Recent announcements by Google and Hewlett-Packard (HP) have pundits scratching their heads trying to figure out what these companies are trying to do. This is the puzzler: Both companies seem set on pursuing divergent paths.
While software and services giant Google has decided to buy Motorola Mobility, thereby arming itself with thousands of patents and a proven ability to make hardware, HP has said that it is looking to exit all hardware businesses—mobile and PC—and concentrate on software and services.
Both deals are substantial and involve tremendous leaps of faith. Google is spending $12.5 billion on the purchase. HP is looking to shrug off a $40 billion chunk of overall revenue and focus on a vertical that brought in only 3% of that in 2010.What is going on?
One way to look at it is from the perspective of that much-hackneyed favourite of business books and strategic consultants: innovation. It is not hard to see from the current crop of superstar tech businesses that innovation is crucial for companies to enjoy any kind of price premium, market share and valuation.
Google is a case in point. The company is a master at all things search, and makes the vast majority of its revenue and profit from search-related advertising. In that sphere, it is hard to match Google for innovation and execution.
On the other hand, when it comes to mobile devices and platforms, the company has had a much harder time. Google had two choices: Acquire patents, develop a platform to innovate from and bet big, or exit. Google chose to buy Motorola Mobility and stay in the game.
HP has struggled to innovate with its PC business. With little innovation, the margins in the business are wafer thin. The year-long experiment with webOS and mobile devices didn’t work either. Unlike Google, HP seems to have chosen to exit all innovate-or-die businesses. Instead it will focus on software and services, businesses where consumers are less granular, contracts are longer and the impetus to innovate is more forgiving. HP will perhaps never make the margins Apple does, but at least it won’t have to watch its back all the time.
Both companies have made trade-offs between their ability to innovate and their desire for stability. Given the turbulence in technology, Google and HP will not be the last to make some tough choices.
Will the bets made by Google and HP pay off? Tell us at email@example.com