by Anton Shilov
09/06/2011 | 06:24 AM
Our today's interlocutor - Rahul Sood - is a pretty legendary man from the PC industry. Mr. Sood founded VoodooPC, one of the first boutique PC brands in the world, back in 1991, years before many of today's companies that produce high-end hardware or PCs were established.
VoodooPC focused on creation of ultra high-end desktops for gaming or working, but eventually the company started to offer more affordable systems for multimedia to increase its footprint. The firm got acquired back in 2006 by Hewlett-Packard with the aim to leverage the DNA of high-quality Voodoo-branded products onto a wide range of PCs and peripherals.
Unfortunately, not everything went as planned, VoodooPC got dissolved in HP and Mr. Sood decided to leave the company to become a Microsoft employee. But, apparently, HP not only "managed" to absorb Voodoo without leaving a trace, but is also looking forward spinning off its personal systems group (PSG) as a whole. So, today we decided to talk to Rahul Sood to find out, what went wrong with VoodooPC within HP, what problems do PC makers face today and what should a PC company of the new era be like.
X-bit labs: Rahul, thank you very much for talking to us, I am sure our readers will appreciate your answering of our questions.
Rahul Sood: Thanks for the opportunity.
X-bit labs: When HP bought VoodooPC almost five years ago, the latter had a very logical and lean product lineup where each model was aimed at particular use case/customer. At HP, it quickly got disbanded. Why, in your opinion, did this happen?
Rahul Sood: When a company gets acquired it’s absolutely critical that the larger entity maintains the culture and identity of the organization while thoughtfully blending the strategies and visions together. The number one reason strategic acquisitions fail is because there is a lack of patience and they forget about why they came together in the first place. There is nothing more important than patience when it comes to creating and fostering cultures of innovation.
To answer your question, the HP Voodoo strategy was actually quite sound. We were leveraging the Voodoo brand, design, and technology to create a premium product line for HP and Voodoo. We were planning to create beautiful affordable accessories under the Voodoo brand and deliver them around the world to bring awareness to our core product line.
Voodoo Omen (left) and HP BlackBird 002 with VoodooDNA (right)
We created Voodoo ENVY which ultimately became HP ENVY. We re-invented high performance desktops by launching our halo product, HP Blackbird with VoodooDNA, we also created the HP Firebird with Voodoo DNA platform which could have changed the desktop PC and DIY markets had we continued with our plans. We also created a prototype notebook, HP Firefly with VoodooDNA, which ultimately became part of the platform to which Razer used to develop their new Razer Blade notebook.
Voodoo Envy 13"
There were some good things to come out of the deal, no doubt, but we could have done so much more.
Had we been given more time I truly believe HP would have had a beautiful ecosystem of products that could stand up against Apple’s best offerings. If HP Voodoo was still alive and kicking you would have seen a different HP today.
HP Envy 13"
X-bit labs: Did I understand it correctly, HP sold a Voodoo team-developed design to certain third-parties?
Rahul Sood: Not quite, I wish though. We developed a number of bleeding edge notebooks; one of them was an incredible blend of high end mobile technology with beautiful material and industrial design. The goal was to deliver an unparalleled entertainment experience. We developed two of these platforms together with some amazing people from Intel. We started this project when Voodoo was just Voodoo, and we continued it when Voodoo joined HP. After we disbanded and HP dropped the projects, Razer stepped up and took over. Lucky them, if they play their cards right Razer could be a dark horse of the PC industry.
The decision to spin-off personal systems group (PSG) is strange for many reasons. But the main one is: what happens to HP - as a brand and as a company - when its personal computers vanish into oblivion? Will HP be able to be as competitive without PC unit (which size and footprint greatly helps to HP's economic strengths)?
X-bit labs: Why do you think HP is trying to spin-off or sell the PC unit? Which would be a better decision for the company in your opinion?
