what whether it take to get yahoo! or hewlett-packard back on their corporate feet? former hp ceo phil mckin ifney s down with me for a wide ranging conversation. plus taking money from the bob by selling your stuff on facebook. does so-called f commerce everyone work? our reporter fritz nelson and joe mann this week on "press:

here." hewlett-packard is stilly convalley's oldest company. hp has been accused of being a bit staunchy. it's easy to forget hp's biggest obstacle is stonlg giness because hewlett-packard seems to be in constant flux. >> will is the hp touch bad. >> take hatheir tablet computer. it hit stores in july of last summer and the company abandoned the whole effort just 49 days later. in the middle of all this was hp's head of innovation, phil mckinney. >> hey, wire not going to just let randomly wait for innovation. you're expected to come up with a killer innovation. >> as chief technology officer at the company's personal systems group, mckinney survived an be absurd number of ceos

reshuffling and layoffs as he quietly tried to pull hp along into the future. phil mckinney just retired as vice president of hewlett-packard. he's written a book, beyond the obvious. he was also an eagle scout which i think is an important thing to bring up if might be actually accomplishes that. joined by fritz nelson and joe mann. so much to talk about. and you brought a lot of innovation to a rather fusty company, but i want to talk with this tablet. you can walk me through the days of introducing the hp tablet? we were there, i think all lee of us, at the big announcement. you'll take on apple. and then it was gone. it was gone. >> a little of the history.tablet work inside of hp began long before the palm acquisition. so it was actually a five year effort. >> you knew tablets were going

to be big. >> we knew they would come. the difference is what's a good idea and a great idea. it's the timing. it's tough to get organizations to commit way ahead of the knowing for sure that something will be successful. in the case of hp, they delayed the launch and work of those tablet which is then resulted in needing to do the original acquisition for palm. so we did the acquisition of palm, closed it in july. a year later then was the launch of the touch pad. >> and it was kind of snazzy. there were things in there that the ipad didn't do. >> true multitasking. took advantage of all the new web technologies. it had great development environment. but again the difference between a good idea and a great idea is the timing piece. but my biggest disappointment is

the hp decision to not give it to the time it needed to really mature and become the product it could have been. >> why didn't they? there are a lot of players out there who weren't succeeding either. 49 days doesn't seem like a long enough time. >> you have to understand you have to look a little bit in the history of what's going on in hp at the time. mark herd was the ceo. mark left. so the palm acquisition was done originally under mark's watch. a little bit of shoveling, new board members come on, and they have a different level of commitment and a little different philosophy. but the disappointment is that it was originally the plan was that we would give pull three years to be successful. palm, we acquired palm when they were in trouble. they needed the cash infusion from hp. and that was what the commitment was was to give it for three years. but with the change of leadership comes a change of

direction. >> even with a billion dollars. >> the palm was $1.2 billion to do the acquisition. >> i don't think three years seems unreasonable. >> and that was the discussion that was all going on during the time of the acquisition, which was that don't even start this acquisition unless you're 100% sure that you'll go run the full race. don't start the race and stop. because otherwise you're just going to burn up $1.2 billion plus $300 million in assumed debt. >> is there anything left? the hardware has gone away. with surprising speed. and the people have been leaving in bits and pieces themselves. is there any of the old palm stuff that's still going in hp? >> i think what's unique about palm is that, yeah, there's a team that's still there and hp has matt announcement that they'll open source it and so now they're in the process of putting together that governance model and publicizing that.

but what's unique about web os is the support from the outside developers. the passion that they have is just unbelievable. and in many cases those developers know the internals of web os than even some of the internal people. >> and it was easy to use. web os was something to write for, not that i write programs. >> but you could have. >> i could have. >> and that was really the whole objective was to allow people to be able to write application. if i did a web os conference in new york and i got introduced to a gentleman about my age and then i was asking him, he goes, i'm not here as a developer, i'm here chaperoning. there was like 20 some kids all under the age of 16 who were all making similar incomes to their fathers writing applications for web os. >> and the funny thing about you and hp was how fashion nat -- i don't mean making fun -- but the noticeable thing about you and hp, you were passionate aboutna

don't mean making fun -- but the noticeable thing about you and hp, you were passionate about a company that didn't have a lot of passionate people to it. people are passionate at zirzyn twitter. you're not passionate. you're smart, you make profits, but you were ann evangelist. >> hp is a phenomenal company. >> i don't mean to slight it in any way. but you don't hear people rousing hp cheers. >> i've got a question about what this kind of decision means for a company like hp. this is a company that spent 6% of its revenue on h and d and now spends about 2% of its revenue on r&d. oracle says they spend $6 billion of their $37 billion in revenue on r&d.on r&d. oracle says they spend $6 billion of their $37 billion in revenue on r&d.

