It’s a good time to deliver bad news in the tech world. As Facebook gobbles up the headlines with its initial public offering no one seems interested in looking beyond the bank balances of founder Mark Zuckerberg and his list of investors from investment banks to rock stars to VCs and other tech companies who just weren’t hip enough to get on the social media gravy train on their own (we’re looking at you, Microsoft). Facebook shares opened at $38 and pushed Zuckerberg into the top 30 richest men in the world off the back of a social network that doesn’t actually make anything but has become a cultural phenomenon. In an era where hype and speculation seems to be valuing tech companies have we reached a stage where being cool the best route to getting, and staying, profitable?
One company that could do with a serious dose of street cred right now would be HP. Still reeling from the disastrous tenure of former CEO Leo Apotheker, his replacement, Meg Whitman has been tasked with a massive restructuring that could see the culling of thousands of jobs.
Despite being CEO for less than a year, Apotheker’s shadow is cast over the coming chaos. He wanted to take HP in a more service-oriented direction, get out of personal devices and focus on enterprise applications. To a company founded on PCs such ideas were heresy. He zigged where shareholders zagged and the market hated it. Apotheker wanted to axe HP’s personal systems group – responsible for about $40 billion in revenue – and move towards a software and services model in the mould of IBM. The thinking went that consumer devices were one-off payments with no lock-in while software and services could be charged on an ongoing basis with greater customer lock-in.
Instead of develop its own software HP sought to acquire other companies already working in the spaces they were interested in. The first step in this direction was the acquisition of enterprise software firm Autonomy for $12 billion. Bought for 10 times its estimated market value, according to website Channelnomics.com Apotheker faced internal pressure from CFO Kathie Lesjak to abort the deal. Rather than seek an incremental approach to the new strategy Apotheker went on a rampage, closing down the recently acquired Palm, ending development of the webOS mobile operating system, discontinuing the nascent TouchPad tablet and mooting a possible exit from devices altogether. By the time the Autonomy deal went through Apotheker was gone, but the carnage he left behind cost shareholders billions and put HP so far behind its hardware rivals that job cuts were inevitable. Now it looks like as many as 30,000 positions (about 10% of the workforce) across the company could go. To continue the train of thought, HP ditched any attempt at cool in favour of an acquisition of a ‘boring’ service and it ended up hurting the bottom line and destroying brand credibility. Any PC company that would willingly get out of smartphone and tablet spaces in the mobile era has it coming. I won’t even mention the shareholder meeting where it was asked why HP doesn’t have a retail presence like Apple.
Still, there is a third breaking story that shows all is not lost in the corporate world of ‘old technology’. IBM announced it is creating 200 jobs in Mulhuddart in Dublin with the opening of a global services hub. Already employing 3,000 in Ireland, IBM successfully exited the consumer space before the current mobile craze and has thrived by focusing on software, services, servers, networking, security, storage systems and semiconductors; all unsexy but entirely necessary stuff. IBM is also immensely profitable, bringing in three times HP’s revenue while maintaining a much lower profile. It’s not cool, but it makes money and, more importantly, it’s stable.
In comparing the above the lesson would seem to be not so much that ‘cool’ leads to profitability but that a strong corporate identity is key. A quick straw poll of companies doing well (Facebook, Google, Apple, Samsung, IBM, Cisco) shows companies with strong products, canny investment and a sense that you know exactly what you’re getting. Those who are underperforming (Sony, HTC, Nokia, HP) suffer from weak corporate identities and watered-down ‘me too’ product lines. If you want to do well, character is all. To thine own self be true etc.
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