Desperate times for Palm
A sad chapter in the history of one of the computing industry's most storied companies is about to begin.
When you report earnings in March, madness is not exactly the term you would like associated with your announcement. However, that's exactly what is surrounding Palm a day after it reported that its comeback hopes are dwindling as consumers fail to respond to the Palm Pre, Pixi, and its WebOS operating system in general.
Sales of the Palm Pre have not lived up to Palm's expectations, which is not good when you're counting on the product to save your fortunes.
(Credit: CNET)Palm sold just 408,000 smartphones to consumers in its last quarter. But it shipped 960,000 smartphones to its retail partners, meaning there were more Palm phones sitting on the sidelines during the quarter than were actually sold to real people, well over a year after Palm captivated the tech industry by unveiling the Palm Pre at CES 2009.
There's really no way to sugarcoat this: Palm is heavily leveraged in a fiercely competitive market and unable to generate interest for a well-received product as it burns cash amid mounting inventory. That's a whole lot of bad stuff to deal with at one time.
Palm's stock was down 26 percent in midday trading Friday. Financial analysts are recommending that their clients dump the stock while there's still time. Two went so far as to cut their target price for the company's stock to $0, essentially declaring it worthless.
It's almost like watching a legendary boxer well past his prime summon the will to come out for the 10th round. There's a part of you that's rooting for him to find that spark that's still somewhere inside. There's another part of you that is cringing at the prospect of the beating that's to come.
Elevation Partners, a private investment firm, still thought there was some life left in Palm when it agreed to invest $325 million in the company three years ago and an additional $100 million in late 2008 just before the debut of the Pre. But with a market cap of $695 million on Friday afternoon on a stock price below $5 (compared to $7.71 a year ago and a 52-week high of $18.09), Elevation investor Bono still hasn't found what he's looking for from Palm.
Palm executives are still confident they can turn the ship around, promising to double-down on training programs for sales reps at carrier partners and hinting at a new line of magical products to come.
At some point, however, it becomes clear that this is the beginning of the end for Palm. Mobile followers have long known that consolidation is inevitable in this market: developers simply can't support six operating systems and carriers aren't crazy about subsidizing phones that people don't want.
The company will live on in some fashion: the product is too good, the engineers are too smart, and the brand still has enough life to attract some attention. It would not be hard for a deep-pocketed competitor--a list that includes Apple, Google, Microsoft, Hewlett-Packard, Dell, Research in Motion, Nokia, Sony, and a host of others--to absorb Palm, and you can bet that Elevation employees are currently preparing copies of Palm's financial data for potential buyers.
Palm is one of the most important companies the computer industry has produced. The Palm Pilot introduced the public to mobile computing. The Treo was the logical extension of that idea, providing a glimpse of what might be possible with the Internet in your pocket.
But Palm might be the first casualty of the iPhone. Palm's software, stagnant for years even by 2007 standards, immediately looked pedestrian against the iPhone. And it simply took too long for the company to come up with its answer--WebOS--which even if it was perfect might have been too late.
Palm backers will surely point to other proud companies--such as CEO Jon Rubenstein's former employer, Apple--which dusted themselves off when the world thought they were dead and came back even stronger. The difference is that Apple resurrected itself by changing the game it wished to play, from legacy computers to music, media, and mobile, while Palm is fighting desperately to maintain relevance in a game it practically invented.
When you've toiled to produce your best effort--only to watch interest decline a full year after the product appeared--it's time to reassess.
We're in the middle of one of the most fundamental transitions in the era of the computer: the shift from desktop to mobile. One of the companies that showed the world the way likely won't live to see the end.
Tom Krazit writes about the ever-expanding world of Google, as the most prominent company on the Internet defends its search juggernaut while expanding into nearly anything it thinks possible. He has previously written about Apple, the traditional PC industry, and chip companies. E-mail Tom. 
Thanks for policing it though. The interweb is safer now.