Rahul Sood: I think this is something for the current CEO to answer. My guess is he sees challenges internally in PSG, he doesn’t fully understand how the hardware business operates, and he feels that hardware margins are far too slim to bother with. In my opinion hardware is the footprint that makes HP who they are. HP’s gigantic PC footprint is easily their biggest strength, not their software and services. If HP could leverage their biggest strength in a meaningful way they’d be almost unstoppable.
HP Firebird with VoodooDNA
X-bit labs: HP's current line of products is pretty much archaic (which probably has its influence on margins). Besides, the company seems to have abandoned gaming business completely. What, do you think, HP should do: try to rebuild its product line and set up certain new business practices, sell PC business to someone capable of breathing new life into HP's PSG or spin it off so that to make it easier for PSG executives to make decisions?
Rahul Sood: Well, I don’t entirely agree with you on your first point, I think “archaic” is a bit harsh. HP has access to some of the best minds in the world, and they have access to the best technologies. In terms of design and style, HP has come a long way since 2006 – did you see their laptops back then? Of course they could be better; it has to do with priorities.
There are plenty of ways PC companies could create additional margin, not least of which is designing nice products – but more important is thinking beyond the device.
After HP spins off the PC business, it seems the printer & enterprise business will be left with a smoldering pile of leftover EDS + Autonomy, and some other stuff. They will cut off the majority of their consumer DNA, which is really counter to HP’s roots.
I personally don’t think this latest turn of events makes sense. Under the right circumstances, HP as a whole is worth more than the sum of its parts. If they could thoughtfully leverage parts across HP in a meaningful way and deliver beautiful experiences that invoke strong emotional connections with their customers then HP would be a much better company IMHO. Their market cap would go up – their P/E ratio would increase - there would be additional brand value in HP.
Just my opinion of course.
X-bit labs: Considering how little HP managed to do with Voodoo and webOS, maybe there is something fundamentally wrong with PSG?
Rahul Sood: Well, no company is perfect... but if your son had problems in school would you disown him? I think HP PSG has challenges. HP is the #1 PC Company in the world, and I believe they feel that being #1 is super important. Perhaps it’s an issue of priorities.
X-bit labs: If you were the chief executive at HP PSG. What would be the first three things you would do?
1) Bring back the values and innovative culture that Bill & Dave started decades ago.
2) Cut out at least one layer of management.
3) Elevate design and setup a creative team to bring creative design processes and thinking to the entire organization.
Rahul Sood founded Voodoo PC in 1991, when the market of PCs was very young. One thing that this man probably learnt from his experience was that customers needed to be attracted to the brand, user experience and quality, not to the low price. Perhaps, HP and Dell sell PCs every second, but the natural problem that they face is that their customers are not loyal to their brands. Owners of Apples and ThinkPads upgrade to Apples and ThinkPads, many owners of Dell or HP upgrade to the offering that is more attractive, they are not loyal to those makers.
X-bit labs: What do you think are the main challenges for a PC maker these days?
Rahul Sood: Well there are a few challenges for PC makers;
Most PC companies fall into the trap of trying to “differentiate” without really considering the consequences of their actions. By being different they think they’re putting the customer first, but they aren’t. Being different doesn’t necessarily make you better. Heck, Porsche can throw a waterbed in the back of the 911 Turbo to be different, but does that make them stupid? Probably.
Being different is less important than being relevant. You know you’re relevant when your customers have an emotional connection to your brand. Your brand is relevant when your 5 year old asks for a product from brand “X” - or when the person at the coffee shop decides they want to buy “X” brand because they have heard so many great things about it. You’re less relevant when someone wants to buy you because you’re cheap.
Most PC companies look at Apple as their biggest competitor, rightfully so, but I promise you going head to head against Apple will almost always lead to a fail. Another great quote from Sun Tzu,
“......When ten to the enemy's one, surround him;
......When five times his strength, attack him;
......If double his strength, divide him;
......If equally matched you may engage him;
......If weaker numerically, be capable of withdrawing;
......And if in all respects unequal, be capable of eluding him,
..........for a small force is but booty for one more powerful."
