Duane covered a lot of territory in his recent post. I disagree with several of his analogies and conclusions. But for purposes of this post I would like to concentrate on comment #2. This is exactly the kind of poor thinking that HP is in the grips of right now and why the company is getting deeper into trouble by raising its exposure to commodity products. Too many people believe these arguments to be a universal truth (applied out of context). By the way, Duane, while you mentioned being busy migrating you neglected to mention what kinds of applications you are migrating and the strategy you are using (Windows, Linux, etc.) -- I think we would all be interested in this, especially since you believe that "most of us" are busy doing it too. On Sun, 7 Apr 2002 07:25:55 -0700, Duane Percox <[log in to unmask]> wrote: >2. Those who think HP is making a mistake by focusing on commodity systems > are missing the point entirely. There is nothing wrong with being > in a commodity business. Does anyone here have a problem with Proctor > and Gamble? Nestle? Or any other company selling commodity products? Yes, there is nothing wrong with being in a commodity business in an industry that has no or slow technological movement. Your food and soap examples are not likely to require large amounts of expensive R&D to stay ahead of competition. These are stable businesses where little is changing and market share based on advertising and packaging is all important. Unfortunately, it seems to have little relevance when talking about computers and software. Even in the case of low end computers, which are not manufactured by the company selling them (probably outsourced to the same plant where their competitors product is also manufactured), there needs to be some R&D to keep up with changing standards and related technologies. By definition a commodity business is one where your products are not distinguishable from your competitors products, except for the package design they are delivered in. Once the package is thrown away upon consumption, you just have the plain product left with no particular value added features compared to the competition. Commodity products have low margins that cannot support much R&D and other overhead. Success is based primarily on price and volume formulas. This model is very vulnerable to any innovation suddenly introduced in the marketplace by a competitor that can upset the competitive landscape. Food and soap don't have to worry a lot about this, high technology does. > It has been proven that if you are a growth company and want to provide > continued shareholder value you need to own markets to be successful. If > you don't own a market then you always fall behind. You don't have > enough revenue to improve your products enough to catch up. HP is only > applying this basic economic truth to the businesses they operate. Where is this concept "proven" for growth (high technology/computer) companies? UNIVAC was #1 in computers for a while (1950's) -- what happened? They lost focus and did not invest in R&D, so IBM a company that got its start making butcher scales (true) and keypunch equipment (later) and computers (much later) came along and ate their lunch. (Skip ahead to the 1980's). IBM was #1 in PC's for a while -- what happened? Compaq came along (with a cheaper manufacturing and marketing model) and became #1 in PC's for a while -- what happened? Dell came along (with an even cheaper manufacturing and marketing model) and became #1 in PC's (until whatever is next [unlikely to be HP/Compaq for very long] comes along). These are all relevant examples of growth companies in the high technology industry of computers (not food and soap) that "owned" and even created the market. For some reason "ownership" didn't do them a lot of good in the long run -- why? Could it have something to do with management focus and vision, sufficient profit margins to permit further investment (or the lack thereof), competitive innovation? Hewlett-Packard was NOBODY in the computer business in the late 1960's (I know because I was there). This was a company that purchased computers from Digital Equipment to control their instrumentation and testing products. IBM "owned" every part of the computer market except mini- computers. IBM thought that mini's were not legimate computers worth much competition leaving it to the DEC's and HP's of the world. DEC was #1 in mini-computers and "owned" that market, but was eaten by Compaq (giving Compaq horrible, nearly fatal, indigestion), a micro-computer company. Now, how did HP go from NOBODY to the #2 computer manufacturer in the world without "owning" any part of the computer market? The answer was innovation (the HP3000), quality of support and service, and R&D investment that produced the RISC chip years before anyone else had it or understood the importance of it. All of these things were made possible by the higher margins commanded by innovative HP products. Indeed HP's testing and instrumentation business (and reputation) were built on these same concepts. I would also like to briefly mention some of those other titans of market "ownership" in software technology: VisiCalc, Lotus, Wordstar, WordPerfect, Novell, Netscape, etc.. What happened to these "owners"? > The sale doesn't stop at the system. There is support, consulting, etc. > that they are wanting to provide. BTW - the Superdome is NOT a commodity > and they have been selling lots of these. Companies can be commodity > focuses at one end of their product line but not at the other end. Don't > assume an entire commodity play here. True, enterprise installations are fertile markets for support and consulting, but in a world of "me too" operating system environments these can be obtained from lots of sources, not necessarily from HP. Selecting HP for these services requires a confidence in HP's long term vision and commitment to its products. If you don't make much money on the software (OS) or hardware, what's left? Only these services. (This is why Carly wanted to buy the Price Waterhouse consulting arm.) One of HP's big arguments (complaints) about the HP3000 "ecosystem" is that there are too many users that were only "mere owners", and not enough direct "customers" (under service contract). How did that happen? Probably the biggest part of that answer is through lost contact with the customer -- no sales people (unless you are very large indeed). It is true that Superdome is not a commodity item (with sales of about 100 of these so far). Such high end products require heavy sales and software (OS) commitment, whether it is a proprietary HP-UX or a highly customized Linux. Products as expensive as this require a customer confidence in HP's management vision and a reliable commitment by the vendor to its products and customers. Customer loyalty works both ways and is the foundation of the relationship between vendor and customer in mission critical environments. HP has disturbed this foundation, not just with the HP3000 decisions, but more fundamentally with the Compaq purchase and apparent product strategy in their irrational quest for #1 market status at the expense of customer loyalty. This will affect customer decisions throughout the product line from one end to the other. * To join/leave the list, search archives, change list settings, * * etc., please visit http://raven.utc.edu/archives/hp3000-l.html *