the risks of leapfrog strategies

I was briefly an Android (and MetroPCS) user during the past week, but found the reality of the MetroPCS LTE service (and the Samsung phone) didn’t match the promise.

I got my first digital phone in the late 1990s when I switched from AirTouch to Sprint. I was with Sprint for about 14 years until I quit Sprint in May over high prices and a lousy phone replacement policy. Since late last year I’ve been assuming that I’d switch to MetroPCS (if I were working in San Jose or LA) or Cricket (if I were in San Diego).

I’ve been a particular admirer of MetroPCS, which combined the Cricket (Leap) business model with aggressive price cutting and clever branding to become the 5th largest network owner in the US. (Most importantly, they’ve also pressured the Big Two to be less outrageous in their pricing.) My biggest gripe was their misleading “$40/month” advertising — which (ala Sprint and the other Big Four) is not available to smartphone owners.

When I got the job in LA County I considered the various Android phones on MetroPCS and quickly settled on the Samsung Galaxy Indulge: it was one of their few Android LTE phones, and the only one with a keyboard.

As a result, after settling into my new job and living quarters I decided to give MetroPCS a try. For the past week I was a MetroPCS customer with the Galaxy — until I took it back Tuesday afternoon.

There were several reasons why the reality was worse than the promise.

First, the battery life on the Indulge was truly terrible. The store manager tried to warn me that his friend had problems with the Indulge, but it was even worse than he said. On Monday, I had the phone on in the morning for an hour (with WiFi on), checked email twice and lost half my battery life. Even without making phone calls, there’s no way I’d make it through a whole day. And when I had it plugged into the car adaptor, the phone got very hot — suggesting (as with 2G and 3G) that first generation 4G phones have serious power consumption problems.

The battery life was exacerbated by the need to turn down the screen saver. My most common search experience was the screen went blank (on a 30 second timeout) before I could get the answer to a simple Google search.

But the last straw was the poor LTE coverage. When the phone was in 4G range, it seemed to have good performance. (Other users reported 2.4 mbps, but I never formally measured it). However, it was not in range at my East LA County residence, and at various places on SoCal freeways. It was also (as expected) not in range when roaming to Cricket territory in San Diego. In those cases, it fell back to 1x (which users estimate is under 0.1 mbps).

For me, Metro’s gamble to leapfrog 3G for 4G was a failure, because the price was to fall back to completely useless 2.5G data service. All the other carriers have some sort of 3G coverage which would have been fine for my use case.

In fact, the most useful thing about the exercise was to crystalize my use case for my first post-Treo, post-Symbian smartphone:

• Email — both gmail and Exchange
• Traffic maps
• Web browsing, especially news
• Google searches

That’s about it. Yes, I installed Urban Spoon and Shazam — and my daughter would want to play Angry Birds — but the phone would be perfectly fine without those.

The one frill I tried was the wonderful new music streaming app — Yahoo! Music Radio — which is a partnership with Clear Channel and its Radio.com. I would eagerly install and use the player just for one station — LA’s K-Earth Classics (KRTH HD2) — which plays the 60s oldies that the iconic 101.1 used to play until it switched from boomers to Generation Jones and 70s music.

However, using a phone for music streaming requires good battery life (or a handy power adaptor) and an unlimited data plan. A 56K MP3 stream two hours a day on every weekday would use up 800mb/month of a limited download budget. (MetroPCS only allowed 1 gb/month for its $50 plan).

I considered swapping the Indulge for another phone, but it’s their only Android phone that does LTE. The other Android phones also didn’t have physical keyboards, and my one week MetroPCS trial confirmed my suspicion that a physical keyboard is an absolute must for typing without looking at the screen. The company’s weakness in Android phones is (IMHO) the main problem of their recent financial difficulties.

The story had a happy ending, at least for me. The company’s MetroPromise means you can take the phone back for a full refund if you follow their conditions. I did follow the conditions, and got my money back with just a long wait due to an understaffed local dealer.

Boy Dell was wrong

October 6, 1997, Jai Singh writing in CNET News.com:

When it comes to the state of Apple Computer, everyone has an opinion.
…
[T]he CEO of competitor Dell Computer added his voice to the chorus when asked what could be done to fix the Mac maker. His solution was a drastic one.

"What would I do? I'd shut it down and give the money back to the shareholders," Michael Dell said before a crowd of several thousand IT executives.

August 9, 2011, John Paczkowski writing in All Things Digital:

A new milestone for Apple. The company briefly overtook Exxon Mobil as the world’s most valuable company Tuesday, edging past it after days volatile stock market trading. Earlier today Apple’s market cap rose to $341.5 billion, just above Exxon’s $341.4 billion for a few moments before slipping back down again. …

An astonishing achievement for a company whose market cap bottomed out at $630.9 million back in 1982.

Incidentally, at $341.5 billion, Apple’s market cap is more than twelve times that of Dell’s $26.54 billion.

Why aren’t the Dell shareholders rioting with pitchforks in Round Rock? They’ve lost more than 70% of their investment since January 2000 and more than half of the value of the stock in mid-2008. Meanwhile, Apple stock is 5x its 2008 peak and 14x its price in early 2000.