In my opinion it’s best to look within your organization and leverage your strengths to beat a giant. Apple did not go head to head with the PC business back when Steve Jobs returned. Instead they capitalized on their internal strengths and zigged while everyone else zagged.
The PC has become embedded in the fabric of our lives. Everyone uses personal computing of some sort, so now it’s about connecting with your customers on a deeper level. Making a visceral, emotional connection with your customers is worth more than selling them a “box” any day of the week.
Most PC companies tend to focus on device centric “innovations”. It’s less about building a family of products that look and feel like they’re coming from the same company, and more about the device itself. When you do this you tend to focus on things like TAMs, speeds & feeds, and price - and you miss the most important part, the soul.
So what’s the main challenge? Fundamentally changing the fabric of their business and the way they think – that’s hard to do. It requires strong believable top-down influence and vision.
X-bit labs: Virtually all big PC makers are complaining about thin margins (maybe with exception of Apple and ThinkPad subsidiary of Lenovo). But why very few companies try to innovate beyond what chip vendors offer them?
Rahul Sood: The fundamental problem most PC companies face is they try to lead with technology – in a market where technology is easily duplicated and commoditized. They end up fighting a raging battle to the bottom, and in the process they risk losing their identity. I am a big believer that if you focus on things that matter, like your brand identity, the soul of your company, your organizational culture, and most importantly your customers – you can be forever successful in a market full of commodities. There is a strategy that allows you to have a scale business along-side a premium business.
If you look at Ferrari, for example, they spend millions on F1 racing. They actually make money racing, which in many circles is completely unheard of. Ferrari built a brand that allows them to sell every single car they build, profitably, with a backlog. They make money selling branded accessories and products to those that may not be able to afford the car. They sell driving experiences, tickets to events, licenses, memorabilia, mugs, hats, jackets, etc. Regardless of their luxury status, Ferrari has a winning, scalable business model that other companies should study.
Acer Ferrari notebook
The reason few companies try to innovate beyond what chip vendors offer is cost. They don’t want to risk spending money when their margins are already razor thin. If only they could leverage their biggest strength and find other ways of supplementing their business, imagine the possibilities. If all Ferrari did was sell $300,000 cars all day they would have failed years ago.
X-bit labs: There are not a lot of PC companies with soul (which customers have emotional connections to the brands) these days. Moreover, there are fewer and fewer IT companies with soul. Nokia, for instance, is one of such companies, but it is about to fail... At the same time, Dell and HP continue to sell PCs every minute. Perhaps, the market of devices "with soul" is somehow limited?
Rahul Sood: Nokia may have had some challenges over the last few years, but their hardware center of excellence is unlike any other company in the world. In fact, I would argue that Nokia has the capability to one up *any* hardware company with their magnificent industrial design capabilities and technology. Vertu is just an example of their capability and vision, but their capabilities go far and beyond Vertu. In my opinion Nokia is a monster and the beast has awoken.
There are many companies in different industries with soul. You can spot them, they are easily recognizable.
HP acquired smartphone manufacturer Palm back in late April, 2010, for about $1.2 billion For some reason, HP did not try to fully integrate Palm into itself, but decided to rely on the vision of Jon Rubinstein, one of the inventors of Apple's iPod and another legendary man from the Valley, and leave Palm as a separate business unit without merging it with PSG. Mr. Rubinstein wanted to create a highly-competitive lineup of smartphones, media tablets and netbooks (and not only!) based on webOS, which was developed by Palm. While HP's Palm unit has succeeded in releasing new smartphones and TouchPad tablets powered by webOS 1.4.5/3.0.2 operating systems, HP decided to discontinue hardware operations of Palm less than two months after TouchPad was launched citing insufficient demand.
