The Part of Palm that Smartphone Companies Should be Bidding For

Anytime a CEO gets ousted in disgrace, his or her pet projects are vulnerable to a quick trip to the gallows if they falter.  Mark Hurd was the CEO who bought Palm, so it was at risk from the moment Hurd left.  HP's mobile device performance had not been good this year -- the Veer smartphone launched and vanished on the same day, and the TouchPad turned out to be a sales disaster.  If Leo Apotheker had chosen to invest further in the business, it would have turned into his responsibility.  It's far easier to just walk away.

You can make an argument that HP should have given the business more time, and it's a shame that we'll never get to see the Pre 3.  But Palm's sales have been troubled for years, and I think its fundamental mistake was that it tried to be too much like Apple.  From the start, Pre was aimed at the same users and the same usages as the iPhone (even down to a failed effort to tie the phone directly to iTunes).  HP proved that most people don't want to buy an incremental improvement to the iPhone that can't run iOS apps.

Then just for kicks, HP went and proved the same point again with the TouchPad.

The lesson to other mobile companies, I think, is that unless you're a low-cost Asian vendor, you need to differentiate from Apple, not draft behind it.

I'd love to see Web OS live on, but the hardware debacle makes that less likely.  As I mentioned the other day, licensees choose an OS because they think it'll generate a lot of unit sales for them.  Since Web OS couldn't do that for HP, who else would want to license it?

If you believe that every smartphone company needs to own its own OS, we ought to see a mad bidding war between LG, HTC, Sony Ericsson, Dell, and maybe Samsung to buy Web OS.  (The loser could get RIM as a consolation prize.)  Maybe a buyout will still happen, but I think HP has probably been quietly shopping Web OS for a while, and if there were interest it would have tried to close a deal before today's announcement.

(By the way, HTC, if you do buy Web OS, you should insist that HP give you the Palm brand name as well.  It's still far better known than the HTC brand in the US.  The same logic applies for LG.)

But I'm not persuaded that buying an OS is the right way to go for any smartphone company.  Turning yourself into a second-class imitation of Apple isn't a winning strategy, especially if your company doesn't know how to manage an operating system.  (Case in point, look what it did to HP.)  You can create great mobile systems without controlling the OS; all you need is a great system development team and the freedom to put a software layer on top of whatever OS you use.

That means the real crown jewel in the Web OS business unit is the system development people -- the product managers and engineers -- that HP just threw in the garbage.  In my opinion, that's the part of Palm that smartphone companies should be fighting for.

21 comments:

Anonymous said...

HP's integrated approach just could not get traction against Android's open. Nokia, RIM, iPhone- all saw their market lead over Android disappear with their integrated approach. The lesson of the integrated Mac's defeat against Windows' openness is lost again.

Anonymous said...

Was expecting you to conclude with there should be bidders for the patents, not the Palm engineers. Didn't most of the best talent flee before the HP purchase of Palm closed?

Narain said...

While I agree with your underlying point I can't agree with the following specific ones:

1. How is RIM, a successful (albeit less so that it once was) company with a global presence a consolation prize compared to HP's WebOS unit which has clearly been a total failure with zero brand equity outside the US and a debatable one in the US which brings me to the next point:

2. At this stage HTC can only be seen a brand in ascendance while Palm has the taint of (multiple) failure all over it.

Anonymous said...

@Anon 1:17am, you do know that HP is also selling off its PC business, right? They are the largest PC vendor in the world, and if anyone could get economies of scale and make money on it they would, I would think. Yet here they are departing the market for lack of profits...

Microsoft is the only winner in this non-vertically integrated market. Similarly, Google is the only winner in their non-vertically integrated market. Apple is not competing with either of them since Apple *is* vertically integrated in equipment and services, and is taking the vast majority of the profits in both markets. Apple is also the largest manufacturer of PCs in the $1000 and up category

Link: http://www.betanews.com/joewilcox/article/Apple-has-91-of-market-for-1000-PCs-says-NPD/1248313624

and the largest manufacturer of smart phones in the world

link: http://news.cnet.com/8301-13506_3-20088561-17/apple-iphone-tops-smartphone-charts-in-2nd-quarter/.

I wonder what the real lesson is here, and who really didn't learn it, lol.

Anonymous said...

