Sunday, July 31, 2005

Everyone Has An Opinion - HP Drops Apple's iPod

The big news going into the weekend was HP ending its partnership with Apple to sell HP-branded iPods. For obvious reasons, the story got a lot of play in the press with many of the biggest names in consumer tech analysis offering up their thoughts on why the deal went south and what it meant for the two companies.

In the San Francisco Chronicle, former IDC analyst Roger Kay, who recently founded his own shop, Endpoint Technologies Associates, said, "[HP CEO] Mark Hurd is cleaning house. He noticed it wasn't a great deal for HP and they weren't making any money on it."

Financial analyst Shaw Wu from AmTech Research added in the Los Angeles Times that "The Apple deal was a Carly [Fiorina] deal. He's making his own mark on the company." Wu also remarked the timing of the deal caught Silicon Valley by surprise. "HP just weeks ago expanded their relationship with Apple by selling Apple's iPod shuffle player. Now, all of a sudden, they're cutting it off," he said.

The consensus among analysts was that Apple wouldn't be hit hard since HP-branded iPods made up only 5 percent of overall iPod sales, although that figure had climbed to nearly 8 percent the past few months. Even so, NPD analyst Stephen Baker told the LA Times that "The long-term impact on Apple is next to nil. Apple has proven they can get their products out there with no problems."

Back in The Chronicle NPD analyst Ross Rubin noted that HP wouldn't be able to sell a portable music player until August 2006, due to a noncompete clause "in the original deal with Apple that prohibits HP from developing or marketing a music player that's competitive with the iPod."

NPD's Baker thought this wouldn't be an issue in a San Jose Mercury News article. He suggested that developing a MP3 player was probably not in the cards at HP since digital music was not essential to the company. "HP has clearly made a focus on video and imaging that they want to play in. They are allocating resources to the media center, digital entertainment PCs and TVs. I don't know why they necessarily have to have their own [MP3 player],'' opined Baker.

Tim Bajarin of Creative Strategies, who is quoted in The Mercury News as well, provides a very thorough analysis of the news at Technology Pundits. Bajarin believes HP is taking back control of its destiny and doesn't think the non-compete is a big deal "because the next battle will not be for digital music devices but instead, for what we call hand held media players. And at this time, nobody owns this emerging market that has even greater potential then stand alone music players will ever have."

For Bajarin, HP's ace in the hole in this nascent market is another device beginning with a small i and big P - the iPaq. He calls it "a full fledged hand held media platform wrapped in a Windows Pocket PC cloak, that "could easily re-emerge as a consumer product that not only supports music, but also video and 1000’s of Pocket PC applications."

Bajarin cites the Palm LifeDrive as a great example of this new type of mobile media device and
points out that Todd Bradley, Palm’s former CEO, "oversaw the LifeDrive’s development until he left Palm, and is now the Sr. VP of HP’s Personal Systems Group, the part of HP that has the iPaq."

Bajarin still thinks that if and when Apple goes the video iPod route they will do it better than anyone else. However, a window of opportunity currently exists for others to "start moving people and the market buzz from stand-alone music players towards a richer mobile hand held entertainment environment" and get a leg up on Apple.

Bajarin makes good points about the iPaq and its potential to help HP lead the charge in to this new arena. Frankly, I never considered HP and its iPaq as a thought or technology leader in this space. I just lump them in with all the other me-too companies.

Branding and marketing will be HP's biggest challenge as they compete against both established global brands (i.e. Apple, Sony, Nokia, Motorola, Samsung) and Taiwan upstarts like HTC and BenQ, who are designing and producing for other companies and carriers some of the most droolworthy and innovative mobile devices on the market today.

Maybe I've become too jaded about HP's prospects since the Carly era of empty promises, but I just can't see them out marketing Apple or any of the others for that matter...