The market is following where Apple trailblazed, once again. In a BusinessWeek story about HP's recent less-than-stellar quarter, we noticed that HP was going to be opening a store-within-a-store at some general electronics retailers. This is similar to Apple's store-within-a-store at CompUSA, save that all the products will obviously be HP products. The kicker is that the store-within-a-store will largely be demonstrating the digital hub concept. From the BusinessWeek article:

The company is pinning substantial hope on the notion that consumers want to add more digital gadgetry to their homes and home offices. The consumer segment "is certainly a very large piece and one of the key growth areas of the company," says Chris Morgan, HP's vice-president of worldwide sales and marketing, imaging and printing. That's why Fiorina launched 150 new products on Aug. 11, in time for the back-to-school and Christmas seasons. Consumer-related sales make up 30% of total HP sales.

The strategy has its merits. The idea is to expand consumers' use of personal computers beyond the home office by offering a suite of easy-to-use digital products -- notebook computers, printers, scanners, digital cameras, and devices that all interconnect so fluidly that even technophobes would feel comfortable downloading data and sending digital photos directly to their printers.

HP is also testing a "store-in-store" concept at consumer electronics retailers, including Circuit City ( CC ) and J&R Music & Computer World. The HP area within these larger retailers will emphasize how all the HP products work together. "There's a lot more opportunity in the home than just PCs and printers, and by addressing ease of use, HP can garner a bigger piece of the market," figures John Jones, an analyst at SoundView Technology. (Jones does not own shares and his firm does not perform investment banking.)

Circuit City does not currently carry Macs, while J&R Music & Computer World is a long time Mac (and PC) retailer. There's more information about HP, it's current struggle, and related issues in the full story at BusinessWeek:

Follow the leader

Apple hardly invented the store-within-a-store concept, but it did show that it can work for computers in the retail market. It was originally suggested earlier this month that HP was pursuing a business model akin to Apple's, but perhaps none of us knew the extent to which that was true.

It's interesting that a company of HP's size -- the company brings in more in a quarter than Apple does in an entire year -- sees profitability and potential in following a model from a company that everyone wants to declare dead, irrelevant, or both. After all, haven't most people been screaming that Apple can only compete through price reductions?

In reality, what Apple has known for years, and HP is apparently catching on to now, is that Dell will beat them at that game every time.

If at first you don't succeed, change the rules

Indeed, it seems as if HP has perhaps even figured out that if it can't compete in that game, it must change the rules. Again, that's exactly what Apple did starting three or four years ago. The company set out to find added value that it could offer its customers, and charged enough for its products to remain healthy. If HP can do the same thing, it bodes well for the entire industry.

While this is something I have been meaning to write about in depth for some time, I'll touch briefly on it now. Dell is bad news for computer users, at least in the long run. While Dell has certainly helped push prices down for consumers, especially at the low end, the result has been that no one other than Apple, Microsoft, and Intel can afford to do any real R&D. The only reason Apple strides among those other two giants is, as I said, because Apple changed the rules. Apple left the toaster market for those who want to make toasters (Dell and everyone trying to stay neck and neck with Dell), and those who want to buy toasters (PC users who could care less who makes their undifferentiated beige box).

There's been no real innovation from any of the beige box vendors in years. There's no competition in features and configurations, and there's little innovation in even such basic areas as industrial design. In Japan, for instance, a market not dominated by Dell, you'll find all manner of interesting industrial design and almost bizarre configurations for PCs. Weird and strange form factors, buttons and lights all over the place... Companies selling PCs can afford to try new things to interest new customers.

Not so in the States and most of the rest of the world where price is the only thing that matters to the mewling herd.

Until now, it seemed that HP was largely content to compete in this same toaster market, as it earned profits on its printer business, and lost money and market share to Dell in the toaster/PC business. HP simply can't compete with Dell on price, and the effort has meant hundreds of millions of dollars in losses from HP's PC division in recent years.

Now, HP is introducing new consumer products, trying to make digital peripherals work more smoothly in the seldom-smooth Windows world, and even marketing those products in a way to show off the added value of how well things work together. In other words, HP is working hard at competing like Apple (not that I think the company will actually ever do those things as well as Apple).

Walk this way

I strongly hope that HP can succeed, because if it can, it means good things for Apple, too. If HP, and perhaps even Gateway, could manage to make a living competing on features and innovation -- something that can actually be (gasp!) profitable -- suddenly Apple wouldn't be competing alone. Suddenly, Apple would be one among many that were trying to offer consumers something better, instead of simply something cheaper, and its prices wouldn't seem out of sync with the rest of the market. If consumers bite at HP's bait, Dell could find itself King of the Toasters, with few skills in this other world where you have to bring something new to market to get attention.

In short, if HP can successfully rejigger its PC business to compete in something other than price, the destructive and unsustainable price war that Dell delights in and excels at could well be over. That, in turn, would mean that computer companies could go back to figuring out new and different things they can bring to market. Apple, as the best at figuring out new and different things to bring to market, would be well positioned to compete in such a market, which could easily mean market share gains.

Don't misunderstand me. There will still be plenty of room for cheap pieces of crap PCs, but if the market shifts even a little, it will benefit Apple, HP, and consumers alike. In that light, I say to HP, bring it on! A store-within-a-store, the Digital Hub, .HP, the HP Music Store, turtle necks for Carly Fiorina, and cool, new, hip industrial design! Do it all, and do it well!