Lazy Man and Money

How HP Can Still Succeed with webOS/TouchPad

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At the end of August, HP announced they were discontinuing the production of their TouchPad. This lead me to write an article on how, in hindsight, HP could have succeeded With the TouchPad. Note the past tense on that article.

So why am I writing this article today? Ten days ago HP CEO Meg Whitman met with their webOS division of the company. For a company as large as HP it isn’t typical for the CEO to address the employees of such a small division directly. When they announced that they were going to stop making hardware for webOS, the CEO didn’t even tell the manager of the webOS division beforehand. In Meg Whitman’s address to the employees, she essentially said, that HP is still trying to figure out what to do with webOS. They’ve reportedly been looking for a buyer, but it seems that they aren’t getting the offers that they want. It’s not much of a mystery why. The acquiring company would have the same problem that HP has – how do you compete with Apple and Google?

Meg Whitman understands this and reportedly told the employees, “If HP decides to do this [keep webOS], we’re going to do it in a very significant way over a multi-year period.” I’m a huge fan of webOS and consider it the best mobile operating system. Even from that biased perspective, I didn’t really think that HP was serious about keeping webOS and making hardware for it again. However, on Wednesday, HP started probing TouchPad customers for feedback. The article makes a good point that it is very odd for company to ask for feedback on a cancelled product. It made me think, “My previous article doesn’t have be viewed ‘in hindsight’ any more.” However, things are different now than when they first canceled the hardware and hence an updated strategy going forward is necessary. (It’s amazing what a difference 6 weeks makes!)

Let me run through a couple of new challenges:

Amazon Kindle Fire

At $199 these are reportedly flying off the shelves. Amazon’s business strategy seems to be like the old razor and blade model, sell the tablet at as low a cost as possible and collect the profits from people buying books, music, and movies from Amazon. In my previous article, I suggested that HP sell at a loss to build market share, but that was at a time when competing tablets were selling at $399 or more. Now with a popular brand at $199, it isn’t clear that people would opt for a TouchPad, even if it technically vastly superior in every way to the Kindle Fire.

Lack of Phones and Carrier Relationships

HP actually did make a bunch of Pre3s, which was supposed to be the next flagship webOS phone. I see them on Craigslist and Ebay. However, since HP announced they were going to stop making webOS hardware, they never got launched on Verizon or AT&T as planned. I can’t imagine that either of those companies accepting a call from HP saying, “Ha ha, gotcha… we were just kidding about that stopping the phone thing, so let’s continue with our agreement… Kthxbye.

HP has also appeared to have inherited a burned bridge with Sprint from Palm with the lack of sales on the original Pre. There were no indications that HP was even going to offer the Pre3 on Sprint.

Where does HP go from here?

Let’s presume that HP does want to go forward with webOS. (If they don’t, the answer of what do with webOS doesn’t matter much.) HP is going to need a plan. It’s also going to need a lot of that aforementioned money and thinking in terms of multiple years (as Whitman said it would be) is the a good start.

I’d start with my previous plan of releasing the 16GB TouchPad at a new retail price of $299. However, I’d offer the first million people who buy them a $200 instant rebate (effective price: $99). When the first million are sold (at a loss of about $200 million to HP), sell the next 2 million with a $150 instant rebate (effective price: $149). This will cost HP another $300 million. That’s $500 million in losses, but a userbase of around 4 million people (counting the million or TouchPads that were previously sold). I suggested a few more rounds of this until you get to the full retail price of $299 – at that point with perhaps 7 million or more sold. In addition, HP can do this with 32GB versions and add another $50 to all the prices.

As the rebate discounts start to be less attractive, HP needs another draw. After all, it can’t sell a device that is similar in size, weight, screen resolution, etc. as the original iPad forever. Fortunately HP already has its next tablet ready to go. HP has a 7″ TouchPad Go – nearly a dozen prototypes have shown up in people’s hands in PreCentral’s forums. With a 7″ 1024×768 screen it will have more pixels per inch than the iPad 2. It’s got the front (1.3MP) and back (5MP) cameras and real GPS (not cell-phone assisted that require network access, but a full GPS chip like those from Magellan or Tom Tom) for navigation and turn-by-turn directions. Again HP should take a loss on this as well to build market share. However, HP doesn’t need to discount as much as they did with the TouchPad, because they’ve already put some 5 to 7 million webOS tablets out there, which is enough to get developer’s attention.