The Pre UI was a one-time thing with may be 24-month window of opportunity. Palm would need to significantly improve upon it to add more capabilities so that it remains unique and better than iPhone or RIM or Android. Unfortunately, that may not happen now.
The company has to have something that will entice employees to believe in its future and stay. A plan has to be in place to convince people that this something can potentially save the company. Lacking that, employees can see the writings on the wall.
At a certain point, self-preservation takes over and employees will begin to interview elsewhere hoping to get an offer first before others bail too. Once that begins, it will quickly impact project schedule. Then it becomes a difficult spiral to break.
Will senior and capable people want to sign on with Palm at this point if they have competing offers?
Palm is facing some tough problems and it goes beyond just what most people see on the outside. I really hope it can weather this storm and survive.
First thing, stock is not the only thing that makes employees stay. If they believe in their product and it's fun to work on, THATs what makes them stay.
In fact, it's MUCH more important that the COMPANY believe in its EMPLOYEES! Clearly Palm does.
The employees get paid to work. The stock market is a big Las Vegas if you haven't figured it out yet. This fight is about quality.
Does the pre have quality issues? You betcha. I had one for the 30 day trial and returned it, and went BACK to my Palm Treo 755p. I have a list of reasons.
The thing is, those are all solvable problems, and Palm WILL solve them. The WebOS is pretty darned good. And YES I can't believe they didn't take the perfectly good code from Palm Source (what was the point of splitting with them???) and instead waited to move off of PalmOs and THEN decided to make their own OS from scratch! GRRRRRRRRRR!
While I'm not happy with their numerous problematic decisions, let's stop declaring them dead because of some idiotic financial calculus, not that they don't have to stay solvent. Let's make this about Quality and customer base. Palm has loyal customers. Some of us will be loyal for a long time, and we just are DYING for WebOS 2.0, with 5 way navigator (so I can actually use the keyboard when I decide to), ability to control notifications for each email account, and a few less crashers in the chat application. I'm there in a heartbeat.
Declining sales implies more dependencies on VC money and when VC money runs low, will they put in more? Or will they start exploring options?
When a product sells, it boosts employee morale. When a product fails to sell, company sales and profits are declining, VC money is not forthcoming, it can sap employee enthusiasm. Palm management is likely already aware of this situation and is working to address it. This is typical management issue.
The iPhone ushered in a new era of mobile phone accessibility. For the first time, the average, non-technical person could pick up a smartphone and use it without having to spend days in training or reading technical manuals. People flocked to AT&T just to get the device and they captured mindshare.
The problem for Palm is that the iPhone had the mindshare. Everyone who wanted a usable smartphone would consider an iPhone first. And while I believe that webOS is actually better, for most people, it's not that much better to make them choose it and go to Sprint over AT&T.
Palm's fatal mistake is that they didn't release on Verizon first. When the iPhone was released, Verizon desperately wanted a competitor and if they had partnered with Palm, Verizon would have pushed their phone and blitzed the airwaves with a marketing campaign like they did with the Droid. People who like Verizon, and would under no circumstances switch to AT&T, would have purchased the Pre for a comparable smartphone. Now, Droid holds that place with Verizon.
It's really too bad because I do like the form factor of the Palm Pre over the iPhone and the Droid. Before the iPhone came out, mobile phones were getting smaller and smaller (which was a great thing), but after the iPhone, phones now seem to be getting larger and larger. I don't want to carry a huge phone around. And I think Palm got that. But if Palm goes, we'll be stuck with these large screen phones like the iPhone, Droid, and Windows Phone 7. Not looking forward to that.
The reality is, the advertising is getting better, the number of carriers and breadth of phones is increasing, and the # of apps is increasing. Increasing Revenues, and cutting costs, and soon you have profits, and these stories will kind of go quiet.
thing when they created an OS designed from scratch to be used with a small touch screen. They were light years ahead of MS in the mobile GUI department.... and then they just sat on their collective butts.