"Nokia, RIM, iPhone- all saw their market lead over Android disappear with their integrated approach. The lesson of the integrated Mac's defeat against Windows' openness is lost again."

Simplistic analysis. But takes too long to explain why you're wrong. Suffice to say:

1. DOS-Windows won because of IBMs monopoly power not because of Windows 'openness'. Openness allowed MS to wrest that monopoly from IBM though by allowing the growth of clones, but openness was not the reason for DOS winning.

2. If Openness for Android is so great, why is Google acquiring Motorola? Because it is getting harder and harder for an open hardware to keep up with the pace of iOS refinement. Hard to optimize an OS across 20 devices vs 1.

3. If Android won, how come Apple gets all the profit and is growing by leaps and bounds? Because Android's market share growth came with manufacturers entering a new market trying to grab market share hoping to be one of the few winners who survive. They're finding out there's little profit to be made and the shakeout is coming.

Smartphones and tablets will become like any other non-monopolized complex high tech manufactured consumer product. --Integrated mfrs will rule.

Windows was the exception because it was a monopoly.

Michael Mace said...

Anonymous wrote:

>>Didn't most of the best talent flee before the HP purchase of Palm closed?

There has been turnover, especially at the exec level, but a lot of the people who remained are the stalwarts who don't job-hop: true believers who were dedicated to Palm and wanted to see the job through.

Think mid-level managers and senior individual contributors, not vice presidents. They're not public rock stars because they don't seek attention online, and their titles are not sexy. But they're the sort of reliable, experienced do-ers you can build a team or a company around.

It's very sad that they didn't get a chance to at least ship the Pre 3.

I'm sure they're already hearing from recruiters and friends who want to hire them.

My advice to them: Think of this as a paid vacation courtesy of HP. It'll probably take HP weeks, if not months, to set up the layoff packages. In the meantime, you are being paid not to work. As a friend once told me, it's the modern sabbatical! Kick back, decompress a bit, and then work your contacts to find your next gig. Fortunately, the job market in the Valley is pretty hot right now.

Gregory Gorman said...

Hi Mike,

I think unfortunately, the whole debacle with Palm OS reflects badly not only on Hurd but on his right hand guy at PSG and you know who I mean. HP does not understand software, they may now have a software guy at the top but they are still struggling to move away from jardware to be a Software and Services Company. HP has lost a ton of talent to competitors and others who just plain gave up on the lack of leadership at HP. After all, what was Hurd's main strategy -- cut costs, cut costs, cut costs. What happened to the INVENT in HP? Just a few thoughts from an X-HP guy who watches sadly :(

Anonymous said...

>>If Leo Apotheker had chosen to invest further in the business, it would have turned into his responsibility.  It's far easier to just walk away.

Nail. Hit on the head. Alas. Man's greatest endeavors reduced to "what's the safest way to keep my job".

Anonymous said...

Leo A.

Step 1. Secure my job by dumping my entry point in the future of personal computing.

Step 2. Add value by paying 40x earning for a run-of-the-mill enterprise obscure enterprise software company.

Whith CEOs like this, who needs competitors?

Anonymous said...

>>...unless you're a low-cost Asian vendor, you need to differentiate from Apple, not draft behind it.

Isn't Apple a low-costmAsian vendor? (I mean this withoutnjest.)

Anonymous said...

Since I could only explain it simply, like I'm three years old: you do know, around the world, most PC’s used are no-name clones, right?. Windows machines are so ubiquitous, such a commodity, that HP can’t possibly compete with pirated ones, off of craiglist, or at Santa IfigĂȘnia. Millions of tiny shops, and not-so-small businesses like Lenovo, are making profit, building and selling these Windows boxes.

Apple is definitely competing with Microsoft and Google- a customer
buying a Windows and/or an Android, is not buying a Mac and/or an iPhone. If you can account for all profits generated in these non-vertically integrated ecosystems, including mobile screen
advertising, and the grey shanzhai, they overshadow Apple’s ecosystem. Apple’s vast profits won’t be so, when Android’s marketshare overwhelms Apple's fashionable cashcow iPhone- it’s Windows vs Mac all over again, and Apple had a near-death experience from that. Google is acquiring Motorola’s patents since Apple has gone patent predator at the time that the iPhone market growth has stalled, essentially flat.

The only reason why anyone in their right mind would pay $1000 and up for a PC is to make sure it can run Crysis. That, and vanity
computers, are small, niche markets though.

