What will HP do with Palm’s webOS? Mostly likely: fail
May 7th, 2010
Daniel Eran Dilger
For some time, it’s been obvious that Palm desperately needed a deep pocketed partner in order for its fledgling webOS to remain a viable competitor in the smartphone area. It was less obvious HP might be the one interested. But now that the $1.2 billion deal is done, what’s the chances it will work out?
Outlook not so good
Three years ago, I outlined the dire circumstances that had resulted in Palm tumbling down the stairs from its former position as one of the first successful smartphone vendors to being a bland, comatose company out of fresh ideas and unable to sell its products.
After the iPhone was released, Palm’s fortunes just fell further through the floor. However, after hiring Apple’s iPod chief and a number of iPhone engineers, Palm managed a spectacular reinvention of itself to deliver what appeared to be a credible competitor in the new Palm Pre.
The new platform was purposely limited in scope, but aimed at what appeared to be a viable target: the rapidly growing market for sophisticated phones slightly below the iPhone. While the launch was not without problems, its success was primarily limited by the size of Palm and its initial mobile partner.
Yet even as it branched out from Sprint to join Verizon and then expand toward AT&T, Palm simply couldn’t get its sales into the range it needed to sustain itself and its future development. Hemorrhaging cash, Palm needed a big hardware partner.
Lenovo and HTC were among those cited as possibly interested in buying Palm for its new OS, but in the end it was snapped up by HP, which has had little success in smartphones or consumer electronics devices at all. Where’s the synergy?
When one big dumb company buys another, there’s never a net gain in intelligence. Ask Palm, which itself spent $11 million in 2001 buying Be, Inc. assets, only to ineffectually fold portions of its technology into a product nobody bought (the Cobalt OS). It was subsequently put into cold storage.
Or consider HP, which merged in 2001 with Compaq for a spectacular $25 billion, converting the two companies’ combined 18.3% share of the PC market into a merged company that subsequently sat on a 14.5% share for the next half decade, only to work its way back up to its historical high through the volume sales of unprofitable, low end junkware PC and netbooks.
Post merger, HP destroyed nearly all the cool things Compaq brought to the table, including but not limited to its DEC Alpha processor and its Digital Unix, also known as Tru64. HP essentially paid $25 billion to erase a competitor and gain a low end brand name for it could apply to some of its PCs. And its iPaq PDAs, don’t forget those.
Cannot predict now
There are mergers that can work quite well. Certainly Apple’s acquisition of NeXT in 1996 was a tremendous example of pairing a technology-needy company with a market to a market-needy company with technology. But there are several reasons for pessimism about Palm.
For starters, it’s difficult to mix divergent corporate cultures. Even Apple and NeXT experienced some transition issues, and those two companies were essentially twins separated at birth. Palm has reinvented itself as a nimble startup, while HP is a creaky old giant that does things as conservatively as a dinosaur. That’s not a marriage made in heaven; its suffocation for Palm and confusing source of irritation for HP’s status quo.
There also has to be some decisive leadership in a merger. In the Apple/NeXT saga, it was clearly Steve Jobs and his team who took control of Apple and remade the company as a vehicle for NeXT’s ambitions. Had Jobs not taken that role, the Old Apple would likely have frittered away its potential, sidelining NeXT’s technology into a patent portfolio while allowing beige Macs to slowly die out along with anemic sales of the Newton Message Pad.
And yet I don’t really think Jon Rubinstein is going to take over HP and remake the colossal giant in the image of Palm. In fact, there’s scuttlebutt that suggests HP isn’t interested in Rubinstein continuing to manage the assets it just paid lots of money to obtain. That seems like a grave mistake, but a likely move for a company that already thinks its doing a good job.
My reply is no
The fantasy best-case-scenario is that HP will simply continue to sell Palm Pre phones while it works up a new product line of tablets and smartphones and perhaps smartbooks and netbooks and other devices over the next year.
But the problem Palm was facing wasn’t that people weren’t buying the Pre due to Palm itself not being strong enough financially. People weren’t buying Palm’s offerings because they were just poorly built hardware running a somewhat unfinished platform without much in the way of apps, all for essentially the same price as the iPhone and a variety of other options. Being owned by HP doesn’t immediately solve that problem at all.
In fact, HP is mostly known for selling shoddy hardware itself, particularly within the consumer space. Its PCs come loaded with piles of junkware; even its well-regarded printers are outfitted with terrible software. What does HP bring to the table? It has no ability to create desirable mobile hardware (despite trying for a decade), no experience in successfully managing a software platform (outside of servers), and no track record in handling mergers that were anything more than layoff bloodbaths.
What does Palm offer? A smartphone software platform it hastily developed in the course of about year in 2008 and then tainted with the stink of failure in 2009. HP should have been able to whip that together itself. So why did it pay $1.2 billion for a ready made operating system that it will now need to extensively modify in order to spread it beyond the smartphones it was originally designed to serve? Hmm, that’s a hard question.
There is nothing about the webOS that suggests it was intended to scale beyond the small screen of smartphones like the Pre, yet analysts are already fantasizing that HP will drop Windows 7 to create a webOS-powered tablet. Why is that? Because they think that if Apple could manage that, anyone can. Just like everyone successfully copied the iPod and the iPhone and the App Store and everything else Apple’s done. Oh wait, no that didn’t ever happen at all.
