Why HP’s printers are a lesson for today’s tech leaders

Please use the sharing tools found via the share button at the top or side of articles.

Copying articles to share with others is a breach of FT.com T&Cs and Copyright Policy. Email licensing@ft.com to buy additional rights. Subscribers may share up to 10 or 20 articles per month using the gift article service. More information can be found here.
https://www.ft.com/content/84c847d6-017a-11ea-b7bc-f3fa4e77dd47

Share on LinkedIn (opens new window) Save Richard Waters NOVEMBER 8 2019Print this page76 In tech, nothing lasts forever. But when judged against the frenetic pace at which new businesses rise and fall, some things feel like they come pretty close. HP’s invention of the personal laser printer four decades ago was the culmination of one of the most successful corporate “skunk works” projects ever undertaken. A group of engineers far from HQ came up with a hit product that created a new market. It came complete with a business model, based on making money from follow-on sales of ink cartridges, that proved an even more effective innovation.  The profits from laser printers supported HP for many years, and now look likely to outlast it. Xerox’s unsolicited bid for HP Inc this week, if successful, will finally bring the curtain down on a company that long defined Silicon Valley’s unique approach to innovation — though HP’s printers will go on throwing off cash, this time to help support the huge debt load Xerox plans to take on to buy its much bigger rival.  HP’s phenomenal printer business is instructive for today’s tech leaders. A single hit product or service, if managed well, can turn into an annuity lasting far longer than its creators have a right to expect. But fail to use the profits from today’s cash cow to find the next big thing, and even these have their limits.  In contrast to their Chinese counterparts, which have shot off in every direction in search of new digital markets, the biggest US internet and consumer tech companies have stuck close to what they know best. Google may have dabbled, nearly a decade ago, with social networking, and Facebook with search, but they dropped these profit-sapping exercises to double down on what each does best.  Judged by the standards of any other point in business history, the results have been extraordinary. At Google, search is estimated to make up about 80 per cent of all advertising, putting it on track to become a $100bn business this year. The iPhone was a $165bn business for Apple in 2018, accounting for more than 60 per cent of revenues.  Diversification is a valuable tool for mature companies, or those with a risky or cyclical core business. But a hit tech product or service can last far longer — and carry a company much further — than seemed possible at the outset.  Back in the early days of internet search, Yahoo in some ways seemed a better bet than Google. It looked like remaining a close second in search, and also had a substantial online display advertising business, giving it far more options to offer to advertisers. But Google’s one-trick pony carried the day.  This does not mean that there is not still huge pressure to find the next big thing. Today’s big tech companies, after dabbling for years in side-bets that mostly failed to turn into significant money-earners, have now arrived at the point where this issue has assumed a matter of urgency. There are plenty of failed bets from Silicon Valley’s past to learn from.  Recommended Lex Xerox/HP: printer jamming Profits from HP’s cash cow, for instance, supported a surprising number of attempts at reinvention, all of them ultimately unsuccessful. They included Carly Fiorina’s decision to become a consolidator in a fast-commoditising hardware industry with the $25bn for Compaq Computer, Mark Hurd’s $13.9bn purchase of IT services company EDS, and Léo Apotheker’s disastrous $9bn acquisition of software Autonomy.  Throughout this tortuous saga, the operating profits from imaging and printing never fell below about 40 per cent of the HP group total, at times rising above 70 per cent. It was not enough.  After dabbling with diversification, Big Tech is now moving full-bore into new markets. Amazon, whose venture into cloud computing has turned out to be the one successful side project, has willing imitators in Microsoft (which long rested on its Windows PC monopoly profits) and Google. Apple, meanwhile, has just embarked on the most expensive part of its own attempted services reinvention, including the launch last week of the premium video subscription service, Apple TV+.  Ventures like these risk watering down the very qualities that made them so successful in the first place: diluting their margins, sapping the unity of purpose that comes from pursuing a single, irresistible goal, and leaving a distinct sense that, rather than creating new markets, they are trying to break into existing ones with me-too alternatives to products or services that already exist.

Leave a Reply

Your email address will not be published.