An Android hardware shakeout might already be here. But for every
Samsung that beats down an LG, there’s a Huawei waiting in the wings. Intense competition makes Android better than iOS, you can have your Android your way, not dictated by Steve Jobs. You can have your $80 Android in Kenya or some 4.3 LTE on “America's Largest and Most Reliable Wireless Network”.

Integrated mfrs went the way of the Model-T, it’s now a networked
world of Sharp LCD’s, Foxconn factories, and yes- (the
Apple-lied-to-stop-Tab) Samsung chips. “Lol! No wonder the iPad looks like the Galaxy Tab, Samsung makes the iPad, lol!”

Walt French said...

Anonymous said, “Windows machines are so ubiquitous, such a commodity, that HP can’t possibly compete with pirated ones, off of craiglist, or at Santa IfigĂȘnia.”

Exactly: selling last decade's hot product isn't exactly either a growth or high-profit line of work. The PC is 30, and thanks mostly to Microsoft, the lion's share of desktop-type use has been utterly stagnant. Why should a firm sleepwalking thru life get the returns that risk-taking, growth shops earn?

MS enhancements have been circling the wagons to make sure no other OS had any hope of breaking into either the Enterprise (tho they facilitate linux used for client-facing websites, the better not to lose them entirely), and that no other desktop software besides Office was used for the office documents.

Meanwhile, Google has been hustling, trying to capture all the internet usage, and Apple has been hustling trying to capture people who aren't locked into the Enterprise. Both, very successfully.

HP? Although they have a proud history of “pivoting” as business changed, they've lost the ability to create a cohesive, long-term plan of how to attack the market. The easiest way to understand it is to blame a series of horrendous failures in the Boardroom and the Executive Suite. This doesn't have to be terminal, but Apotheker had better start communicating the Vision Thing and the Mission if he hope to keep talent on board.

Anonymous said...

Michael you wrote:

"From the start, Pre was aimed at the same users and the same usages as the iPhone (even down to a failed effort to tie the phone directly to iTunes). HP proved that most people don't want to buy an incremental improvement to the iPhone that can't run iOS apps."

Not sure that I agree 100% with your statement here. Smartphone was re-defined by Apple, and any smartphone out there today is being compared to Apple whether they wanted to or not. RIM is a perfect example. It focused on messaging and email and had a huge installed user base before Apple shipped its first iphone. RIM is now almost a footnote in the smartphone market.

Palm was done in long ago by Eric Benhamous of 3Com. Eric drove Jeff and Donna off and refused to spin off Palm initially. He compounded his mistake by forcing a split of Palm and Palmsource. IMHO, Eric was one of the worst tech CEOs in the last 30 years.

Anonymous said...

Mike,

In 2003 you were giving presentations on how the palm economy had 300,000 apps from tens of thousands of developers. It really was quite a thing.

Five years of resisting development to support UMTS and keep that ecosystem alive by the same engineers you now tout as the real value of palm, is what killed the palm economy because without Palm being the successful hardware market leader, all other licensees weren't going to get it done.

A leadership team that didn't want to hear about threats like RIM, lack of 3G support, apple, android helped those engineers stay entrenched in their lack of innovation mode.

Everyone knows Palm hardware. Is dreadful, so the only way to compensate is with awesome innovative software - and webOS came along much too late because Apple and Android had eaten Palm's lunch and were moving on to Pre-dinner drinks.

You have to wonder, if those engineers were so good, why aren't they at apple, google or their own funky start-up?

cdelrosso said...

With Google buying MMI many OEMs might rethink their OS strategy.

They have three choices now:

1)go for Android, a successful approach so far (for a few of them) but the fact that Google may become a licensor and a licensee reduces the attractiveness of this platform.

2) go for Windows Phone, a promising platform but with no market share at the moment

3) create their own platform (the ecosystem based competition makes this choice challenging)

Outsourcing the OS means also heavily depending on that platform for any feature and value proposition. And since other OEMs will have the same platform, differentiation is going to be hard.

Owning the platform could be a great asset but it requires expertise on software platforms and the support of the developers.

Probably there is not an easy choice for any OEM. WebOs could still be still attractive but time is running out.

And the question on whether is better the modular or integrated approach is still open.

This industry is so interesting.

Anonymous said...