Finally for tablets, HP needs to get started on a TouchPad 2. I’m sure they went down this path as soon as the iPad 2 came out. They need to throw the kitchen sink at it. If Apple says they won’t do something, HP has to take Ragu’s slogan, “It’s in there!” For example, TouchPads should have external storage via an SD card. Apple doesn’t do it because they want to up-sell people on more expensive devices with greater profit margins. Apple can afford this luxury as the leader – HP can’t as the challenger. In addition HP should bundle its Touchstone technology. This is an inductive charger where you don’t need to plug any wires on a device for it charge. You just set it in its cradle and it charges. This is one of the better features of webOS devices, but HP charges extra for the accessory and many never get to enjoy it. (Incidentally, this is why webOS devices have a plastic instead of metal back to them. People view them as cheaper, but it’s actually necessary for a feature that many never use.) HP could also bundle a gift card for its app store.

With a tablet strategy in place, many will ask about phones. I think HP may be thinking of creating a tablet strategy without a phone strategy. Apple’s iPhone and all the Google Android phones out there are a huge advantage and HP as a challenger can’t ignore that. If all bridges are burned with Sprint, Verizon, and AT&T and they aren’t possible, it is time for HP to call T-Mobile. T-Mobile has been snubbed by Apple and can’t get the iPhone. Analysts are predicting gloomy times with T-Mobile if the merger with AT&T doesn’t happen and they continue to lack the iPhone. Misery loves company and HP and T-Mobile make a great pair.

At the same time, HP should be working to get its devices on smaller MVNOs like Virgin Mobile and Boost. I’m with Virgin Mobile and they have a $35 unlimited data plan and 300 minutes of talk that could tempt a lot of people. Virgin’s biggest downside is that the phone selection is not very good. I would very much love to a Pre3 on a $35 plan – and I think a lot of other people would too.

All this is designed to build market share and build it quickly. HP can’t be thinking about making every device profitable at this point. That could come about in a couple of years. With the market share, HP can explore making webOS work well with their laptops or as a selling point for their printers (webOS devices already work well with HP wireless printers and I’ll probably get one next time so I can print from my TouchPad). With market share comes opportunity.

I realize it’s easy for me to tell HP to spend all this money, but let’s put it in perspective. They spent 1.2 billion to buy Palm and webOS. They spent some 7-10 billion to buy a company called Autonomy that left analysts scratching their heads. The money I outlined would probably cost the company another 2 billion dollars. That’s not a horrific sum considering the value of having one of the top mobile operating systems.

Do you live in Silicon Valley? Do you know someone who does? If so send this article to them and maybe it will get into Ms. Whitman’s hands. Thanks.

Eight Things I Think I Think (and Personal Finance Links)

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  1. Google on the Schedule Today – I think that whenever I get the chance to take advantage of Google’s AdSense team inviting me to review my website 1-on-1, I have to take it. I did it last year and it was excellent.
  2. My Wife’s Take on Invitations – I think that while on the topic of invitations, my wife has an interesting take on them – go to everything you are invited to. I’ve often joked that she’d mow someone’s lawn if invited. I’m starting to come around to her way of thinking on some things. You miss out on 100% of the opportunities that you don’t take.
  3. This Week in HP Touchpad 1 – I think that HP made the first good move in a long time when it fired CEO Leo Apotheker and put Meg Whitman as the CEO. I don’t know if Meg Whitman is the answer, but I do know it wasn’t Apotheker. It’s pretty shocking that HP’s board hired Apotheker without even meeting him. In sharp contrast, I had to interview to run the cash register at Papa Gino’s when I was 16.
  4. This Week in HP Touchpad 2 – I’ve been vocal supporter of HP/Palm webOS and its Touchpad since even before I owned one. I’ve claimed it has been one of the great mobile operating systems in some time. I understand it’s easy for “Lazy Man” to claim such things. Most people don’t know that I used to plug a phone cartridge into a PDA (search for VisorPhone) for my phone 10 years ago, because I knew the smartphone was the wave of the future. I’ve been a developer with two successful mobile start-up companies since then and the market need webOS. Not having it would be like Mozilla pulling the funding for Firebird back in 2004. It is now known as Firefox. I was one of the few people using that at the time and all my friends just said that I should go with the industry de facto standard – Internet Explorer. Today Fireox had blazed a path that inspired Google Chrome and together they’ve provided significant competition to Internet Explorer… which has lead Microsoft to admit that they need to advance Internet Explorer.

    If you don’t believe me, listen to the Mobile editor for ZDNet, James Kendrick as he seems to think it is very important to get support for the Touchpad. The takeaway quote: “The decision to cancel the TouchPad line will go down in history as one of the most ridiculous business decisions ever made.”