March 2009 McNamee Palm Investor : "You know the beautiful thing: June 29, 2009, is the two-year anniversary of the first shipment of the iPhone. Not one of those people will still be using an iPhone a month later. "
Palm (ex) CEO Colligan: "We've learned and struggled for a few years here figuring out how to make a decent phone, PC guys (Apple) are not going to just figure this out. They're not going to just walk in."
Jon Rubenstein Palm CEO :
"We don't pay that much attention to Apple.I know it sounds really strange.... I don't have an iPhone. Actually, Ive never used one."
I remember reading the Rubenstein comment about never having used an iPhone, and thinking, "This guy is a reckless idiot". What CEO wouldn't study his competitor's product in order to improve upon it? And why the heck didn't they release more phones, instead of making those weird, impersonal commercials?
Ah well. Maybe they will soon release something really cool, but it's nearly too late for that. If anything, Motorola has had a magical comeback, I thought they were dead and gone, Verizon really saved their ass.
Verizon is not going to happen for me since I would have to spend 3 figures a month to get what I'm current getting on T Mobile. ATT.....not in this lifetime.
So that leaves Sprint with the Pre and a handful of Android phones that all are virtual keyboards only. So if Palm dies I'm done. I'll go without.
I chalk it up to the cancer that is Apple. They are the a-holes that started this virtual keyboard trend. I would love to see the industry band together, buy them out, and burn them to the ground. They are a cancer on the tech industry, its really that simple. From lacking removable batteries, to no keyboard, to form over function. They represent the worse aspects of the tech industry and need to be stopped.
I own an iPod Touch and a Zune HD which I love, but I would be absolutely miserable if either one of those devices was my "smartphone." After using webOS for a few months I do not even consider iPhone and Windows Phone 7 to be real smartphones. Those are media consumption phones (games/movies/music), they could never be used on a real computer. WebOS is the only mobile OS I feel could functionally replace Windows 7 or Mac OS and in many areas improve upon what they are doing.
It's a shame that webOS's brilliance has been buried by the market thus far. Hopefully Palm can turn things around enough and get enough exposure that customers start demanding the features in webOS from Apple/Microsoft/Google/RIM...
I really wanted Windows Phone 7 Series to be great, but I'm disgusted with how backwards it is (no multitasking, no copy/paste, no Flash, no Google search, no Google Maps, etc.) For a webOS user to downgrade to something like WP7S would be painful to say the least. iPhone OS would only be slightly better, though I am praying that we will see multitasking in iPhone OS 4.0. Still there will be no Flash support for iPhone, and you're restricted to using AT&T only, and you have to put up with Apple's app store censorship. None of those things are going to change in the near future.
It is nice for you that you grew up in an era when keyboards ruled and by golly when you let go a physical keyboard it will be from your cold dead fingers. One has to admire that sort of passion. We are in a transition time between last century's hardware based thinking patterns and the future where everything is created via software and devices are merely a box with a screen. People like yourself who got very used to physical keyboards seem to have trouble with this future but children are very instructive here. Put a device with a physical keyboard in front of a four year old and he/she will struggle to do much with it but put an iPod Touch in the hand of a four year old and within minutes he/she will be playing games and having a lot of fun. The relative complexity of physical controls takes some learning and dexterity while the touch/orientation controls of devices like the iPhone come naturally to the uninitiated. It is not just little children who love the ease of use, it is grandparents and housewives who see themselves as technically illiterate, and people who don't use a computer and so on who have taken to the virtual controls with passion.
Apple's approach with the iPad is brilliant where they have created a keyboard docking station which is perfect for those rare times when people want to write thousands of words, but I bet my boots that people who have the keyboard dock will still use the virtual iPad keyboard 99% of the time. It is a Twitter world and long messages requiring physical keyboards are no longer part of everyday life for most people.
99% of the market doesn't care! Never has, never will... Apple understands a basic principle about reality. People want simple - stupid - predictable reliability. If they can't "get it" in a minute or two they move-on. "Form" is the interface which makes technology serve man - not the other way around. And because Apple figured out how to monetize technology by creating a dependable repeatable experience - basically marketing their culture - they should be praised for changing the game as they have on so many levels...
