So the cat is finally out of the bag, as HP emerged the winner in the Palm “Sweepstakes”. Is this a good deal for HP? For Palm? Can the combined HP/Palm emerge as a strong contender in the Smartphone market? Or is this “too little too late” for both? One point that is clear is that if HP wants to be a contender in the Smartphone and broader mobile/connected device market, this was their only play. There is no money to make selling Smartphones running on someone else’s OS. If Apple has taught us anything, it is that in today’s market, you need to own the OS stack and have a controlling interest in the eco-system that supports application development and distribution. It is the appliance model with some tweaks.
Many of Palm's potential acquirers (HTC and Lenovo were the most widely discussed) likely would have cannibalized Palm, focusing largely on the intellectual property and salvaging the brand — regardless, of how HP handles the integration, one element is very clear — time is of the essence. HP has to move fast, as things will heat up this summer, with Smartphones supporting AMOLED displays, 1GHz processors, and video call functionality all on the horizon. The early success of the iPad, and the plans others have announced (HP included) indicate that the tablet market may see more success than previous attempts.
However, while the early success of this transaction will be closely tied to HP/Palm’s ability to rapidly develop and introduce attractive and innovative Smartphones — i.e., reverse Palm/webOS’s downward marketshare spiral within the next 12 months — this deal is really about much more than HP staking a position in the Smartphone market. This has everything to do with webOS’s appeal beyond Smartphones and its potential as the de facto cloud-based computing interface. So what makes webOS so unique?
There has been some recent noise about the significant security vulnerabilities inherent to webOS, as the OS is essentially a mobile browser. It appears that much of these issues related to the earlier version of the OS, and that they have been fully addressed with the current version of webOS (1.4). Moreover, Palm recently announced new crypto/security APIs, and support of tools that will make it easier for webOS devices to autodiscover devices in a network. That being said, security is obviously a huge issue— especially as mobile applications become more sophisticated. Palm appears to be addressing this head on, but very frequently “perception is reality”, and having this perception can be a killer.
Smartphones are just the appetizer
There is clearly more to the webOS opportunity than just Smartphones. More specifically, HP’s webOS strategy needs to look beyond Smartphones into other mobile devices. HP has certainly not been shy in making the connection with its upcoming slate tablets, and one could take that one step further to include netbooks. While HP clearly has no intention of alienating Microsoft, this transaction is a clear indication of what HP thinks about its Windows Phone 7 plans. One scenario for tablets/netbooks could be a dual-boot webOS/Windows 7 tablet, whereby the webOS would represent the ‘instant on’ OS. That said, HP’s nearterm focus needs to be on developing compelling webOS Smartphones, along with viable applications. webOS marketshare needs to reach critical mass in its core markets (read US and certain European markets) over the next 12-18 months, which means at least 10-15% of units shipping. Possessing a viable Smartphone will give HP an end-to-end play to the data center. HP competes well with IBM within their service organization, and Cisco in the data networking space, but going forward, the Smartphone will be an integral piece — failing here makes everything else a moot point.
Application Developer Community
Much has been made of the ease of application development for webOS, as most developers that have done rich application work in a browser or Web runtime should comfortably be able to make the jump to webOS. That is fine and good, if there is a reason for them to use webOS applications. While it is always beneficial to leverage tools/environments that the largest amount of developers are comfortable with, developers learn new tricks if the payoff is there (i.e., iPhone installed based and AppStore distribution model). To compete with Apple, Google, and RIM, HP is going to also have to move quickly on applications—Palm has an app store (App Catalog) / platform, now HP needs to enhance it, and draw in more developers. As enterprises continue with their Smartphone adoption, applications will follow, and HP needs to be ready to participate with enterprise application partners — we'll be watching this space closely.
This is where everything could ultimately shake out (assuming webOS survives the next 12-18 months). This is an area in which HP, with its cloud computing prowess, can really shake things up. webOS was inherently designed to leverage the cloud and not be tethered to a PC or data repositories. HP clearly now has all the pieces — from cloud services, to OS and consulting to be able to deliver on this promise. The challenge here will be timing.
HP’s Forte: Operations and Execution
Bottom line, Palm remains a strong mobile brand, and the company brings HP immediate Carrier relationships (incidentally, HP is an infrastructure provider to most of the largest telecommunications carriers). However, Palm has not executed well with some of these relationships—both in delivering not “fully baked” hardware, and also not educating/training the carrier’s sales teams more effectively in the value of webOS and Palm’s Smartphones. Moreover, Palm’s regional footprint remains highly fragmented and the company has just begun to emerge in Europe. HP clearly has the scale, resources and expertise to address many of these shortcomings.
HP needed to make a move, and they are fortunate that Palm was available — HP couldn’t figure out what to do with the iPaq assets they acquired when they purchased Compaq, and with Palm, now they have a viable path forward in the Smartphone space. While the gravity in the market is clearly with Apple and Google, there definitely is a window of opportunity for HP (and others). RIM’s new phones and updated OS (scheduled for a Q3 release) also have the potential to shift the landscape. Interestingly, RIM’s new OS will bring them closer to the consumer Smartphone market — a potential angle for HP is possibly moving in the other direction – towards the enterprise. HP’s global reach (and sales infrastructure) is significant, and with Palm, the ability to deliver an end-to-end solution from Smartphone to data center is now a possibility — the pressure is on for HP to execute quickly, and release an updated product to compete with the slew of updated Smartphone products scheduled for release this summer. There is definitely some risk here for HP, but given the price they are paying for Palm, they aren’t that exposed — the risk for HP will be more around their brand, and their ability to integrate what they are acquiring with Palm. Incidentally, Microsoft may need to rethink its close relationships with HP and Dell as it prepares to launch its upcoming WIMO 7 Smartphone.