The thing is, Apple is pulling in billions of dollars of revenue from its new mobile business, so it can invest lots of money into developing that technology. And clearly, Apple got started on the iPhone OS with more than just the iPhone in mind. There’s reason to believe that the iPad concept actually predated the iPhone in reports of a “Safari Pad” under development around 2004. Even if that’s not the case, Apple clearly invested a lot of money and effort in developing the iPad. It didn’t just inject some steroids into the iPhone OS and drop it into a tablet PC.
In contrast, Palm was clearly under the gun to deliver a smartphone platform that covered the basics. The webOS is not anywhere near feature parity with the iPhone OS, nor does it try to be. Even the Palm Pre’s most giddy proponents were always quick to call it a “good enough” phone that could appeal to people who didn’t need the iPhone’s fancier features.
Given the criticism Apple has received for delivering the iPad as a simplified platform compared to Windows 7 or Mac OS X, how is HP/Palm going to turn the webOS into a tablet OS that isn’t far more underwhelming? Seriously, all it could possibly do is run Flash content, as as the world is about to discover, that’s not really as cool as Adobe has been suggesting it will be for the last couple years.
Reply hazy, try again
But don’t just consider my opinion on things. Let’s involve Windows Enthusiast extraordinaire Lance Ulanoff, who generates a stream of opinions for PC Mag that are almost always unerringly wrong.
If you’ve forgotten who that is, let me refresh you: Ulanoff is the man who in 2003 wrote that an obscure flaw in Mac OS X Jaguar made it “just as vulnerable as Microsoft Windows” during a year that businesses suffered $55 billion in virus-related losses due to their use of Windows. In 2006 he wrote a diatribe reviling bloggers so masterfully link-baiting that John Dvorak ‘bowed in awe.’ He also served as the canary in the coal mine in 2008, warning us all about the dangers of DRM-free music (which he called the “road to ruin”). And late last year, he was among the tiny minority still willing to shill for Windows Mobile.
In a PC Mag blog posting from last October, Ulanoff consumed 978 words (17 of which were “I”) explaining why the catalog size of Apple’s iPhone App Store in comparison to Microsoft’s fledgling Marketplace for Windows Mobile didn’t matter and that nobody should concern themselves about it.
“The fascination with the absolute number [of apps available for WiMo compared to the iPhone App Store] is really nothing but a fascination,” Ulanoff wrote. It wasn’t too long afterward that Microsoft dropped its efforts to fill out the Windows Mobile catalog and simply focus on Windows Phone 7, a platform that apparently doesn’t need apps, by design.
But while Ulanoff was happy to make ridiculous excuses for the joke that is WiMo, his true love was the Palm Pre, which he hailed from its first introduction. “Step aside, iPhone,” he wrote as he gushed over the Pre at its preview debut.
Without a doubt
“With its purchase of Palm, HP is instantly back in the mobile game,” Ulanoff now writes. Actually, HP was already in the smartphone game, it just wasn’t performing very well. The company sells a variety of Windows Mobile smartphones and Pocket PC PDA/phones that look a lot like everyone else’s offerings.
What does the webOS do for HP, apart from killing another Windows Mobile licensee for Microsoft? It won’t infuse the company with brilliant hardware designs, as Palm’s weren’t all that attractive to start with. All it really does is replace Windows Mobile with webOS, a transition that didn’t even save Palm itself. So what does it do?
If webOS breaks HP from its partnership with Microsoft, the company will need to figure out how to navigate a path HP has never really tried to tread, certainly not in the consumer space. Recall that no PC maker has ever successfully left Microsoft, or really even aggressively tried to do so. Is there reason to assume that HP will do an awesome job at something it has never tried before?
The last time HP opened itself up to foreign technology in that area was when it licensed the iPod from Apple. HP didn’t really know what to do with that apart from creating “tattoos,” little plastic decals you could print from your HP printer and stick to your HP-branded iPod. Wow, innovation at work. And yet when the iPod really began to get popular, HP backed out of the deal to return to the Microsoft flock.
Concentrate and ask again
“HP has the money and resources to turn around significant mobile phone hardware updates by early-to-mid 2011,” Ulanoff wrote, apparently unaware of what might be involved. Palm’s recent first quarter guidance indicated that the company would burn through roughly $200 million in the first half of 2010. That suggests HP will need to throw down another half a billion dollars just to keep its new Palm unit operating at status quo through next summer. In order to do anything dramatic, HP will have to throw even more cash on the fire.
Ulanoff also fantasizes that HP could use Palm’s webOS on its Slate PC that’s not selling, and which already runs Windows 7 and Android. When you’re not selling hardware, how many different operating systems should you be paying to support on that hardware? The answer is: why are you not selling the hardware?
If you’ve forgotten, the HP Slate PC was that clunky notebook without the keyboard that HP gave to Steve Ballmer to wave on stage at CES, shortly before Apple introduced the iPad and completely silenced all talk about whether people would be buying an expensive, inch thick screen running Windows.
It’s comical that Windows Enthusiasts all harp on the iPhone for not having a physical keyboard, and then turn around and lust after a Windows-based tablet that lacks a keyboard but demands one to navigate its desktop-style user interface. Ulanoff doesn’t offer any suggestion of why anyone would buy the HP Slate PC running webOS, or what additional costs HP might incur to make its non-selling tablet support an operating system and platform designed specifically to run on smartphones, but it’s going to be something in excess of the half billion dollar burn HP faces just to keep Palm afloat through next summer.
Of course, that’s when iPhone OS 5 comes out.