Last week’s continued equity market shakeups were made even more volatile by a few headscratchers: Google purchasing Motorola Mobility for USD$12.5 billion (nearly $735 thousand per issued patent held by the company), and HP musing about spinning off its PC manufacturing business and potentially buying Autonomy to become a software and consulting house, an apparent IBM redux. Endless articles and commentaries are focusing on Google’s purchase of MMI, but the more interesting story to me is HP, and how their shift in business model is less about focusing on higher margin lines of business, but rather admitting failure in their purchase of Palm, and more generally, in building sustainable developer ecosystems.
When big companies spend big money on massive acquisitions, they take on huge amounts of explicit, intrinsic, and opportunity risk that only a carefully designed strategy will vindicate. When the stakeholders discuss only the balance sheet terms of deals they agree to, without really understanding the cultures of the external environments they depend upon, there’s a lot of unmitigated risk, and ultimately, a lot of avoidable waste. Arguably, Palm faltered and became an acquisition target for HP not because they had a inferior product or platform, but because they failed to nurture a strong developer ecosystem after Jeff Hawkins and Donna Dubinsky left to form Handspring. When iterations of the Palm OS failed to deliver critical platform feature requests to keep the offering competitive, Palm addressed the problem by releasing webOS, years later, and with a cavalier attitude that they could build a new developer community around the offering without needing to mend their fences with their long-time supporters.
We know what happened there – Palm stumbled, and HP picked up a compelling technology offering in webOS. But HP made the same competitive mistake as Palm – it failed to foster a developer community to propel WebOS forward as the mobile operating system oligarchy was taking shape. It, like Nokia with Symbian, did not appreciate the role of a thriving developer ecosystem in building a mobile brand, nor did they continue to continuously invest into it. Great technologies attract bright developers, who in turn make direct contributions to the ecosystem in the forms of apps, frameworks, and cloud services, and indirect contributions by recommending technologies to ‘the suits’ who invest resources in leveraging them for their own ends. This generates a current of innovation that can become self-sustaining, and this fills out direct to consumer ‘app stores’ with features that intrigue consumers who make the ultimate platform selection through their purchases. Let’s face it, when you walk into a brick and mortar mobile phone store, you’re not confronted by displays that put “smart phones” on one wall, “camera phones” on another, with old-style candy bar phones somewhere in the back – that was so four years ago! Consumers today are targeted with marketing to compel them to choose an ecosystem — Android vs. iOS vs. Windows Mobile 7. The hardware is become less relevant as a purchasing decision, because there’s few physical differentiators other than form factor (which Apple continues to win, hands-down).
Microsoft has understood this concept extremely well for decades, and they embrace their strategy by focusing on delivering excellent tool chains for developing applications that function on platforms (operating systems) they sell. Despite Steve Ballmer’s fanatical espoused enthusiasm on the matter, the company actually does make good on their word on investing in developers who invest in their technology. They virtually give away expensive integrated development environments to secondary and post-secondary schools and create extensive supportive curriculum, documentation, and living communities that attract bright people and encourage other young minds seeking to connect with the brightest of their peers working on their technology.
Microsoft’s not alone in this strategy, but they’re notable for how well they execute it. Apple is one of the only notable exceptions to this process: attracting developers by rapidly building amazing market share. Apple is a force to be reckoned with, for sure, but at the end of the day, “suits” decide to support iOS because of it’s market share, not because their technologists and in-house developers extol the “amazing development experience” of iOS. Nokia tried this and failed. RIM is failing despite having a great market share position, at one time, for a mixture of technology capability and community support reasons.
The lesson here, though, isn’t restricted to the multinational, large-cap platform developers — even small, agile start-ups must quickly understand the importance and formulate strategies for building synergies to succeed. Whether they’re implemented through open source software, direct-to-the-community adoption initiatives, or strategic partnerships between peer companies, small businesses depend upon the rich technological feedback for continous improvement they cannot generate internally due to constrained early-stage resources.
HP, though, doesn’t understand or doesn’t appreciate the “how” of building a real, working platform ecosystem is critical not only for innovative start-ups, but also for large-cap software firms. And though HP may be throwing in the towel for mobile devices, this is a lesson critically important for any software company no matter what their distribution channel is: mobile, tablet, desktop, or enterprise servers. The fact HP doesn’t get it or is too encumbered to act on it, is the biggest threat to HP spinning off their low-margin, but reliable revenue generating manufacturing segment and plugging ahead.
Ballmer should do his good deed for 2011 and ring them up with a tip: It’s all about the developers, stupid!