Palm: Likely to Stumble with PreWilliam Hurley
On June 6, Palm (PALM) will release the Pre, a smartphone many hope will fuel a resurgence of a company long since fallen from grace. But numerous miscalculations and missteps endanger this hoped-for turnaround.
A once-proud Silicon Valley icon, Palm has been hyping the Pre since January's Consumer Electronics Show in Las Vegas. There's been much cause for optimism that the Pre will live up to its hype. Demand for smartphones is on the rise. The number of smartphones sold in the first quarter rose 12.7%, to 36.4 million, even as total cell-phone sales declined, according to research released in May by Gartner (IT).
Palm hosted an impressive debut of the Pre at CES. And at the outset, the company made an attempt to court a community of software developers who would be at the forefront of creating all manner of rich applications that will make the Pre both useful and fun to a range of buyers.
Palm's Development Delays
I should know. I led early attempts to organize and rally the community. Our flagship event, preDevCamp, drew together roughly 1,000 volunteer developers in more than 85 cities around the world. Before those efforts could come to fruition, it became apparent to me and other leaders that Palm's early enthusiasm for the community was halfhearted at best. I and some of my associates ultimately parted ways with Palm after a series of events that has been discussed at length elsewhere. I won't rehash it in detail here, but ultimately we didn't believe we had the backing from Palm we would need to ensure success.
In fairness, one of Palm's senior vice-presidents has posted a blog stating the company's support for preDevCamp. But remember that Palm's developer network has been largely dormant for three to four years; not immediately embracing its reinvigorated efforts is shortsighted and will prove costly.
The chain of events caused me to step back and look at Palm in a new light, but my concerns about the success of the Pre relate to far more than the company's treatment of developers.
More Pre Problems
Let me start with the competition. With its juggernaut iPhone, Apple (AAPL) more than doubled its smartphone market share in the last year, moving to 10.8% in the first quarter from 5.3% a year earlier. And Apple is hardly Palm's biggest rival. Research In Motion's (RIMM) BlackBerry made an equally impressive jump, now commanding 19.9% of the market, up from 13.3% a year earlier. And even though Nokia's (NOK) market share shrank, the Finnish manufacturer still commands a healthy 41.2% of the smartphone market, according to Gartner. We haven't heard much from Nokia lately, but it no doubt has turf-defending plans.
For consumers, there's likely to be disappointment with price. The Pre starts at $199, after rebates and a service plan—almost exactly what the iPhone costs through AT&T (T). If you can afford to spend $199 on a phone in this economy, would you purchase a phone that's been in the marketplace for two years, has sold more units than the Motorola (MOT) Razr, and is supported by tens of thousands of available applications, or would you purchase an unproven phone from a company teetering on the brink of extinction, or at least irrelevance?
Many consumers have also expressed dismay over Palm's initial carrier for the Pre, Sprint Nextel (S). The wireless service provider has lost 1.25 million of its most valuable subscribers in recent months, in part due to ongoing concerns about customer care and network reliability. In late May, Verizon Wireless said it would begin carrying the Pre in about six months or so. This sounds like a potential cure to the Sprint aliment, but half a year is a long time to wait to get a smartphone when there will be so many viable options available.
That's if Sprint wants to sell it to you in the first place. An internal Sprint document published on the Engadget site reminds sales representatives, "We can't afford to sell the Pre to the wrong customers" and adds that the Pre is "best suited for non-IT centric business users.". So are business users the "wrong customer"? Funny, IT-centric business users might actually be the only ones willing to plunk down their $200 and make the required two-year commitment.
Where Are the Apps?
Disregarding the founders of preDevCamp isn't the only time Palm has mismanaged developer relations. The company is betting it can create a new developer network from scratch, leaving Palm developers of yesteryear and most of its PalmOS community out in the cold. For instance, there's no help porting to WebOS. Thumbing your nose at a loyal development base is never good. This decision, combined with the minimal programming skills required to write applications for WebOS, might result in an abundance of poorly written apps hastily released by new developers trying to get in on the next smartphone gold rush.
In contrast, Apple and RIM keep tight control over the applications their developers create, and both have the advantage of a learning curve that weeds out unseasoned developers. All eager developers may be out of luck anyway, since Palm's keeping a tight fist on the software development kit, or SDK. No SDK, no apps. No apps, no competition.
Several of the initial features that were touted to customers in January aren't living up to the hype. The browser will not support Adobe (ADBE) Flash on release, and many Sprint features users have grown accustomed to such as Sprint PictureMail, Sprint Music, and the Sprint Digital Lounge won't work on the Pre. For mobile Internet users, the ability to use your computer to access the Internet via the Pre, a method known as tethering, is not an option.
Prepare to Be Upstaged
Timing is another strike against the Palm comeback. The Pre is scheduled for release just before Apple's Worldwide Developers Conference 2009. Someone at Palm must have thought this was a good idea, but it isn't. One week after the Pre's release, the press will be dominated by Apple CEO Steve Jobs. If, as expected, Jobs returns, that will steal Palm's thunder. If he doesn't, that will only steal Palm's thunder more.
Worse, if Jobs walks on stage clutching a new iPhone, that will open a vacuum that sucks all the available media attention, momentum, and dollars right out of the market. Palm has put the Pre in the unenviable position of taking on Apple's latest incarnation of the iPhone right out the gate.
Palm Chairman and former Apple hardware czar Jon Rubinstein recently said, "If we build a great product, people are going to care." Don't forget, Jon, people buy the shovel, but they want the hole. People want a great phone, for a low price, on whatever carrier they choose, in whatever country they live in, with killer applications. The growing list of disappointments undermines what everyone saw as a fairy tale comeback, an old champ restored to former glory. I know I did. But it's sure looking like I was wrong.