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HP's Plan to Make TouchPad a Hit


The PC giant's Wintel-free tablet is part of a big gamble that began with the purchase of Palm's webOS: to build its own ecosystem

During an interview at Hewlett-Packard's (HP) Palo Alto headquarters, Todd Bradley, the head of the $41 billion PC group, is, as always, full of praise toward his microprocessor suppliers. Intel (INTC) and Advanced Micro Devices (AMD) are "important partners," he says. Then he holds up a TouchPad, his company's first tablet computer, which is powered by a Qualcomm (QCOM) chip and HP's in-house operating system, webOS. It goes on sale July 1, starting at $500. "The AMD-Intel thing," he says, "I think that's kind of over."

Stunning as it is to hear a PC executive essentially declare the end of the Wintel era, HP had no choice but to distance itself from the Microsoft-Intel ecosystem. For years, HP used its supply chain prowess to lead a commodity PC market, and eke out 8 percent operating margins. Now, in the age of mobile, HP's margins are down to 5 percent or 6 percent. The TouchPad is part of a big gamble that began last year with HP's $1.3 billion purchase of Palm and webOS: to build an ecosystem of its own, despite a landscape littered with the carcasses of others that tried.

For this bet to pay off, HP needs a tech trifecta. First, webOS devices must offer Apple (AAPL)-like simplicity, built on top of loads of applications and content. It won't be easy, but HP could quickly outdistance most IPad rivals, including tablets running Google's (GOOG) Android operating system. Like Apple, HP controls both the hardware and the software, which gives the company a huge design advantage, says Tim Bajarin, president of tech consultancy Creative Strategies. "They at least are trying to control their destiny, while all the others are putting it in the hands of Google or Microsoft (MSFT)," Bajarin says. For instance, a webOS feature called Synergy lets developers design applications that talk to each other. Facebook friends' birthdays automatically show up in your contacts. Work and personal calendars, even those of a spouse, appear together. Users can make a call using their wireless carrier or Skype, without having to open separate applications. "The concept from the very beginning of this is, 'Your life is moving to the cloud,'" says Jon Rubinstein, who helped create the IMac and IPod at Apple before becoming chief executive officer of Palm.

Second, HP must break Apple's lock on developers. The TouchPad will launch with 300 tablet-specific applications. (IPad has 90,000.) A recommendation engine will make it easier to discover new apps. Users who like cooking might see Epicurious pop up on their suggested list. The company is wooing holdouts such as Netflix (NFLX) by offering slots in webOS Pivot, an app showcase on all webOS devices. It's a cross between an app store and digital magazine. "We'll come out of the gates behind, but I'm really confident we'll catch up," says Bradley.

Even if HP nails webOS and wins over developers, there's the obvious third task: getting people to buy the devices. With its 20,000-plus global sales force, the company has a good shot at landing corporate customers, Bajarin says. To sell to consumers, he says HP will have to train Best Buy and 600,000 other dealers to show customers the glories of webOS. HP has paid retailers to set up its own section within stores and is dispatching several hundred employees to demonstrate the product at retail this July, says Stephen DeWitt, Personal Systems Group senior vice-president. HP is spending hundreds of millions on an ad blitz starring Jay-Z and other celebrities.

Bradley and Rubinstein say that if the TouchPad's reception is lukewarm initially, they'll be patient. "We have a really good opportunity to become No. 2 in tablets fairly quickly," Rubinstein says. "Possibly No. 1."

The bottom line: HP has Apple-like control over webOS hardware and software. Now comes the hard part: winning over consumers and developers.

Edwards and Ricadela are reporters for Bloomberg News in San Francisco.

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