X-bit labs: You were a big fan of webOS despite of Palm's rather slow performance with smartphones (compared to Apple iOS and Google Android). What made you this optimistic?
Rahul Sood: WebOS is a beautiful piece of software that no one knows about. What made me optimistic was the vision that Jon Rubenstein originally had for the platform combined with the scale that HP could have brought to the table.
I now believe Windows Phone 7 is the best mobile operating environment out there, it will take some time for people to see that. It’s truly a pleasure to use, and with more apps arriving daily, and new beautiful hardware around the corner, I haven’t looked back.
X-bit labs: HP has essentially abandoned the webOS platform. Do you think that it happened because they do not know what to do with the PSG in general, or because they were not impressed by sales or feature-set of the latest breed of devices amid inevitable next-gen Apple iPhone, Samsung Galaxy, etc.?
Rahul Sood: Not true, HP hasn’t abandoned the webOS platform. The unfortunate part is their communication has been nothing short of horrendous. There is a business case in the making here – PR schools from all over the world should read what happened to Hewlett-Packard the day they announce they were getting out of the PC business, they were spending 10 billion dollars to acquire a company that “no one” knows, and they were cancelling a hardware business they only started 58 days prior.
This is PR gone wrong 101: When shit hits the fan.
I have no idea what will happen to webOS now. I would certainly encourage developers to look to other platforms to expand their footprint.
X-bit labs: Can webOS be successfully licensed by other smartphone/tablet vendors and become a rival for Android and iOS?
Rahul Sood: Perhaps. Though personally I think HP needs to be in the hardware business to get their software adoption up. I also believe the only way someone will license webOS is if there’s something in it for them. Perhaps HP should have licensed webOS for free the month after they bought Palm - they could have supplemented the business with their own hardware sales. It may have made a pretty large impact by now.
For PC makers it is particularly important these days to have a broad lineup of products. The best PC and software companies attempt to innovate not only in terms of performance, but in terms of form-factor, services and so on. PC company named Apple managed to launch media tablets into masses with the iPad, but other innovations of the recent years came from companies like Facebook, Skype and so on. It looks like that for innovations size does not matter.
X-bit labs: Do you think that in order to be a successful PC maker these days a company needs to provide a product range that spans from tablets (maybe even smartphones) to workstations?
Rahul Sood: Some look at success in terms of market share. Others look at success in terms of profit margin. To answer your question, I believe PC makers need to think beyond the devices they sell in order to be immensely successful. Sure they can sell devices all day long, but everyone is doing that - why not go back to the basics of building a soulful business?
X-bit labs: Maybe that is what they are doing with their $40 billion startup "plan"?
Rahul Sood: I don’t know what they’re doing; although I wish them well. HP’s success has a measurable impact on global technology. One thing’s certain, I’ve never heard of a 40 billion dollar “start-up”. Have you?
X-bit labs: You came from a boutique PC maker to one of the largest companies in the world. Do you think that the "limits" of innovation that it is possible to reach being a small company have been reached?
Rahul Sood: No, there are no limits to innovation for small companies. Look at Facebook, Groupon, Zynga, Twitter, Foursquare, and all the other startups that come out of nowhere and accelerate to become giants in very little time. There are plenty of ways to innovate, as long as you have a strategy that makes sense you can always partner with a large company to get access to technology. I also believe there is no such thing as “windows of opportunity” in technology. Anytime someone tells me the window is closing I have an argument to the contrary.
X-bit labs: Thanks a lot for thoughtful answers, Rahul.
Rahul Sood: Anytime, I appreciate the chance to fill in some of the gaps with Voodoo. I'm really glad that some of our work is finding life in other forms.
I also want to take this opportunity to wish my friends at HP nothing but the best in the future. My phone was ringing off the hook after the announcement, and I feel bad that everyone was caught off guard... but remember, don't give up the fight - you are still the biggest PC company on earth and change is almost always a good thing. We all want to see you come out stronger.