HPs misstep shows risks in big ideas

Written by New York Times | Updated: Nov 23 2012, 09:30am hrs
When Hewlett-Packard (HP) spent roughly $10 billion on the software company Autonomy, it thought it was buying a slice of the future investing in the hot trend of big data. But the deal turned out to be a debacle, and not only because HP wrote down $5 billion of the purchase.

The ill-fated marriage of the companies is a lesson for HP and other older technology giants as they throw billions at supposedly game-changing acquisitions, trying to gain a foothold in the future.

In that future, smartphones and tablets, connected to cloud-computing data centres, are the essential tools of work and play.

Companies rent software over the air, rather than buying it with expensive maintenance contracts.

And vast streams of data are continually analysed to find new patterns and make predictions about consumer behaviour and product design. Autonomy, for instance, makes software that can analyse marketing patterns and advise a company on matters like where it should increase marketing resources.

These forces threaten older businesses, like HPs traditional personal computer and data storage products. Other companies, like Oracle, Microsoft and Cisco, also face pressure. They are all trying to buy the future and have the cash to do it.

In July, Microsoft decided to pay $1.2 billion for Yammer, which makes a Facebook-like social media product for the office. Oracle recently paid over $3.4 billion for two small cloud computing companies that provide software for human resources and sales management. Last Sunday, the computer networking giant Cisco agreed to pay $1.2 billion in cash for Meraki, a company that manages the free wireless service at Starbucks and other businesses. There are lots more such deals, from these companies as well as IBM, SAP and others.

The pace of change is so fast that Google, so recently seen as an upstart and a giant killer, in 2011 paid $12.5 billion for Motorola Mobility to supercharge its Android smartphone business, which competes with Apple. Earlier this year, Facebook spent $750 million on Instagram so it wouldnt miss the next thing in social media. But identifying the next big thing can be difficult, said Jeffrey Sonnenfeld, a professor of management at Yale University. Likely as not, he said, deals like the one for Autonomy have maybe a 40% success, 60% failure rate.

In a demonstration of the Autonomy product last month, HP appeared to have addressed some of those issues, but others remained. An application to help figure out what to pay for Web ads initially failed to work, then delivered results that appeared similar to those of several other search products.

Meg Whitman-led HP has accused Autonomy of improperly accounting for much of its sales in the years before HP bought the company last year. It took a $5 billion noncash charge related to the purchase price.