Saturday, July 30, 2005

HP = The Most Confusing Ally Apple Has Ever Had: Perspective On The iPod From A Former HP Rep

Photo - courtesy iLounge

As reported by MacMinute:

HP to stop selling iPods July 29, 2005 - The Wall Street Journal today reported that Hewlett-Packard has decided to stop selling its branded iPods. Apple spokeswoman Katie Cotton said, "They've decided that reselling iPods doesn't fit with their company's current digital media strategy.". HP will phase out its iPod sales immediately.

Since the shakeup at Hewlett Packard over Carly Fiorina's resignation, a lot of restructuring has been going on.

- First, there were the layoffs. I can say with almost 100% certainty this was very closely related to the immense payoff Fiorina received from HP. A restructuring of the marketing department was going on just before Fiorina's departure, but I am inclined to believe, she was already on her way out. The layoffs and restructuring prior to her departure were simply precursory. [A LITTLE OFF TOPIC] I would like to add my two cents worth. Almost all of Corporate America is bloated at the moment. They are inundated with the slacking workers that average about 60% of a day's work - that workers use to produce. There's personal email, extended lunch breaks, tardiness, leaving early, and a number of other factors contributing the the decay of the corporate giants at the moment.

- Second, there has been a good bit of restructuring of HP's camera and printing units. Thank goodness. Companies are wise to diversify, but some companies try too much to be "everything" companies - in a corporate environment this can really draw the company out of touch with its buyers - as there is too broad of a demographic to appeal to.

- Third, HP has dropped the iPod. I'm not so sure what motivated this move; but I can provide a few details behind it:

  • HP had almost zero R&D costs or channel distribution costs.

  • The iPod DID fit quite nicely into the "HP strategy" - it provided them a chance to tie the most successful product IN HISTORY to their own - something no other PC maker can claim.

  • It also brought people to the channels where HP products were sold. The iPod is the hottest, most visible retail product EVER - having the iPod at Walmart, Radio Shack, and other HP channels was a huge traffic draw.

  • HP had a 5% marketshare of all iPods sold. That may seem small. However, in the last quarter iPods sold 6.1 million units - that equals 305,000 units and $9.15 MILLION in profits! I seriously doubt HP makes this kind of profit on all it's lines.

  • The HP iPod, in a small way, added confirmation of the iPod's PC compatibility and support. A number of people thought the Apple logo meant Apple compatible only. (You'd be surprised!)

Of course this is contrary to Paul Thurrott's expert opinion:

How bad was the deal? According to the AP, part of the agreement states that HP can't sell a competing MP3 player until August 2006. It was virtually impossible for HP to make any money on iPod sales, because of the deal structure that Fiorina agreed to. And HP was (and still is) responsible for honoring the warranties of those iPods it sold ... even though it never made any money on them. The net result is that HP will lose money on the iPod deal. You may also recall that Fiorina held aloft a blue iPod during the January 2004 announcement. There is little doubt that even Fiorina believed, at the time, that HP would be able to do more customizing with the iPod that it was really able to. When the HP iPod shipped months later, it was identical to the Apple version, adding only a laser-engraved HP logo on the back, below the Apple logo. HP instead created iPod tatoos, allowing it to both save face and involve its crucial printer business.

[NOTE: Paul Thurrott is often compared to the likes of Bill Palmer & John C. Dvorak concerning his opinions in the Macintosh Universe.]

Does HP enjoy their on again, off again relationship with Apple?

HP produced the last of the Apple's branded serial printers - the 4100 & 4500. After these printers were produced; HP only created one more serial printer for the Apple market over the next 2 years - the 895CSE.

HP picked up support again for Apple products with Steve Jobs return and the advent of USB on iMacs.

Up until 10.3, not all HP printers had Macintosh drivers. (Such as low end laser printers)

It's pretty much the same story with scanners - following the same early 90's partnership with SCSI based scanners, mid 90's break, late 90's partnership with USB scanners and now almost full seamless product lines comingling with macs and PCs alike.

The real benefit to the Apple HP partnership was Apple's loyal fan base. I think the iPod relationship may have had some small meaning to Apple user's perception of HP as a partner. With high double digit growth and significant gains in Apple market share - does HP really want a half hearted relationship with Apple?

The Macrumors forum about this topic brought up the possibility of HP iPods being collectible.

I guess I'll have a collectors item in about 5 years now.

Jackwhispers response:

This is exactly what I was thinking. I've also thought the 1st gen iPods would be collectible one day.

This is going to make the HP shuffle an INSTANT collectible - go get em now at SAM'S.

