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:
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.