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Saturday, July 30, 2005Fixing a critical mistake: HP finally cancels iPod deal with AppleThis one should come as no surprise: HP has stopped selling iPods.When HP announced in January 2004 that it would resell Apple's iPod in January 2004, I spoke to HP representatives at CES, who told me and another representative of Connected Home Media that HP planned to add WMA compatibility to the iPod. My report about that development was met with doubts from the Mac community, and of course the planned WMA compatibility never happened. That's because Steve Jobs had engineered a deal that precluded HP from adding back the WMA compatibilty, a fact that was then-unknown to the HP engineers who would be working to integrate the portable media player with HP's other products. (iPod components ship to Apple with WMA compatibility built in, a fact few seem to remember.) That was a smart move for Apple, which wanted (and still wants) to make its Protected AAC music format the standard. However, it was a bad deal for HP--and for millions of its PC customers--because HP could never make its PC, Media Centers, set-top boxes, PDAs, and other devices interoperate properly with the iPod as a result. All of the devices HP sells are WMA-compatible. Virtually none, however, are compatible with Protected AAC. (HP did add one lame Protected AAC-compatible applicaton to certain Media Center models, but that app runs outside of the normal Media Center environment and is thus uninteresting to customers.) It's clear now that no one at the time had any idea what kind of a one sided deal then-CEO Carly Fiorina had struck with Apple CEO Steve Jobs in order to get the iPod. As I described it at the time, Fiorina had basically sacrificed her company's position in the music business--and HP's customers--for 15 minutes of fame. That move, along with other similar bone-headed decisions, led to her ouster from HP four months ago. New CEO Mark Hurd was reportedly instrumental in cancelling the Apple iPod deal as part of his efforts to get HP back on track. How bad was the deal? According to the AP, part of the agreement states that HP can't sell a competing MP3 player until August 2006. It was virtually impossible for HP to make any money on iPod sales, because of the deal structure that Fiorina agreed to. And HP was (and still is) responsible for honoring the warranties of those iPods it sold ... even though it never made any money on them. The net result is that HP will lose money on the iPod deal. You may also recall that Fiorina held aloft a blue iPod during the January 2004 announcement. There is little doubt that even Fiorina believed, at the time, that HP would be able to do more customizing with the iPod that it was really able to. When the HP iPod shipped months later, it was identical to the Apple version, adding only a laser-engraved HP logo on the back, below the Apple logo. HP instead created iPod tatoos, allowing it to both save face and involve its crucial printer business. Duped? You bet they were. But as I reported last year, HP had planned to do so much more with the iPod. They just didn't realize that they had made a one-sided deal with the devil. [ Posted at 10:12 AM | Permalink ]
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