The TouchPad Fiasco, Or HP Perfects The Art Of The Own Goal

Posted on August 22, 2011

It’s hard to believe if you live in the good old U.S. of A, but soccer is the world’s most popular sport. And there’s a soccer term that’s been stuck in my mind as I’ve watched HP flounder over the last week as to the future of webOS — the “own goal.”

An “own goal” is exactly what it sounds like.  It’s when a player kicks the ball into his or her own team’s goal, thereby scoring a point for the opposition.

In other words, it’s about the dumbest Goddamn thing you can do on a soccer field. Which is a pretty good metaphor for how HP has been managing its mobile portfolio over the last week.

For those who haven’t been following this story, here’s a brief recap…

FAILURE AND ITS DISCONTENTS

In 2009, ailing handheld organizer king Palm tried to reinvent itself by launching a new operating system for mobile devices called “webOS” to compete with Apple’s iPhone.

webOS won acclaim for its easy-to-use interface, but the hardware of the devices Palm sold it on didn’t match the quality of the software, and the turnaround bid failed. After a year Palm put itself, and webOS, up for sale. They were purchased by HP for $1.2 billion.  The world waited to see what HP would do with its new toy.

And waited. And waited. And waited some more.  It took HP almost a year to get a device using webOS on the market (the under-achieving HP Veer), but even as they rolled that first device out HP was telling the world that the real show would be coming with their next device — a tablet, called “TouchPad”, that would take Apple’s iPad head on.

Six months later, the TouchPad finally came out. And it sort of sucked — the kiss of death for a device priced at the same level as the market-defining iPad.  Sales were poor, with Best Buy in particular reportedly being stuck with hundreds of thousands of unsold TouchPads. The TouchPad was shaping up to be an historic lemon.

It was clear to anyone with eyes to see that HP needed to change its webOS strategy.  When the change came, though, its shape proved surprising: in a dramatic shift of priorities, HP abandoned webOS altogether, along with its entire PC division. Overnight, webOS went from the key to HP’s mobile strategy to an item in a yard sale. Driving that point home, HP announced that in order to get rid of those unsold TouchPads it was cutting their prices to fire-sale levels: $99 for the 16GB model, $149 for the 32GB. They might has well have put a sign up in the webOS window: Going out of business. Everything must go.

DEAD MAN WALKING

And that’s when something interesting happened.

As word of the deep discount spread, the TouchPad suddenly became… in demand. Lines started forming at retail stores to snap them up. Online outlets ran out of stock. HP’s own online storefront crashed under the sheer number of people lining up to buy one.

Suddenly everyone wants to take HP’s lemon and start making lemonade.

This seems to have shocked HP, but it shouldn’t be particularly surprising. While it has its issues, the TouchPad is still a fairly competent tablet.  At the original retail price — $499/$599 — “fairly competent” isn’t good enough. But for $99/$149, “fairly competent” starts to look a lot more attractive; especially when the primary competition, the iPad, starts at $300 more.

So: HP cuts its loss and gets some of that unsold inventory off its hands, and consumers get a cheap tablet. Everybody wins, right? Not really. Both ends of that deal could have won substantially more if HP had simply launched the fire sale before discontinuing webOS.

THE FIRST STEP IN SELLING SOMETHING IS TO MAKE IT SEEM TO BE WORTH BUYING

Think about it. HP wants to find somebody who will take webOS off their hands.  Currently they are not likely to get much in exchange for it, because of their flat-footed announcement that webOS is dead.  They’ve been backpedaling all week, insisting that what they meant was that HP webOS devices are dead, but they plan to continue to invest in developing the software itself. Even if that’s what they really meant, though, their communication of that message was so ham-fisted that the world came away with the impression that HP was putting the ecosystem to sleep.

That message is deadly, because it instantly killed whatever remaining interest app developers had in building on webOS.  Nobody’s going to invest time and money building on a dead platform, and that was the message everybody got from HP. So what remained of developer interest — a key ingredient to determining the value of an operating system — vanished overnight.

Now imagine how things would have gone had HP run the fire sale, but simply said nothing about the future of webOS. Seeing the TouchPad discounted that deeply would have been a warning sign to some, but in the absence of a definitive statement from HP it’s not hard to imagine other scenarios that could result in such a move. (Channel-clearing to make way for a new, better device, say.) And developer concerns would be at least partially alleviated by the sudden increase in webOS market share. Suddenly there are hundreds of thousands of new potential customers for them out there! That would merit a closer look, even if the future of the platform seemed cloudy.

And HP could have taken those developments and used them as negotiating levers to get a better price for webOS. Rather than trying to unload a dead system, they’d be selling a system with a lot of new users and a new degree of developer interest. That’s worth more money than a dead system is.

That’s why this whole fiasco feels a bit like an own goal. Strategically, I don’t necessarily think it’s a bad idea for HP to unload webOS; it doesn’t fit with their new focus on enterprise software, and it’s become abundantly clear since the acquisition that they have no idea how to manage and execute on an asset like webOS anyway.  But tactically speaking the way they’ve gone about handling that unloading has been terrible, because it has made it less likely than ever that they’re ever going to find a buyer.  They’ve effectively put a toe tag on the platform, and that limits the range of potential buyers to those with a taste for necrophilia.

All of which is a big part of why HP lost nearly a third of its market capitalization last week. It isn’t so much because of webOS itself — mobile is a tiny part of HP’s overall portfolio — but because of the incompetent, Gang That Couldn’t Shoot Straight quality that HP management has displayed in handling it.

That’s one hell of an own goal.