  5. Pandora’s New HTML 5 App – I think the new slogan should be, “You don’t need an app for that.” The use of mobile applications (iOS, Android, webOS, etc…) seems like it’s early 90’s and we are using Windows 3.1. Thank you Pandora for blazing the trail.
  6. Red Sox Collapse – I think that the Sox didn’t collapse – they suffered too many injuries. Some say it historically bad and in a lot ways there is. However, it’s hard for any team to compete when Tim Wakefield, who wasn’t one of the top 7 pitchers in the rotation became the 2nd best the Red Sox had. Loved Peter King’s statistic of the Red Sox being 2-18 this month when they don’t score 12 runs. That’s now 2-19.
  7. Patriots Collapse – I think that the Patriots collapse wasn’t as bad as it will be made out to be in Boston. The Patriots had a nice 21-0 lead after a quarter and a half to the Bills and then lost 34-31. The Patriots had just about every bad bounce imaginable and were flagged for about 7,000 penalties. I guess when everything goes wrong, and your injury-plagued team plays close on the road, you can’t be too upset with that, right? (Trying to convince myself…)
  8. Ringer – I think the new Sarah Michelle Geller show on the CW is greatly surpassing my admittedly low expectations. I thought the first episode was disappointing, but it heated up with the second episode. They’ve already had so many twists and turns that it would make a fan of 24 dizzy.

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Hindsight View: How HP Could Have Succeeded With the TouchPad

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I realize you are probably little bored about articles on the HP TouchPad. If that’s the case, I’ve got some good news. I think I’m down to only two final ideas for TouchPad articles left in the hopper and this is one of them.

If you are wondering why I keep writing about the TouchPad, it’s simply because I think it’s the most interesting business story in the last ten years. You rarely have a nearly universally critically acclaimed product fail at two companies for entirely different reasons… only to watch it become so extremely popular after it being discontinued, that consumers can’t find it in stock anywhere. People snap up art and music (Nirvana and Michael Jackson come to mind) after the artist dies, but that doesn’t happen with technology very often. Usually, it’s the opposite reaction, if the technology won’t be continued, because don’t want to invest in it.

In fact, the demand has been so strong that earlier today, Reuters had an article with the following quote: “[HP’s Personal Systems Group head Todd Bradley] said the company could resurrect HP’s short-lived TouchPad tablet computer, which was introduced on July 1 before being terminated only about six weeks later.”

That was followed up by HP announcing it will “produce one last run of TouchPads to meet unfulfilled demand“. Of course their next sentence was, “We don’t know exactly when these units will be available or how many we’ll get, and we can’t promise we’ll have enough for everyone.” That leads me to wonder if HP understands the meaning of the phrase “meet unfulfilled demand.”

I got in a conversation with Kosmo from The Soap Boxers about what I thought HP should have done in hindsight with the TouchPad. (By the way, you should read his article on the HP TouchPad Chaos.) I proposed that they should have released the device with the following sales plan:

  • Sell the first million at $99 (16GB) and $149 (32GB). That’s a combined one million – so 400,000 of one and 600,000 of another for example.
  • Sell the 2 million at $149 and $199.
  • Sell the 3 and 4th million at $199 and $249.
  • Sell the 4 through 6th million at $249 and $299.
  • After that it hits full retail price of $299 and $349. There is also an option for an accessory bundle
    (like a Touchstone and a case) or $75 app store credit sold in the $349 and $399 range.

Kosmo correctly pointed out that consumers probably wouldn’t like the constantly raising prices. HP would have to reverse the pricing and say that it starts at $299, but those who act quickly can get it with an instant rebate of $200. That instant rebate would just keeps diminishing as product is sold.

Sure some consumers might not like the idea of paying more because they bought it later. I know I’d wouldn’t. It rubs me the wrong way to pay more than I could have. However, I like to think that I’m a little odd in that I run a personal finance blog. I like to think that most people would think the following:

“I’m in the market for a tablet. There are these cheap ones from HP that have gotten a lot of media attention due to them launching with a $99 price. I know there’s are a couple of million out there so this is a platform that people are going to be interested in it. I could pay $199 for this now, or double that for Android tablet, or even more for an Apple iPad2. Gizmodo says, “The TouchPad is the second best tablet you can buy, at any pricepoint.” It seems to be the value for my money.