the palm thing was just one piece of it. you're not the only one who has left. what does it say about hp oochlt commitme 's commitment to innovation? >> the 6% number you're quoting is a number from 2000. spent about 6 pmt 2% of revenue on r&d. carly leaves. smashing brought in. and you can look at both as a percentage of revenue and absolute dollars. now, you can argue that it's more focused, but it's hard to innovate if you don't have the resources available to you. and since i've left hp, i've been very vocal on the fact that meg has a huge challenge. she's saying she'll put an extra 10% into r&d spent. problem is that any dollar you put in today, we won't see if four years. so the the street a hhas to be

patient and investors have to be patient and we're not known to be patient. everybody is looking for the quick fix. there's no a quick fix in the story for hp. >> we went through four ceos in that sentence. how much of that was damaging? obviously it was damaging, but how much of that was the cause of the damage at hp? >> i don't know about so much the cause of the damage. having one person make radical changes in strategy is always a problem. the fact that there was a strategy that the leadership team committed to under mark and leo comes in with a different strategy and now meg with a different strategy, it thrashes the organization. it goes into pause mode. unique is the strength of the culture. i constantly remind the people

at hp that culture eats strategy for lunch. it doesn't matter what ceo comes up with strategy. if it's counter to the core culture, the culture will reject it. and if the culture rejects it, your ability to move the organization forward is not going to happen. >> hold that thought. we'll take a quick commercial and talk more about culture and strategy coming up.

welcome back to press here. phil mckinney has written a book called beyond the obvious about innovation. give free visitor give yahoo! free advice. i don't need to ask you what apple needs to do to innovate. what does yahoo! need to do? >> one of the challenges is you get caught in the rut. you get caught doing the same

thing day in and day out that you lose the perspective. you lose the ability to look beyond trying to -- the off just next step that you're doing. >> is it just length of time? >> sometimes length of time can work against you. it can work against you from the standpoint of culture, from the standpoint of saebing kind of the unwritten rules of how the business operates and they literally become over a long term handcuffed to the organization. >> in your book, you talk about this notion of killer questions, being able to ask killer questions. how do you do that and what companies do that well? >> well, i think the objective is to ask the question that you cannot directly answer. it forces you on gto get out oft rut, do some form of discovery to look back on the problem. one example is kroger foods. kroger uses the killer questions approach. and you don't think of kroger as being an innovator, a grocery store chain, but their innovation team based in

cincinnati has come up with just phenomenal not just tech knowledges, experiences, how do they sell, how do they reach out. mobile devices that enough your kitchen at home where you input what your needs are, leave that device at home, you go to the store and it maps out the store for you and tells you where to pick it up. >> and they get to those things through the questions. >> through the questions. there's certain killer questions that force you to look at who your customer is, how do you think differently about your customer, how do you think differently about your products, but also how do you run your business, how do you think about all the nuts and bolts and stuff that do you dyou do day in and how do you get in the mental mode of i'm just turning a crank to actually change the business. >> it seems the way most companies have stumbled or lost their way, that the answer is just to do a big reorg and layoff a few thousand people. does that actually work, does that help companies think in new

ways, or does it just add to the chaos? >> chreorgs without strategy is just meaningless. the key is what is the direction and how do you layout what i refer to as the b nag, the goal, the new bar that you'll establish for the organization. if you define that correctly, you're amazed at what the teams will do to reach those objectives. the other facet, and we get biased here in the valley, is the power of certain companies, whether google, facebook or apple. but their innovation leadership is different that be the innovation leadership in other companies specifically because they have founder ceos. when bill and dave ran hp or steve or mark zuckerberg, when

you have a founder ceo, they take a level of risk that normal ceo can't take. nonfounder ceo is an employee. >> is there any way a nonfounder ceo can become like a founder ceo? >> it really comes across from the board. the ability for the board to give that ceo founder-like abilities to operate, to take those kinds of risks, support that. what tends to happen is that everybody is so worried about wall street that we tend to focus the decision making process down to the quarterly results versus recognizing and in many cases blow up the compensation package, relook at how you set senior executives to make good long term decisions not meet the short term quarterly objectives. >> can i ask you about a nonfounder ceo that you think is worth emulating? >> i think are there's a couple actually.

wendell w imptietz from corning. jeffrey cats zenburg. he has unique approaches to how you manage risk. and when you have to commit $290 million before he sells ticket one. >> i'll have to call it there. phil mckinney's book beyond the obvious, thanks for being with us. >> thank you. "press: here" will be back in just a minute.

when asked why he robbed bank, willie sutton said because that's where the money is. so when retailerses went looking for more customers, they headed to facebook because that's where the people are. and you would think that would be the right answer. sell facebook users stuff and

then take advantage of their social connections to sell more stuff to their friends. >> whether it be the type of thing that would really be universal that everyone would want to use -- >> certainly face book expects this so-called f commerce to work. facebook created the open graph, the looks that programmers need to bring store sales to facebook pages. case in point, the pan make cosmetics. you can purchase your mascara right from the company's facebook page. but the money has not rolled in for everyone. the gap, jcpenney, game stop and nordstrom have all closed their facebook stores. >> christian taylor is ceo of pavement, and on account line service that allows any user to turn their page in to and online store. so your clients, which are much

