Why did HP hand Lynch his autonomy?
If Autonomy’s multi-billion dollar sale to Hewlett Packard did not mark the end of an era then the announcement yesterday that founder Dr Mike Lynch is to be moved aside by his new employers officially closes a chapter in the history of Cambridge’s tech cluster once and for all.
With Autonomy’s licence revenues seeing a “significant decline,” in Q2 2012 and set against a background of a big dip in HP’s profits and around 27,000 jobs cut across the organisation, the company announced in its results statement that Dr Lynch was to leave the company he built - “after a transition period.” Bill Veghte, HP's chief strategy officer is being brought in "to help improve Autonomy's performance."
Autonomy's software is able to find and make sense of the ‘unstructured’ digital information flying around companies, stuff like emails, videos and phone calls, with specialised applications built on top of that basic ability. The seed was first planted when Cambridge graduate and PhD, Dr Lynch got together with Richard Gaunt to form what became Cambridge Neurodynamics in 1994 using a £1,000 loan from a long deceased music entrepreneur - who has never been named. Autonomy spun out of that business in 1996, floating on the EASDAQ exchange in 1998, moving across to the London Stock Exchange in 2000.
Dr Lynch is oft cited as UK tech’s first billionaire and in Autonomy he built one of two Cambridge companies - the other being ARM - able to eat at global tech’s top table.
HP has said that around a third of the jobs lost will be in the US, but it is not yet clear how many of the 20,000 it employs in the UK will lose theirs, nor how Autonomy’s Cambridge base will fare. Prior to the acquisition, 175 of Autonomy’s 2,700 global employees were based at its Cambridge headquarters.
It is yet to be seen also how these developments will shake out for Autonomy’s Cambridge-based augmented reality venture, Aurasma.
The implication is that Dr Lynch is paying the price for a few quarters of under-performance, but given that he built the company from nothing into an industry-leading, multi-billion pound enterprise over a period of 16 years, this is patently only a very small part of the picture. As SlashGear puts it, “it’s never a fabulous sign when the founder of a project leaves the business.”
So why did Lynch lose his position at the helm of the UK’s largest and most successful software business? There is precious little official comment on the matter but that is not stopping - or rather it is encouraging - media organisations and analysts across the world trying their hands at reading between the lines.
This is big news within and without the industry. At the time of writing a search on ‘Mike Lynch’ in Google News returns 12,000 results. And there do seem to be some broad themes to the speculation that has been served up thus far:
He didn’t react well to having a boss
There has been much talk of a stifling, bureaucratic culture at Hewlett, an environment that had already led a number of senior management at Autonomy’s Cambridge HQ to jump ship. Indeed, according to ComputerWorld UK, “the entire management team and 20 percent of all Autonomy's staff” have left since the takeover.
HP president and CEO, Meg Whitman made direct reference to this clash when she said the problem with Autonomy was: “not the product ... It's not the market ... It's not the competition. This is classic entrepreneurial company scaling challenges, it's a whole different ball game.”
"It's not the kind of environment that helps this sort of company," said a source of the Guardian’s. "It was a clash of cultures. Mike was previously dealing with a small, nimble atmosphere. Whereas HP is the size of a small city. It's a hard place to do what you need to do."
The Inquirer deserves some credit for putting the chances of Lynch leaving as high as 80 per cent immediately following the acquisition, contrary to protestations from Dr Lynch that he was in for the long-haul.
He paid the price for the price HP paid for Autonomy
Most commentators agree that Hewlett Packard overpaid when former CEO, Léo Apotheker agreed to acquire Autonomy for £7.1bn. He was gone before the deal actually completed.
There is good evidence that Autonomy made eyes at quite a number of the major potential acquirers, massive IT players like Oracle, before HP put its cash on the table and it is clear that this beauty parade served to bump up the eventual sale price.
Whitman is HP’s 4th CEO since 2010, each of them charged with the task of moving the desktop computer and hardware specialist into the cloud. While she continues to make positive noises about Autonomy’s cloud credentials, it may be that she buys into the consensus opinion that Apotheker got carried away and that Dr Lynch did that carrying.
As Damian Reece says in the Daily Telegraph: “Lynch was fond of telling his UK critics that they didn’t understand his complex software business. It was the Americans who really got companies like his, Lynch insisted.
“So well did the Americans understand Autonomy, Apotheker rushed out and paid $10bn (£7bn) in cash for it, giving Lynch a job at HP and netting him an $800m fortune. That’s $10bn, out of HP’s free cash of $13bn, for a company with revenues of $870m at the end of 2010, versus HP’s $126bn.”
Price tag aside, there were also plenty of warnings about HP’s ability to integrate Autonomy, it may well be that Dr Lynch was seen as a hindrance rather than a help in breaking in the new acquisition.
But as the Wall Street Journal points out: “If you look at the four of its last five acquisitions, including Autonomy, the incumbent CEO hasn’t lasted very long.”
Charlie Hull, CEO of Cambridge open source enterprise search company, Flax believes there was a ‘me too’ aspect to HP’s acquisition of Autonomy, with many of the big IT infrastucture companies buying enterprise search players as part of a big data play. The difference being that when Oracle bought Endeca, IBM bought Vivisimo and looking back a bit further, Microsoft acquired Fast the price tags were markedly lower.
Hull is speaking at Enterprise Search Europe in London next week and he predicts that Dr Lynch’s exit will be a key topic of conversation among delegates.
He viewed the sale to HP as mission accomplished and is cooking up something new
The Guardian quotes “a source familiar with Lynch’s thinking” as saying that not only is Lynch not going away, “he still has entrepreneurial ambitions.” Their tip is that Lynch might be planning to set up a new business in the big data space.
It is probably not the most auspicious end to Dr Lynch’s involvement with Autonomy, especially given the incredible heights to which he took a business he built from the ground up. While HP and its shareholders may be ruing the decision to buy Autonomy - or at least the price they paid - there is every chance that the wider technology community in Cambridge may actually benefit from Lynch’s exit.
There is a possibility that he may take up the reins at Aurasma, a fast-growing business that was reportedly being prepared for spin-out from Autonomy prior to its acquisition by HP. Be interesting to see what could be achieved there with Dr Lynch’s hand on the tiller on a more full-time basis.
Dr Lynch is already investing in local tech startups, like behavioural analytics startup Featurespace, where he also sits on the board. It would be equally exciting to see what could be achieved by a man with $800m burning a hole in his pocket and some time on his hands.
The big news though, would be if Dr Lynch took it upon himself to build another big gorilla in big data, reports suggest he shouldn’t have too much trouble building a core management team and there might well be a few others willing to buy into that, HP excepted perhaps.
Cambridge medical technology consultancy, Team Consulting will be speaking for many in the local tech community when it says:
@Cabume Shocked to hear that Mike Lynch is to leave HP/Autonomy. Excited to see what he does next (in Cambridge hopefully)
— Team Consulting (@team_medical) May 24, 2012
Camb IT Support Ltd: Camb IT Support
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