A product failure is painful for all involved and much of what happened with Palm and the TouchPad was avoidable. Unfortunately part of the problem was the merger method HP used after acquiring Palm, which failed first with Voodoo PC and is in sharp contrast to what Dell has done successfully. I should point out that HP may have learned this lesson because they are taking a different approach with their Autonomy acquisition. Let’s look at lessons learned this week.
Decades ago I worked for a time as a bodyguard. They guy we were guarding had a famous saying “those that fail to plan, plan to fail”. That appears to apply here.
Failed Acquisition Approach
Integration acquisitions have a better than 80 percent failure rate (overall average is less than 50 percent success) and collateral damage is that products in the pipeline, like the Palm Tablet, can be delayed up to a year. In this case it made the TouchPad, which was clearly designed to compete with the iPad 1, late and it wasn’t competitive with the iPad 2. And, as we now have seen, the acquisition was likely a waste of over $1 billion as a result. HP had taken the same approach with Voodoo PC, a gaming PC company, only to shut it down, costing them millions in lost value.
A company is a fragile thing and most fail. Once you have one that is working, it is unwise to blow it up. Even if it isn’t working well, and Palm wasn’t, a better path is generally to fix what is broken first and then assess whether it can survive the pain of a full on merger. This is kind of like avoiding doing a major invasive surgery on someone who already is very sick; the likelihood of survival goes up if you can address the sickness first.
Audi’s acquisition of Lamborghini, which continues as a successful company and Dell’s acquisition of Alienware both proceeded and outlasted the Voodoo effort. In both cases the acquiring firm strengthened the acquired firm and didn’t integrate it. At Dell the success of this approach is running at 100 percent which is in sharp contrast to the 20 percent success rate of integration mergers. EMC with VMware and RSA also showcase this method and it has become a best practice.
Bad Naming Practice
The TouchPad was late but it was also badly named. Now, to be fair, my one working rule is that “the only thing people will agree on when it comes to a new name is that the person who came up with it is an idiot”. But HP worked extra hard this time. When you are going to do a family of products, or already have one or already own a likely brand, given that it costs about $10M to develop a brand, it is best to take one of several paths. Apple’s use of “i” created a brand methodology that spans almost all (except for AppleTV) of their standalone products. This iTV was a defended brand by someone else.
HP already had TouchSmart funded and could have done TouchSmart Tablet. They had iPaq, which legally could have leveraged the work Apple had done with the iPad. They could have done a line of products –TouchPad, TouchPhone, TouchPhone Nano. But they didn’t and typically one of the rules you follow in naming is to not use a name that is used for something else, which could be confusing. A TouchPad is that square at the bottom of an HP, Dell, Toshiba, Lenovo etc. laptop that you use instead of a mouse.
Instead they had the Palm Pre, the Veer (which means avoid), and the TouchPad. Three very different brands, one that is confusing, and the two new ones would cost $10M each to develop. Recall when Apple came out with a new small iPod, they didn’t rename the family but rather, to leverage existing equity; they called it the Mini, Nano or Shuffle. This lowered Apple’s risk and increased the chance of success.
Picked Fast over Complete
This is a common choice that vendors make and we saw Motorola make the wrong choice when they brought out the Xoom, which got to market before the iPad 2 but largely failed because it didn’t work well. The Xoom has since been fixed but still suffers from that initial impression.
There are four core applications folks want in a new tablet: A good browser, a good productivity package, a good reader, and a good media application. Of the last two the most favored are the Kindle Reader and the Netflix application. The lack of these has plagued Android tablets until just recently. The HP, at launch, didn’t have the last two and still lacks (and likely always will) the Netflix application.
While Steve Jobs often successfully demands a product be both timely and complete, as with the iPhone 5, when he has to make a choice, he generally chooses quality over time. It is hard to argue that this doesn’t work for him and it is likely the TouchPad should have been delayed until it could be more competitive.
To HP’s credit they did market the TouchPad heavily; unfortunately they also initially did it poorly. HP had an Apple trained marketing team but has largely lost these folks to other companies like Lenovo over the years. Their most successful prior campaign was the “The PC is Personal Again” campaign which was especially brilliant because the celebrities worked for free in exchange for being able to direct part of HP’s philanthropic budget. However, if you remember those ads, they focused on what the celebrity/advocate did with the product not on the celebrity.
The early TouchPad ads, like the failed Intel Blue Man Group campaign, focused on the celebrity not the product and were a waste of money. They eventually fixed this when they moved to the Glee spots but they came too close to the cancellation of the product to have much impact.
To be fair, the TouchPad didn’t initially do that much which was part of the problem. However it did have the best charging solution (inductive) of any of the tablets and was likely more secure than the iPad neither of which were heavily marketed.
The preferred corporate strategy apparently driven from the board was a licensing strategy for the WebOS, the HP PC division wanted to sell hardware. As Google is discovering this week and a variety of others from IBM (OS/2) to Nokia (Symbian) have discovered you can’t do both. This conflict likely contributed to the failure because the firm was at cross purposes. This is likely part of why HP pulled the plug so quickly. The head office didn’t like what the PC unit was doing in the first place and so had no tolerance for failure.
HP has a massive problem with leaks and the leak of the Best Buy return is likely what triggered them killing the product. Apple goes to extraordinary lengths to control their messages and image. That company remains a best practice here. HP has been plagued by leaks for nearly a decade now and a number of strategies, and executives, are at risk if these leaks can’t be contained. This is a corporate problem and needs far more focus than it is getting.
Wrapping Up: The HP TouchPad was Designed to Fail
No tablet other than the iPad has been very successful. The iPad showcases a very lucrative market but there isn’t a company that has come close to challenging Apple in it. This is very similar to what happened with the iPod and the same mistakes are being repeated again here. If you are going to run against Apple you need to bring your “A+” game. That’s not what HP brought and their product became a billion dollar embarrassment.
This leaves Amazon as the only vendor that may be able to give Apple a run for the money this year and given the failures of the other products, their success is far from certain.
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President and Principal Analyst, Enderle Group
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