smaller, are reporting they're selling, they're making money. and big retailers are not. to me that means your clients know something that the big retailers don't. >> without a doubt. innovations always come from small business even at the start of the internet, it was the snbs that knocked it it out of the park. >> is it because they're more genuine? not that i buy a lot of mascara, but using that example that one young lady in the midwest somewhere who is selling mascara is going to be far more genuine as a social seller than a nordstroms. >> i think there's two different things that happened here. that caused these large guys to fail where a lot of the smaller guys are succeeding. first of all, it's execution. one of the things that these large guys really didn't understand when they were launching their stores, they went out and built these custom stores on their facebook page. and they were essentially on a social network, but being very unsocial. it was essentially you only knew that store existed if you were already a fan of that brand in the first place and if you're

already a fan, you're already on their page, why don't i just go to your dot com experience. so one of the reasons we succeeded, we are a network of stores. it's a community. our sellers don't have millions and millions of fans that they can leverage. they're coming to facebook because they hear that it's close a billion people. >> when you say they're connected to each other, is my buying data then going to the other stores? >> no, not at all. >> in what way are they connected? >> in the way that the facebook user can shop across the local entire network with one shopping card, can shop across the whole network with -- it's really shopping as a community. >> you get something from this sell errands then something from this will seller. >> it feels like it's directly baked into facebook. it feels like it's an extension of facebook and not this off --

>> it feels creepy, though, that other people could sort of see -- you're trying to bring out the engagement. my friends can see what i bought. >> they actually can't, though. one of the things about shopping on facebook, at least with pavement, your shopping is completely private. you only share if you want to share. >> i understand where fritz assumed that lld be some -- scott just bought, you know -- >> and think about it, you're more than likely going to be buying nothing a friend or family that's connected to you on facebook. so that would be counter endue i have to say the least. absolutely your shopping is completely private.endue i have to say the least. absolutely your shopping is completely private. >> so what ask the merchants have to do differently some do at the have to design it differently, what is it about facebook that they have to create a different kind of experience? >> the reason why pavement has seen success is mainly that it's not mf-these sellers don't have on go through the process of

building this whole custom experience with their own credit card, with their own shopping card and feel disruptive. to me it's all about making a really good solution for the end consumer. and for brands at least for selling on facebook, it takes help 15 minutes. you go pavement.com, they launch a store, hers part of tthey're t work. >> but what do i do differently on facebook that is more than just e-commerce, buy here? >> probably when you look at our dashboard that we give all of our sellers, really only 20% of it is your e-commerce kind of tools. the other 80% is really giving our brands the tools to be able to engage an audience and get people excited about their brand. everything from launching polls to getting people to talk about which color do you like better, the red or the blue. or just causing these really big virals on happen to drive more

traffic back in to their sotore. >> there are a host of start ups that have gotten a fair amount of money from sand hill road just down over the way here. and it all seems based on a theory that the zynga 30% model for virtual goods is somehow going to translate when we're selling real world goods. that the 30% take that? how there will be a deal where facebook gets must have money but it's also worth the retailers giving up a fair amount. isn't there a good chance it's not going to happen or facebook's drive for growth means inevitably they would come up with some way to take a profit cut that won't wipe out the retailers? >> you're talking about facebook credits. facebook gets a 30% fee for that credit. in today's shopping on facebook doesn't include facebook credit. so facebook is not taking any kind of cut on that. people shopping on facebook are using either credit card or pay

pal to make a purchase. i'm really excited for facebook credits to become a platform for purchasing physical goods. obviously today you have to pull out your credit card to make a purchase on facebook. if i have credits attached to my facebook, i just press a button and instantly purchase. that's a dream come true for our platform. but facebook has to get to the point where that platform can be that for us. and it can't be 30%. but there's a lot of real world examples of scenarios where if i buy airplane tickets with my credit card, it's completely different than if i bought a physical good in the sore. so facebook could easily have a facebook credits plas form which is 30% for digital goods and have a much better regional rate down the road. >> what's the conversion rate? you talk about people liking on facebook and the traffic that comes in. but is there a conversion rate that you guys articulate to potential merchants?

>> you mean on success? >> somebody buying something. so we get, you know, 1,000 likes and out of hothose 1,000 -- >> the one thing we learned, and this wasn't -- there wasn't a book already written on shopping on a social network. but the one thing we did learn is that it is a completely different animal than amazon. if you look at the top selling items that are on facebook, it's completely different than amazon. they're not ipads. they're very social kind of products in the first place. for instance, when the season finale of amc's walking dead came out, all of a sudden that day was like all these products having to do with zombies. it's very trend based. and i think the reason why small and medium sized businesses are knocking it out of the park, i think they have afternoon more authentic voice when comes to even marketing their products.

a lot more passion about, hey, look at this, -- >> and sometimes it would be their only. >> i think back before shopping on facebook, if i wanted to launch a business, i would spin up a website, add e-commerce to it, buy some ads to drive traffic over to my site. i think small businesses figured out the people are already will thereon facebook, pavement with help launch that discovery. >> all right. for being with uss morning.

that's our show for this week. my thanks to phil mckinney and

christian taylor, as well. well not appear for the next two week so is that mbs sports can bring you the stanley cup playoffs. we'll be back to our regular schedule towards the end of april. i'm scott mcgrew.making us part your sunday morning.