HP to Stop Reselling IPod Music Player

[Corey]

http://news.yahoo.com/s/ap/hp_ipod;_...hkBHNlYwMxNjk1

[Intrigued]

I do nto believe this reflects on the iPod directly, by any means. There are other variables in play here.

Such as:

"For a company like HP, it does not make sense for them to resell someone else's product," he said. "They are a technology company. They're an innovator. ... It makes a lot of sense for HP to do their own.

Plus, when CEO starts something and then is pushed out of the company... I have seen the next CEO wanting to do his/her own thing.

and on and on...

Oh, and HP is laying off 14,500 employees. It sounds like they are starting to have a tuff time themselves.

Finally, there are so many players out there that they either may make a deal with someone else or just make their own (as the quote was going on about).

Want to know what gets me to put down my iPod (at least in the house)? My wireless headphones! I just hooked them up after my move to the new house and ... well... JOY!

[Corey]

Actually Fiorina made a terrible last-minute late-night Las Vegas hotel room iPOD deal with Jobs in Q1 2004 which is characterized by HP as "extremely difficult to profit from" and which has also hamstrung the company with a one year no-compete clause during the most important period in the formation of the MP3 player industry. And to boot HP was developing their own player at the time, which Fiorina just turfed. Bottom line is that Jobs took Fiorina to school *big time*. Apple has done *very* well from the HP deal, HP hasn't.

She got fired from her job about a year later for a variety of reasons.

Now the new guy comes in a few months ago and notices that HP is selling a ton of iPODs, (5% of all iPODs sold are HP) not profiting from them in the same way as their other lines, is generating tons of profit/buzz for their competitor Apple, and is locked into all that by a one year no-compete clause. So obviously the first thing he's going to do is dismantle this deal since it's a joke.

Any retailer ending a contract with a one year no-compete clause is obviously going to do so in Q3 because Q4 is the best time to retail MP3 players.

Imagine if you will Wal-Mart signing a contract with "BrandX" stating that they agree to never sell any shampoo other than BrandX shampoo, and that if they ever change their mind they agree to sell *no shampoo at all* for one year. That's ludicrous and obviously no one would ever agree to that.

And this is compounded by the fact that Fiorina did this during the least apt time in history, i.e. during the crucial build up of the MP3 player market. So effectively HP was positioned perfectly to release their own player and snap up +5% of the market by 2005 but instead Fiorina stepped in and:

1. Got rid of their player.
2. Signed a deal which profits Apple more than HP.
3. Signed a no-compete clause which prevents HP products from taking part during the critical early stages of the MP3 player market.

So you have to ask yourself who Fiorina is working for, obviously she was more interested in fostering favor with Steve Jobs than her own board/stopckholders. Ever notice how people who are *really* good at achieving consistently positive results never seem to get fired?

HP chairman Patricia Dunn, an H-P board member since 1998, says Fiorina's downfall was her inability to handle everyday operational issues — the nuts and bolts of selling computers.

As for it reflecting on the iPOD, sure it does, the iPOD is rapidly approaching first wave saturation, no one denies that. HP definitely doesn't want to ride that train to the end of the track and then be left standing there with a year off.

[Intrigued]

Time will tell on the iPod. iPod players are still the big dog in town with new features being added in and an infrastructure (iTunes - Podcasts for one) that is continuing to grow.

Don't forget all the addons out there... even brand new automobiles have iPod functionality!

[Corey]

- I've read in a several sources that almost no one is listening to podcasts. I believe that. I don't think podcasts have any effect at all on iPOD sales. Zero.
- iTunes is terrible software. Period.
- There's a limited audience for video iPODs and iPODs above 40G. It takes a very specialized type of personality to watch a movie on a 3" screen, and you don't need a video iPOD to drive an A/V add-on. Plus video iPODs won't have the same battery performance advantage since it takes a fair bit more energy to play a large video file than a small audio file.
- Apple just lost 5% of its total sales and gained a massive new competitor for 2006. HP's distribution channels are way bigger than Apple's.
- Apple makes np money from 3rd party add-ons, and no one buys an iPOD in order to meet an add-on, ergo the word, "add-on".
- Watch the sales curve on any popular tech product in history. iPOD will follow a similar curve at best.

The appeal of iPODs is that they don't skip, are small, easy to use, have good batteries, and sound decent. The appeal has nothing to do with podcasts or iTunes. Once people get an iPOD which does everything they need, they will stop buying new ones. If iPODs don't last long enough they'll simply buy another brand that does. The important distinction here being the consumer's will. Apple can buy all the ads they want but the average consumer is simply not going to sustain buying a new iPOD every year.