It's never going to be about the most "advanced" it's always going to be about the most accessible and pleasing experience - where the mass market is concerned...
As a content creator I have benefited from the Apple elegance which has allowed me to surpass my competition again and again because I can concentrate on a clearer unobstructed manifestation of my imagination - and not be bogged down wasting time trying to tweak the tool - or fix the thing cause I can't rely on it.
The real cancer is and always has been those who cling to what they know because they fear what can be... I mean look at society as a whole, man - Thank God there's at least one company committed to changing the paradigm - and they've been successful as hell doing it!
But keep in mind the vast majority of non-technical people do value form over function and value simplicity over flexibility. Would you say "I want to buy this car because I can change the tire pressure by turning a knob while driving, and I can adjust the alignment with this lever?" Or would you say "Which is the best car that meets my needs?"
What non-technical people need is not what many technical people want to provide---physically attractive, simple products that do specific things well. As much as I dislike Apple's tight control and censorship over their products (i.e. apps being pulled, tight control over what apps can be produced, etc) , they have made products that work well for non-technical people.
Non-technical people are intimidated by a lot of gee whiz buttons, just as you'd be intimidated if you looked at buying a car with 300 knobs and levers that did various highly technical things (many of which you needed to use to drive effectively).
The wave of the future may or may not belong to Apple (I personally hope it does not due to the reason I mentioned above), but it will definitely belong to companies that provide easy to use, attractive devices.
Now back to Palm, they managed to built their WebOS from scratch, along with the intuitive of making an egg like phone that fits right into the pocket. But their epic failure was in marketing when they should have made their phones available for Verizon to begin with, 2nd, they should at least licensed their WebOS so they could have an exposure of a broad market, What made them think keeping their Palm Pre to Sprint only and they will made miracles out of Sprint and Palm? They think that they're the 2nd Apple? I personally don't think so! Now that Android came and many HTC phones including the Droid has surpasses them. If they ever survive this round, let it be a lesson they'll never forget!
And I much prefer Palm's financial demise over the one alluded to in that song.
I think releasing a handset to only one carrier is a bad business decision. The Pre was tied to Sprint at the beginning. If someone wanted a Pre, but wasn't on Sprint, they would have to switch carriers. People do not like to change carriers, especially if their current carrier is satisfactory. It takes one heck of a phone and a marketing effort (Apple) to make someone to change carriers just to get a particular phone.
I think the best way to release a handset is to offer it through as many carriers as possible. Why tie yourself to the fortunes of one carrier? Sprint has had issues hanging on to subscribers. Palm tied itself to a sinking ship. The wise move for Palm would have been to spread its product around.
For being such a "brilliant" tech executive, Rubenstein sure has fumbled the ball.
Now I'm a Droid user on Verizon. The phone cost me more initially but I have a much more reasonably priced plan and I get much better reception at home. The Pre lost out here by coming late to the party on Verizon.
And before someone comments about how much less expensive Sprint and AT&T plans are, I've already done the comparison. We have 2 lines and an unlimited data plan for just under $90/month.
Palm apparently has some patents of its own which has kept Apple at bay. HTC would be wise to buy Palm not only for the WebOS but its patent inventory. They could use them to keep the Apple away!
Free apps are killing the palm, I have had a palm forever and my wife just got an Android, Side by side it is a no brainer a phone with $25 apps or one that has a lot of free stuff!!!!!
Of course Apple doesn't need them, RIM possibly could use a newer OS but I doubt they have the money or feel comfortable switching systems because of BC. MS just came out with WSP7. Goog doesn't need it. Dell, HP and Sony are better off with 3rd party OSs since they can get free support and funding from MS and Goog. Possibly Sony could change if they thought WebOS could go to PSP, netbooks and mp3 players. But they already have their software pretty deeply developed by now.
- by EvanSei March 19, 2010 6:43 PM PDT
- I for one would be all over the palm pre if it came on a GSM unlocked
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