HP: PCs and Tablets, Services, Autonomy and the IBM Playbook

Just last week, HP announced their departure from the consumer PC and tablet business. Note that HP is the biggest-selling PC maker in the world, outselling second-place Dell by about 40% (based on 84 million units sold during the second quarter of 2011, per research firm Gartner).

Why would HP just want to abandon their #1 place in this business, you might ask?

Economics. Big numbers don’t equate to big profits .. the phrase “.. yes, but we’ll make up in volume” is SO 2001 .. where it didn’t make sense when applied to early dot-COM company sales strategies. Suffice to say: the numbers speak volumes .. but of a different sort.

Hardware margins are tiny. Ever since IBM started producing PCs based on commodity hardware components, PC makers are increasing speed, power and value .. all while decreasing prices and profit margins.

IBM abandoned the PC market in the dark ages of 1994, turning instead to services and value-added business strategies. This gets their business model further away from the metal, and into higher-margin territory.

HP took a page from the IBM playbook by ceding this market to Dell, Lenovo, Apple, Acer and a number of smaller PC makers .. and by purchasing the largest software vendor in the UK, Autonomy, rather than building their own.

On Autonomy. They specialize (among other things) in “Meaning Based Computing”, sort of a fancy term for contextual-keyword results, based on the actual meaning of the keyword (hint: autonomy can also mean “stand-alone”, which would certainly skew results). I’m keen on this: discovering the intended meaning of a word and coupling this with user intent will yield significantly better search results. I discussed an early version of this paradigm back in 2005 (this was during the MSN / pre-Bing and Google search wars) in: “Search: MSN and Google, et. al”.

On services? Autonomy has a worldwide services business, with lots and lots of kudos from customers. I won’t dig into that here, but I do see similarities from the IBM playbook  .. except with the addition of a pragmatic ‘buy versus build’ approach.

In the news:

• Paul Thurrott: “By Exiting, Slow-Moving HP Will Help Reshape the PC Market”
• The Economist: “Seismic Shift in Silicon Valley”
• BBC: ”Hewlett-Packard agrees deal to buy Autonomy for £7.1bn”