With HPQ buying Palm for around $1B in cash, did this come as a big surprise? Not really. When people were talking about companies to take over Palm, I didn’t think guys like Nokia, RIM would be too interested. Too little value really, as their carrier contacts wouldn’t be enhanced significantly due to Palm’s limited footprint. On the developer side, the number of apps that have been created for Palm’s WebOS is around 5k, significantly less than for the iPhone or Google Android. While the Palm Pre was lauded for its design and ability to merge the functionality of a keyboard + touchscreen, the look of Nokia and RIM smart phone devices aren’t hurting them. The same goes for HTC, which has come a long way in terms of building decent looking smartphones (mostly through dozens of iterations and working with the design houses of the companies they build phones for).
Essentially, the ideal buyer of Palm was going to be a company that didn’t have a smartphone presence, or one that needed to overhaul its existing one. An IT company like HPQ makes perfect sense along with Dell, but China’s Lenovo already sells an entire range of cellphones, while Taiwan’s Acer has already been aggressive in this regard as well. I think Palm might have had few natural buyers, hence the lack of a bidding war.
For HPQ, while some writers have talked about it giving up its early lead in smartphones with its iPAQ devices, the market for smartphones in the 1990s consisted more of Palm Pilot-like devices for professionals, and corporations – advanced data organizers really. The consumer smartphone market arguably was pioneered by Apple’s initial iPhone, which in 2007 pushed the technology envelope in providing advanced touchscreen capabilities at consumer-friendly prices. RIM’s Pearl device in 2006 signaled the company’s big push into the consumer space, and the race was on, so to speak. The one thing missing for HPQ, whose lineage is solidly in the IT domain, was the ability to build a sexy smartphone. Exhibit 1 is HP’s current iPAQ for the enterprise market. Not bad looking, but falling behind RIM’s Bold and Tour phones in terms of looks.
What are the implications for HPQ and where do they take Palm?
HPQ likely sees the writing on the wall with smartphones getting bigger in size, especially with the release of Apple’s iPad. Perhaps they can create some hybrid devices (a big Palm Pre tablet) that they can sell, perhaps even get carriers to sell it – carriers have been selling netbooks to their customers for some time now. HPQ has relied on Microsoft traditionally to power their devices, and they use Windows to power their PCs and Windows Mobile on their handheld devices. I don’t think this relationship changes so much (having one architecture for all devices makes sense), but this does provide one option for them if they ever decide to dump Windows Mobile on their handheld devices or at least on consumer embedded devices like car modules, home media centers, and new connected devices in the future.
At the end of the day, HPQ’s acquisition of Palm might turn out to be more of a grab on people and patents, as the consumer smartphone developer story has basically played out already. If HP might plow more money into Palm, but I think for the price they can afford to go a couple of different routes, and therefore if Palm devices continue to stumble, they’ll be given a short leash for sure. Do they go against Apple + Google + Nokia and throw some big bucks into marketing Pre (or successors) internationally? I don’t think so, but it depends on whether Palm can convince them that they would’ve done exponentially better with a bigger Applesque marketing budget. I still think there’s an opportunity because companies aren’t really using a lot of iPhones for corporate work, so it could turn out that HP goes the practical route and make the HP Palm a strong #2 to RIM in the enterprise smart phone market.
In summary, for HPQ, the enterprise play might be more strategic, and if they focus on making Palm devices more like a svelte successor to the Treo, this would be sense to me and in line with HPQ’s relatively conservative nature. Recall that they made a big play in enterprise routers a few years ago after being a force in enterprise switches… as the enterprise consolidates around companies like Cisco, I think HPQ wants to continue to stretch out here to own the enterprise. Is Avaya next?