At this point, you have probably already had the thought, “It’s easy for you to say to sell these at those prices, you aren’t HP losing millions of dollars.” That’s a fair criticism. Let’s look at what the cost to HP would have been in terms of hardware alone. (We can presume there are other costs such as development of the operating system and such, but in HP’s conference call they specifically cited the hardware as being the big cost driving the decision. There’s also the retailer’s margins to consider.) Fortunately, we have details from iSuppli about how much the TouchPad costs to make. Their estimates are $296 for the 16GB and $318 for the 32GB. Using those numbers, I opened up Excel and crunched my estimated numbers. Here’s what it looks like (assuming that consumers buy equal numbers of 16GB and 32GB):

HP TouchPad Business Plan
Click for Larger Image

The top of the spreadsheet illustrates how as the promotion sells, the discounts get fewer and fewer. After selling 3 million of the 16GB and 3 million of the 32GB TouchPads (6 million total), HP would have lost a whopping $548 million dollars. Is that number so large though? They paid 1.2 billion for Palm. The day HP announced they were getting out the hardware market, their stock dropped $12 billion dollars. That same day they bought Autonomy for what was between 7 and 10 billion dollars.

The most interesting thing to me is the next line after the losses. This is the line when the product sells at the retail price of $299 and $349. At this price point, HP actually makes $34 per device sold. It’s not big money, especially considering the other costs (software development, retailers, etc.) that we glanced over. In fact, they are probably still losing money at these points.

However, what they’ve done is got the device in 6 million people’s hands. They would have been able to do with very little advertising costs. The of the $99 tablet is still keeping it in the market. Also at a price point of $299 and $349, it would still be the second best tablet (Gizmodo’s words) at a price that is just over half of the best tablet. The 6 million people are going to want accessories (cases, keyboards, Touchstones) and apps, both of which are higher margin products. They aren’t going to sell enough to make it profitable. It’s a failure right?

No, at this point, HP would unleash the secret weapon, the TouchPad 2 (or TouchPad Pro, or whatever). The IPad 2 cost of materials back in March was around $325. Presumably HP could do something similar for around $310, presuming component costs go down a little in the last 5-6 months and sell at a $399. This may be asking a little much and I’m guessing that those who bought $99 TouchPads aren’t going to quickly upgrade to a $399 tablet. To justify the $399 price, I think you give people something they want, but Apple won’t give them – an SD slot so that they can add as many movies as they want without having to buy a whole new device. You’d have to give them something else, like a faster processor while making it thinner and lighter. This device should hopefully make around $80 a sale, which would likely give HP a profitable product.

I think one of HP’s biggest mistakes was thinking that it walk into the tablet market and just compete with Apple and Google when those two companies have a large installed base, years of advertising, and a ton of buzz. HP needed to get that mind-share, and I think putting aside a billion or two should have been budgeted right from the beginning to accomplish the task.

Let me know what you think of this idea in the comments. In the meantime, I’ve got a FedEx truck to stalk. My TouchPads should be just outside any minute now…

[Update: I was joking about stalking the FedEx truck, but it came ten minutes after publishing this post. Well played, FedEx. Well played.]

HP Touchpad: A Practical, Smart Buy?

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Every now and again, I like to write about technology. Truth be told, I was interested in technology far before I got interested in personal finance… and I raiding my mom’s Kiplinger’s in middle school – perhaps even in elementary school. Today, I’d like to talk about the HP Touchpad, a new tablet computer in the mold of an iPad. If you’ve been reading the weekend roundups around here the last few weeks, you know that it’s been on my mind. Prior that, I’ve been writing about my love affair with the Palm Pre for the last two years. The Palm Pre and the HP Touchpad both use the same operating system, which I (and many technology analysts) consider it the best out there. Unfortunately, you probably have never used it since neither Palm nor HP have put together a marketing campaign that compares with Apple’s or Google’s and they’ve never had a heavyweight partner like AT&T and Verizon pushing their product like those two companies.

I’ve been eying the Touchpad for months. However, I’ve found myself having the same feelings as I had when Apple announce the iPad. It’s very cool, but in a lot of ways, it’s a toy without a purpose. I typically have my laptop near me at home and when I’m out a smartphone does the job. If I had a lot of one-on-one meetings, I could see using a tablet to open up a page or two, or use it to illustrate something that I’m selling. Could it replace my laptop in the living room? For many people it probably could. For me, as a blogger, I have my doubts about using anything without a real keyboard.

HP Touchpad as a Dedicated Blogging Computer?

