HP CEO Mark Hurd spoke to the Bank of America-Merrill Lynch technology summit earlier this week, and caused somewhat of a media frenzy when he very directly proclaimed that HP acquired Palm just for its IP and OS:
“We didn’t buy Palm to be in the smartphone business. And I tell people that, but it doesn’t seem to resonate well. We bought it for the IP. The WebOS is one of the two ground-up pieces of software that is built as a web operating environment. . ."
Walking it Back
Journalists jumped all over Hurd's comments, forcing HP to respond quickly to correct Mr. Hurd's "gaffe". In less than 12 hours, Mr. Hurd released the following "clarification":
“When we look at the market, we see an array of interconnected devices, including tablets, printers and, of course, Smartphones. We believe WebOS can become the backbone of many of HP's small form factor devices, and we expect to expand WebOS's footprint beyond just the Smartphone market . . .”
There is no shortage of opinions on HP's acquisition of Palm — there was consensus that HP would enter the tablet market (with WebOS) to compete with the iPad, but no speculation that HP would ditch its Smartphone ambitions. Earlier comments from Hurd on the acquisition weren't overt on his company's Smartphone intentions either; in mid-May, Hurd was quoted as saying:
"[The Palm acquisition] isn't precisely a smartphone play, as I've seen some people write . . .”, and, “. . . for us, strategically broader. We expect to leverage WebOS into a variety of form factors, including ‘slates’ and Web-connected printers."
These types of messaging stumbles are uncharacteristic of Hurd, who is highly regarded in the IT industry, and for his success in turning HP's PC business around. To be fair, the context of the “we didn’t buy Palm to be in the smartphone business" quote is important. The quote came in response to a question posed to Mr. Hurd about the rationalization for HP's recent acquisitions (3COM and Palm). Hurd was speaking at a high level and about a long range view of HP's business — WebOS gives HP a means of lowering its cost of goods sold on all of the interconnected devices it makes (and has plans for). The range is broad, and currently includes Smartphones, printers, tablets, and other net- connected devices. By owning the OS, HP can avoid spending money on licensing (much to Microsoft’s dismay), and achieve what Mr. Hurd describes as, ". . . a consistent experience across all of these devices connected to the same back-end services". This makes sense.
Smartphone Strategy is Key
The IP, OS, and engineers that HP is getting from Palm are unquestionably significant elements of the rationale for the acquisition (as can be evidenced by the interest in Palm from a number of HP's peers that were vying for these assets) — however, going forward, the handset business will be critical for HP to be able to offer end-to-end mobility solutions. Palm's handset failings were not attributable to its feature set, functionality, or capabilities — the company made several mistakes (primarily the carrier exclusivity deal it entered into with Sprint) with its current products (the Pixi, Pre, and Pre Plus). Additionally, Palm's marketing efforts were also widely perceived as falling short.
It is our view that with Palm, HP has a "vehicle" to compete with the likes of Apple, Google, RIM, and others — this is primarily due to the strengths of WebOS. The variety of applications available for WebOS pales in comparison to its rivals, but there is a loyal base of developers (albeit small) available to broaden the range. The battle for the mindshare of developers has begun, with companies promoting contests, offering prizes, and considering partnerships to grow their developer ranks.
While HP has been successful at increasing the ranks and capabilities of its services arm (primarily through earlier acquisitions of Compaq and EDS), HP is still a hardware company. They are aiming to release a tablet running WebOS in time for the holiday season — and are likely working on several printers featuring WebOS as well. Along with these releases, there will undoubtedly be some new apps; if these products are a success, rest assured that WebOS will be around for some time . . .