The Great HP Fire Sale of 2011

As we recently reported, HP has decided to ditch its phones and tablets using the webOS operating system. Though the system received rave reviews, and many stood by it, HP failed to attract the developers necessary to build an ecosystem of apps. Sales were disappointing; Best Buy couldn’t even move 10% of its inventory. HP was losing money hand over fist, as Technology Review’s Erica Naone wrote, “the company’s corporate investments category, which includes webOS, earned $266 million in revenue this quarter—but lost $332 million.”

So the company did what you do in such a situation. It announced a fire sale. It slashed the price of its TouchPad, the webOS tablet, to $99, a discount of about $250. You can’t get a Kindle that cheap, let alone a tablet.

Then, something amazing happened: a sudden wave of interest in webOS as had never before been manifested. The longed-for sales flowed like water from a burst dam. According to some reports, 350,000 TouchPads sold over the weekend alone. At one California Best Buy, 140 tablets went in an hour. I frantically searched about for one myself (who wouldn’t, at that price), but was already too late.

The event has put HP in a funny position. It had to confess to investors that its foray into tablets was a failure, but as a direct result of that confession and the accompanying price reduction, the tablet momentarily had its fifteen minutes of fame (almost literally). For a brief time, HP had its iPad moment, when all eyes were on its product, and demand overwhelmed supply.

What lessons are to be drawn here, though? Is there a potential demand for webOS products that HP just needs to find the right price point to unleash? Or is this simply another lesson in the rather obvious fact that slashing prices is an effective way of liquidating inventory?

HP has used language that suggests that they feel the Great Fire Sale of 2011 reflects more than mere microeconomics at work, and that it is a vote of confidence in the platform (which HP still intends to license, perhaps as an OS for smart refrigerators, among other things). People who ordered an HP TouchPad online on August 20 or 21 received a message from HP saying that the “unprecedented orders” indicated a “clear confirmation to HP there is huge interest in building a webOS community.” And indicating that the hardware component hadn’t been jilted entirely just yet, webOS chief Stephen DeWitt reportedly said the company plans to put webOS on PCs and printers, and that further updates are in store for the Veer smartphone and the TouchPad.

It’s too early to say just what the Great HP Fire Sale of 2011 really means. Like the earthquake that shook much of the East Coast this week, it may be, in hindsight, a confusing event that some felt while others missed, and that didn’t have any particularly long term implications. What it seems to indicate, though, is that there are strong potential forces at work in a second-tier tablet market—the market full of those looking for the tablet experience without shelling out for an iPad. HP lost this race. But a dark horse candidate might emerge soon, and we’re inclined to side with those who think that when an Amazon tablet debuts, some of the consumer behavior we saw last week briefly around the HP tablet, might replicate itself around a Jeff Bezos offering.