HP’s Autonomy acquisition: How did it get approved?

As we reported yesterday, Hewlett-Packard was apparently taken to the cleaners when it paid $10.2 billion (£6.4 billion) for a British software company called Autonomy. It had to execute an $8.8 billion (£5.5 billion) write-down and HP’s stock has plummeted since that was announced.

There are a few things that seem to be missing from yesterday’s story, but one in particular irks me. We have the apparent incompetence of the accounting firms overseeing the purchase, and the ineptitude of the HP board of directors that went ahead with the deal. Poor due diligence, finger-pointing, and Meg Whitman's "I had nothing to do with this deal" reaction are all normal.

But what's abnormal, and what has been abnormal for at least two decades in Silicon Valley, are the large corporations with big bankrolls – in this case £6 billion – making the wrong buying decisions.

Pretty much every company you follow nowadays is constantly buying companies rather than building products from scratch. They've got the personnel, the money, the time, everything. But they continue to buy companies with alien cultures and products they probably will never understand.

The whole Autonomy thing was weird since the company seemed to be performing magic. On co-founder Michael Richard Lynch's Wikipedia page, the company is described as "a leader in the area of computer understanding of unstructured information, an area which is becoming known as meaning-based computing."

I do not know how gullible HP's board of directors is, but when I see the sudden emergence of something called "meaning-based computing," the alarms sound and the bullcrap meter begins to touch the red line.

Curiously, its board of directors lacks any slouches. The problem is twofold: Firstly, there are too many Silicon Valley mavens who are susceptible to fads and buzz words. They'll believe that anything is possible and can be suckered by slicksters. Secondly, we must ask why it is buying the company in the first place.

Now I understand why Google buys up other little search companies when it sees them as a perceived threat. When I was younger, I thought that it was illegal to buy up and shutter the competition, but I was apparently misinformed because it happens constantly. So this makes some sense.

When I look at the kinds of acquisitions made by Yahoo, Microsoft, and HP, though, I can't help but wonder why they don't just develop the same capabilities in-house.

For years, Microsoft was criticised for stealing ideas and then implementing them, forcing the competition out of business. There are a very few successful examples of this, but there are some, and there are just as many failed examples. At one point, the company was going to buy Intuit. The sale never went through and Microsoft entered the market with Microsoft Money, offering all sorts of services.

Eventually, the company got bored with it and ended any serious competition with Intuit. One must assume that if it had bought Intuit, the exact same scenario would have played out and the consumer would be out of luck.

So what exactly was HP trying to prove by buying Autonomy? The whole episode is reminiscent of Yahoo's purchase of Broadcast.com. What was it thinking?

If HP had spent one billion dollars funding research and development to make its own version of "meaning-based computing," it would have learned something and saved many billions that should have gone to the shareholders. Instead, the shareholders are left holding the bag. Good work.