Those doubts have started to shift. I’m starting to think that the HP Touchpad would be an ideal blogging platform. My mind started to change when I saw this set-up from Joshua Topolsky, the former editor of Engadget:

The Zen of HP Touchpad, HP Touchstone, and HP Keyboard

In the picture you have the HP Touchpad, the keyboard and the HP Touchstone. The HP Touchstone is the hardest to see, but it’s what’s holding it up at a good viewing angle. By just sitting on the stand, no plugging in of any cords, the tablet charges. If the keyboard wasn’t there, you might think it was a photo picture frame (and it can do that). With only one cord, it’s the kind of technology that my wife would love. (I can’t even begin to count the cords around our television – it’s a mess).

Shortly after that, I saw this official WordPress webOS application and video:

Lazy Man and Money is run by WordPress and I have to say that the demo is extremely compelling. And I’m not saying that just because I want the voice-over guy to read me bedtime stories at night.

One of the difficulties I have with blogging is distraction. I could see creating a blogging nook where I could take the Touchpad and keyboard and get down to business. No longer would I be reading the 157th article about how Albert Haynesworth and Chad Ochocinco are going to work out in the Patriots locker room. (At least that’s the theory.) This concept may be the final thing I need to push me to buy it.

Is the HP Touchpad a Good Value

Value is always a difficult thing to pin down. A good value for me may not represent a good value for you (the exception I believe is MonaVie – a bad value for everyone). In the case of the Touchpad, I might be able to make a financial case for buying one. It may be a bit of a stretch, and there’s at least an 92% chance that I’m trying to convince myself here. I’ll let you be the judge.

The HP Touchpad was released at the beginning of the month for $499 for the 16GB version and $599 for the 32GB version. Those prices were little steep for my tastes. I figured I could justify $100 of the price just for the dedicated blogging platform. Unfortunately, that requires buying the keyboard and Touchstone, which together are around $120 in addition to the Touchpad itself.

Then I noticed that with the Touchpad you get a 50GB Box.net account free for life. Box.net customers pay $20 a month for that level service. If was interested in that service (and on some level I am), the Touchpad would pay for itself in a little over two years. If you are a Box.net customer and plan on continuing to be one for the next couple of years, you might as well collect a free Touchpad. Maybe you can sell it to someone who doesn’t care about the Box.net account and collect the service for life – for the difference in price of what you buy and sell the Touchpad at.

The next “deal” came directly from HP themselves. This “deal” was for current Palm Pre owners. HP had promised that the Pre would be upgradable to the newest version operating system, but when they started dealing with carriers or limited resources, realized they couldn’t deliver on that promise. To “make it right” (their words), they offered $50 off of the 32GB Touchpad. I’m never one to look a gift horse in the mouth, but when you break down the difference in cost of a 16GB and a 32GB it comes to $22. The devices themselves are exactly the same except for the 32GB memory chip is $22 more than the 16GB chip. When people buy a 32GB Touchpad vs. a 16GB Touchpad at the $100 retail difference, HP collects $78 extra dollars. HP, in offering this “deal”, would still be making $28 by upselling the customers who take advantage of it. If you wanted a deal on new webOS phone or don’t need the 32GB version, you don’t get anything… oh and this “deal” expires at the end of the month.

If you couldn’t tell I wasn’t happy with that offer. On one hand, I have to appreciate the effort to turn a negative into a positive. On the other other hand, I think enough people saw through the trick that HP lost even more goodwill with the deal than if they simply didn’t offer it at all. I think it should be studied in business schools for decades. (It deserved its own article here, but hey, I can’t devote too many articles to the HP webOS, right?)

Next, I decided to look around and see if I could buy a Touchpad cheaper than the retail prices of $499 and $599 that it launched at just 28 days ago. After a couple of weeks, Amazon offered a $489 and $579 prices, a small savings. Today, I’ve noticed that you can save $50 on each on Amazon putting them at $449 and $549. I could stack that $50 from the deal above (because I still have my Palm Pre) and get those prices for $449 and $499. It’s pretty nice to save $100 in less than a month on a product.

However, I’ve recently been looking on Ebay for HP Touchpads and I’ve seen new 16GB go for as low as $380 and 32GB go for as low as $415 – both listed as brand new. Those are bare bottom prices (as of the last few days), but I think with a little patience you may be able to get close to those percentage – maybe pay 5% more to get it quicker if necessary.

At $380, the HP Touchpad is getting pretty tempting for me. As with most larger purchases, I’m going to let this sit and stew a bit, maybe revisit next month. Perhaps a back-to-school special or the cheaper prices on Amazon will cause a trickle effect on Ebay.

What do you think? Do you have a tablet? Do you use it? Let me know in the comments.