Palm's failure to take on iPhone casts doubt on Nokia, Microsoft
The high profile failure of Palm's efforts to revitalize its flagging smartphone business with the Pre's new webOS has analysts casting doubt over parallel phone platform reinvention efforts by others, including Nokia's Symbian and Microsoft's Windows Phone 7.
A year ago, Palm's webOS-based Pre was widely hailed as the strongest contender to the iPhone's crown in smartphones. Palm had originally helped invent the smartphone category, only to lose its position prior to the arrival of the iPhone.
Several iPhone engineers joined former iPod executive Jon Rubinstein to spearhead a new smartphone platform for Palm, resulting in a well received product introduction last winter. Following its debut at the 2009 Consumer Electronics Show, the Palm Pre dominated the headlines for months, at least until Apple released the iPhone 3GS, nullifying many of its unique features, including its faster processor.
The failure of the once hotly anticipated webOS to gain traction over the last year does not hold out much hope for Nokia's efforts to turn its aging Symbian platform around as an open source project. Nor does it inspire confidence in Microsoft's new WP7 initiative, which buries Windows Mobile and all of its third party apps in a 'risk it all' venture to start over from zero, nearly two years after Palm attempted to do something very similar in ditching its old Palm OS for the entirely new webOS.
Palm's failed promise
Palm's webOS hype quickly dissipated last year as the company struggled to complete its Software Development Kit for third party apps and as initial sales failed to meet initial expectations. Palm's new phone was tied to Sprint, which boasted low contract prices and better service in some key markets than AT&T, but that wasn't enough to cause significant numbers of iPhone users to defect, as one of Palm's key investors had predicted.
Palm's latest earnings report has resulted in analysts such as Shaw Wu of Kaufman Bros. downgrading their rating for Palm from Hold to Sell, as the company's stock tanked. "We are less confident in the company's prospects as an on-going concern," Wu wrote in a note.
"While we believe Palm has some value with its webOS and tight integration of hardware and software," Wu concluded, "we are unsure of the company's prospects as an ongoing concern. Because the company will likely not be profitable for the foreseeable future, we think using EPS is a futile exercise. Our price target of $3 is based on what we think webOS could be worth which is the $600 million in investment developing the proprietary software."
Wu described three likely scenarios for Palm going forward, writing, "one, the company gets sold but could be a take-under; two, the company needs to raise more capital; or three, the company runs out of money."
Will AT&T save Palm?
Palm's announcement that it would be bringing the Pre and other webOS devices to AT&T didn't do much to alleviate analysts' concerns. In a separate note, Wu wrote that Palm's existing partners have not been able to sell its phones even without direct competition from the iPhone.
Wu wrote that Palm had only shipped 825,000 smartphones, roughly 175,000 short of the original expectation of a million units. "While Verizon Wireless has received a lot of attention for the shortfall, our understanding is that Sprint is also to blame," he added.
"We find it somewhat unusual that the companies [AT&T and Palm] didn't make this announcement closer to an actual launch date but instead said it would arrive in 'the coming months,'" Wu wrote in a separate note on Palm's AT&T expansion.
"While we are pleased to see Palm expand its footprint, we are unsure how meaningful the impact will be as we believe AT&T is the most competitive carrier out there being the exclusive partner for iPhone in the U.S. We believe Palm's price points are arguably too high when one can get an iPhone 3G for $99 and a BlackBerry for as little as $9.99."
Rather than banking on AT&T, Wu wrote, "We continue to believe Verizon is its best shot at success given iPhone's lack of presence, however, so far customers continue to gravitate toward BlackBerry and to a lesser extent, Android."
Needham on Palm
Charlie Wolf, writing for Needham & Company, echoed many of the same concerns about Palm, noting that the company's results "were a lot worse than it appears. Shipments out of the carrier channel of 408,000 units were less than half of the 960,000 units shipped into the channel. The carriers? eyes were clearly bigger than their stomachs."
Since Palm has stuffed the channel with inventory, its sales next quarter will appear to be even worse as its carrier partners work to push all of that inventory out to customers. Wolf blamed poor sales on late training of carrier employees, writing that "the most identifiable culprit for the shortfall was a lack of visibility, especially in Verizon?s carrier stores." He said that Palm didn't begin intensive in-store training, including "seeding many of the sales people with Pre models," until this February.
That's an issue that also faces Nokia and Microsoft, neither of which have a retail network like Apple's to sell and support new models. While Apple ships a major new iPhone product every summer, Symbian and Windows Mobile phones, just like Android, BlackBerry, and Palm's webOS devices, have all deluged the market with a flurry of scores of models that carriers simply can't sell as retail experts.
Palm Pummeling Portends Problems
A report by Eric Jhonsa for Fool.com similarly extends Palm's troubles to other competitors, writing that "the company's failings show why Microsoft will eventually join it on the list of firms whose smartphone comeback plans flamed out. And perhaps Nokia as well."