Sorry to see Palm to go. Still got zire 21 sitting on my desk. It is proven that hardware and software integration is critical to product's success. Google software only approach never would catch up Apple: no possibility of take advantage of the software to maximize the hardware function (Apple does not have the fastest processor, but execution of some of the software is "fast"). Based on some of the posts, look like Pre hardware were consider as inferior by software guys (not just HP or Palm). The culture of superiority of software group was wide spread in the industry (remind me of some of the physicists look down to the other scientific fields, consider themselves as King of the Science). a software background CEO with ego does not help. Jobs' software and hardware background with business sense is the one to be admired. Not sure if it is true or not, the Pre maker Jon and other executives not even aware of the change until last Sunday. If that is true, HP got "touchy" problem on hand, not limited to touch pad and Pre. (99 dollar touch pads fire sale were reported sold out... ).

Anonymous said...

Having been part of a s/w company acquired by HP some years ago I can safely say any talented s/w engineers / managers should run a mile as soon as HP turns up. As a huge h/w co. they have neither the ability, infrastructure or (at working levels) the desire to sell / manage s/w.

JulesLt said...

One thing to consider is that WebOS pretty much is a software layer over an underlying operating system – i.e. basically taking WebKit on Linux as the starting point, and building an application development layer on top.

Of course that’s a simplification (they had to do plenty of work to add additional APIs to WebKit), but it’s what differentiates it as a development platform from the other 3 major players (Android’s JVM-clone, Microsoft’s WM7 building on top of their CLR VM work, and Apple’s native code / build-a-better-compiler approach).

Personally, I think HP are hoping they’ll be able to get value from licensing software patents in the US market.

Agreed on the follow-up comment about Windows openness vs Mac – that’s an overly simplistic explanation that fails to explain why Windows also beat a whole load of other more openly licensed operating systems (including Japan’s MSX, IBM’s OS/2, GEMM, and the Open Systems Group Unix specs) – how they killed rival DOS compatible OS, the threats against hardware companies.
Equally, I think Microsoft itself now looks like the ‘odd one out’ in trying to sell core operating system functionality - i.e. all other operating systems, including OS X, build on Unix (BSD and Linux primarily) foundations. Commoditised below the level that actually makes a difference.

Anonymous said...

on my record (no relation to official record, or media record-totally irrelevant to me), the window never beat OS2. The OS2 was pulled by very high ups. someone believe it was compete with mainframe for resources, and the profit did not justify that.

sfreptile said...

Samsung is being incredibly naive in the Apple v. Samsung litigation in the Northern District of California. It would be wise to acquire both the webOS patents and the engineers. Much if not most of the technology is unprotected or prior art.

The patents, yes for strategic reasons. The engineers, yes if surpassing Apple is the objective.

The talent, however, is not likely to leave the Greater Bay Area, so Samsung has got to shed its top down Seoul leadership and like Sony, establish a powerful American corporate unit.

Check my game tracking of Apple v. Samsung at www.imacard.wordpress.com. SFreptile

Anonymous said...

HP was pretty darn stupid to shut down the WebOS devices. It was a great opportunity at high profitability. I wonder why every marketing manager thinks: World dominance or doom. Perhaps WebOS would never make it as the number one mobile OS in the world. Perhaps it would be number three. But in an ever growing mobile market, those numbers itself would be staggering. The profits can be huuuge!

Think from a consumer's point of view. If I want to buy a phone today, what are my choices? Android? No its still not up there with the feel and responsiveness. iPhone? Perhaps. Symbian? No, Nokia killed it. Bada? Hate it! Windows? Nah! RIM? Its too business like. But do I have a choice? No? There is more choice in the automobile business! And they are much more expensive to buy!

Is there no marketing guy out there who can see an opportunity? If I had the money, I would buy WebOS. Imagine the numbers you can get in populated economies like China and India.

People are more open to a change in their mobile OS than in their PCs or Laptops. You can still get the guys who already own Android and RIM devices.

What HP should have done is invest a little bit in design and innovation. better looking phones that dont feel cheap plasticky and good hardware responsiveness.

As for app support, the average consumer (who will make the bulk of your bottomline) is not a geek, and all she ever needs to use is MS Office support, email, browsing, social media, perhaps maps. All of which already exists on the WebOS. Not everyone needs a fart app with an equaliser.

All I can say is HP screwed up.