I don't think this is a big deal to distribution as Walmart AND Radio Shack have both picked up Apple branded iPods.

I think it would be disasterous for HP to pick up selling PCs with Mac OS X and then drop them as if they were a passing trend or the day of contract end .

[UPDATE] There is a great commentary from a former HP Rep in the comments. Please take a look!



Middle-agedman said...

As a former HP retail representative, let me share my thoughts on the "failed" partnership HP had with Apple. I personally was very enthusiastic about the move HP made here. I thought it had a TON of potential. Here are the reasons I thought it did poorly saleswise for HP:
Not enough differentiation. As mentioned in the article, I think people thought that the HP iPod would have more of an HP-branded look with the blue and silver colors instead of the white color. I think both HP and Apple would have benefitted significantly from this. There were not any significant differences between the HP and the Apple version of the iPod but there were some:the HP version had a longer warranty than the Apple version at first. Second, the HP version would have been supported by HP Support Personnel who undoubtedly understood more about PCs than the Windows group at Apple and there were probably a LOT more of them as well. Third, there were a lot of people that saw a white iPod and just assumed that it was Apple only in compatibility. Knowing that it was an HP-branded product would have indicated solid PC compatibility.
Not enough promotion. For whatever reason, HP chose NOT to actively promote the iPod on a national basis except for about one month. I noticed that sales shot up significantly when they placed a knowledgeable representative in a store to promote the HP iPod.
The CompUSA factor. There are a lot of reasons to dislike the experience at CompUSA. This was one of them. The Apple Store representatives actively undermined sales of the HP iPod at CompUSA by steering PC customers away from the HP iPod to the Apple iPod. when I say actively, I mean that they bribed store employees, gave customers misinformation, and simply led customers from the HP display to the Apple display. The HP alliance was very helpful to Apple and Apple should have instructed its CompUSA Apple Store employees NOT to undermine HP iPod sales.
Not enough education. HP should have instructed all of its marketing representatives to actively educate retail store employees about the benefits of selling the HP iPod. When I personally took it upon myself to do so, it made a HUGE difference.
Not enough time. There has not been nearly enough time for HP to decide that this was a product that wasn't working for them. As JW mentioned, they had zero or minimal R&D and distribution costs in carrying this product. Office Depot and other accounts were just starting to carry it. Radio Shack was doing reasonably well with it. This is a knee-jerk reaction from HP's new CEO as have been many of the cost-cutting measures he has brought to bear at HP.

In short, HP is making the statement that the iPod doesn't fit into their media strategy because they don't want to admit that they dropped the ball on almost every aspect of this joint venture. Come on, HP--what product "does" fit into your media strategy? Creative's Muvo from four year ago? Please. There is no better media product in its category than the iPod. Period. It is just a lot of corporate-speak to detract from the real issues.

FYT said...

I worked with Marketsource (HP's hired marketing firm)to help promote the HP iPod in Circuit City stores last Christmas.

It seemed to me HP was able to use their channel distribution expertise to get iPods more quickly into the stores.

Oft times, the Apple iPod would be sold out ... selling out of Minis and low ends would often help sell the high end.

People really liked the tattoos too after showing them to them and giving away a few of the ones they had for demo.

Anonymous said...

I see this as a sign that HP might leave the PC business.

I wish the printer maker would integrate its printing and imaging technology into its PC products as Sony has with its video technology into its PC products.

Like many of the analysts back then, I believe that buying Compaq was a bad idea for HP. If the company does eventually sell off its PC business, its action would only further prove that point.

God bless HP.

George Lien

FYT said...

There actually was discussion about two months ago that HP was selling their PC business to Acer - or at least in discussion with them to do so.

See this here:

Anonymous said...

I think Buzmania has most of the tactical reasons why HP might've had problems/concerns but I think the overall thrust was that they were riding the coat-tails. At a company as proud as HP, that was just hard to overcome - especially since Apple was/is still consider some bratty company while they were a serious scientic technology company. What also didn't help was (as buzmania points out) that there was no difference between the ipods other than an engraving like Apple didn't trust them to bring anything to the table. It also brought no additional cachet or buzz to HP since Apple was pretty much branded the iPod company. It also created problems with their home media PC and inability to integrate itunes and possible AAC M4p purchases into that whole protocol. I don't think the waranty issue was a major sticking point and with the battery problem resolved, there's hardly any other moving parts other than a HDD failure and none has surfaced on the Apple side.

For Apple, it also proved to be unsatifying - what sounded like a good plan when they started negotations became harder to swallow since the ipods were flying out the door - they were eyeing the amount HP was taking.