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Friday, March 26, 2010

Palm: The Road To Recovery

In January of 2009, shares of Palm traded at a little over $3 as everyone awaited details of the once-mighty smartphone maker's plans to save itself from certain death. With cash infusions from Elevation Partners, and cutting edge product development by Jon Rubinstein, the revered ex-Apple product-guru, it seemed like Palm had a fighting chance. In the wake of the Pre's successful unveiling later that month at CES, Palm's stock price more than doubled, and optimism about the Pre's prospects eventually drove shares to a high of over $17 in October of last year.

But in February this year, Palm stumbled big. Sales of its Pre and Pixi devices were way below Palm's and Wall Street's expectations, and the company’s earnings reports showed that it has little cash left on hand. Rubinstein’s letter to Palm employees painted a grim, yet hopeful picture. On the news of this dismal performance, shares of PALM dropped all the way back down to $4.

What happened?
  • Timing: Carl Lewis once said “life is all about timing”. Palm’s launch of the Pre came a few weeks before the launch of the iPhone 3GS. While Palm’s choice of timing was probably aimed at taking the wind out of Apple’s sails, what really happened was the opposite. There were long lines outside AT&T & Apple’s stores whereas the lines outside Sprint stores were minimal. By the time the iPhone effect began to wear off, and as Palm started to regain its mojo (pun, intended), Google launched Android. Widely adopted by device manufacturers around the world, Android began (and continues to) grow at dizzying speeds.
  • Marketing: Palm’s comeback ads should have been big and bold. Most importantly it should have highlighted the Palm brand, the Pre’s features and how the Pre was superior to the iPhone. Instead, Palm’s marketing campaign was widely regarded as being creepy. While the ad agency that made the commercial loved the fact that customers were creeped out by the ads, the joke was in fact on Palm, who bet the farm on the Pre – and lost.
  • The App Catalog: One of the most exciting aspects of the Pre launch was the promise of a new and robust app catalog for customers, and a more open platform for app developers. But when the Pre launched in early June of 2009, the App Catalog had only about 30 apps. This number hadn’t changed much even after a few months. While Palm defended this by saying that the iPhone too did not have many apps at launch, they missed a critical distinction. The iPhone launched at a time when ‘apps’ did not exist. So Apple had the luxury of time to fine-tune the process and launch the ‘App Store’ at a leisurely pace. Palm on the other hand was launching its App Catalog when customers already had a benchmark – the Apple App Store. Palm’s offering was immediately compared to the Apple offering, and it paled in comparison.
  • Carrier Selection: Palm’s choice to launch with Sprint was prudent. However, what wasn’t smart was the length of the exclusivity agreement. With AT&T driving sales through its iPhone exclusivity, and with Sprint sputtering along with its Palm exclusivity, Verizon was at a competitive disadvantage. Verizon responded with the Moto Droid and a $100 Million advertising blitz. The result? Verizon sold more than 250,000 Droid’s in the first week alone. When Palm eventually launched the Palm Pre Plus and Palm Pixi Plus with Verizon, it was targeted at women; and sales stalled. Although Palm and Verizon have realized their folly and have changed tactics, it just might be a case of ‘too little too late’.

The long road back
There is a growing consensus—as expressed by the market—that there are only two possible futures for Palm: acquisition, or insolvency. While that might be, I personally believe that Palm still has other options. Some of these are:
  • Expand carrier selection: Palm can no longer focus on a single-carrier strategy like Apple. Given its precarious cash position, it needs to increase cash-flow by offering its handsets through as many carriers as possible. There is already evidence that Palm is pursuing this strategy. Palm recently announced that the Palm Pre Plus and Palm Pixi Plus will be available through AT&T ‘soon’.
  • Expand Internationally: Palm is already available internationally in Germany and is rumored to be heading to the UK in summer this year. Palm could focus on emerging nations where the iPhone is considered to be pricey, and where Android doesn’t have an established base yet.
  • Marketing: Palm has learnt some hard lessons in this area, and has fine-tuned its advertising considerably. But some analysts and bloggers still think it could be better.
  • Partner, partner, partner: While it is true that smartphones are only as good as the apps they run, Palm should focus on partnering with web majors like Amazon and eBay to bring tighter integration between its partners and app developers, thereby opening up new revenue streams for both parties.
  • If all else fails, license WebOS: This is akin to Google’s Android strategy; licensing Android while also launching its own devices like the Nexus One. If Palm were to adopt a licensing model for smartphones and other devices, it might just see its business improve. But this strategy is not without its risks; Android already has quite a bit of traction in the market, as does Symbian. And soon, Windows Phone Series 7 will debut, giving device manufacturers yet another option.
Ultimately, time will tell what road Palm will ultimately take. And time is what Palm does not have enough of.