Microsoft's WP7 phones aren't shipping until the end of 2010 by the earliest, and the fact that they break all compatibility with the existing apps for the Windows Mobile 6.x platform and that the new system won't be able to be installed on existing Windows Mobile phones means that Microsoft will be "basically starting over from scratch," Jhonsa wrote.
If anything, the company's existing mobile developers and phone owners may be irritated enough with its scorched earth policy that they are likely to give up and head to a more viable platform.
"Nokia is trying to do something similar with its upcoming Symbian operating systems," Jhonsa wrote. "To be fair, Nokia is in much better shape than Microsoft. Market researcher IDC estimated that the company still accounted for 38.2% of global smartphone shipments in the fourth quarter of 2009. But the company's revenue share is undoubtedly much lower, thanks to a relatively low average selling price. And IDC's rosy number sidesteps how Nokia has become a marginal player in North America, and has lost considerable share in Western Europe, where Apple and RIM have made strong inroads."
Jhonsa's report concluded, "Microsoft and Nokia deserve credit for not resigning themselves to further market share losses at the hands of Apple, RIM, and Google, and for showing a willingness to innovate with their latest smartphone platforms. But if Palm's stumbles are any sign, that might not be enough."
A year ago, Palm's webOS-based Pre was widely hailed as the strongest contender to the iPhone's crown in smartphones. Palm had originally helped invent the smartphone category, only to lose its position prior to the arrival of the iPhone.
Several iPhone engineers joined former iPod executive Jon Rubinstein to spearhead a new smartphone platform for Palm, resulting in a well received product introduction last winter. Following its debut at the 2009 Consumer Electronics Show, the Palm Pre dominated the headlines for months, at least until Apple released the iPhone 3GS, nullifying many of its unique features, including its faster processor.
The failure of the once hotly anticipated webOS to gain traction over the last year does not hold out much hope for Nokia's efforts to turn its aging Symbian platform around as an open source project. Nor does it inspire confidence in Microsoft's new WP7 initiative, which buries Windows Mobile and all of its third party apps in a 'risk it all' venture to start over from zero, nearly two years after Palm attempted to do something very similar in ditching its old Palm OS for the entirely new webOS.
Palm's failed promise
Palm's webOS hype quickly dissipated last year as the company struggled to complete its Software Development Kit for third party apps and as initial sales failed to meet initial expectations. Palm's new phone was tied to Sprint, which boasted low contract prices and better service in some key markets than AT&T, but that wasn't enough to cause significant numbers of iPhone users to defect, as one of Palm's key investors had predicted.
Palm's latest earnings report has resulted in analysts such as Shaw Wu of Kaufman Bros. downgrading their rating for Palm from Hold to Sell, as the company's stock tanked. "We are less confident in the company's prospects as an on-going concern," Wu wrote in a note.
"While we believe Palm has some value with its webOS and tight integration of hardware and software," Wu concluded, "we are unsure of the company's prospects as an ongoing concern. Because the company will likely not be profitable for the foreseeable future, we think using EPS is a futile exercise. Our price target of $3 is based on what we think webOS could be worth which is the $600 million in investment developing the proprietary software."
Wu described three likely scenarios for Palm going forward, writing, "one, the company gets sold but could be a take-under; two, the company needs to raise more capital; or three, the company runs out of money."
Will AT&T save Palm?
Palm's announcement that it would be bringing the Pre and other webOS devices to AT&T didn't do much to alleviate analysts' concerns. In a separate note, Wu wrote that Palm's existing partners have not been able to sell its phones even without direct competition from the iPhone.
Wu wrote that Palm had only shipped 825,000 smartphones, roughly 175,000 short of the original expectation of a million units. "While Verizon Wireless has received a lot of attention for the shortfall, our understanding is that Sprint is also to blame," he added.
"We find it somewhat unusual that the companies [AT&T and Palm] didn't make this announcement closer to an actual launch date but instead said it would arrive in 'the coming months,'" Wu wrote in a separate note on Palm's AT&T expansion.
"While we are pleased to see Palm expand its footprint, we are unsure how meaningful the impact will be as we believe AT&T is the most competitive carrier out there being the exclusive partner for iPhone in the U.S. We believe Palm's price points are arguably too high when one can get an iPhone 3G for $99 and a BlackBerry for as little as $9.99."
Rather than banking on AT&T, Wu wrote, "We continue to believe Verizon is its best shot at success given iPhone's lack of presence, however, so far customers continue to gravitate toward BlackBerry and to a lesser extent, Android."
Needham on Palm
Charlie Wolf, writing for Needham & Company, echoed many of the same concerns about Palm, noting that the company's results "were a lot worse than it appears. Shipments out of the carrier channel of 408,000 units were less than half of the 960,000 units shipped into the channel. The carriers? eyes were clearly bigger than their stomachs."
Since Palm has stuffed the channel with inventory, its sales next quarter will appear to be even worse as its carrier partners work to push all of that inventory out to customers. Wolf blamed poor sales on late training of carrier employees, writing that "the most identifiable culprit for the shortfall was a lack of visibility, especially in Verizon?s carrier stores." He said that Palm didn't begin intensive in-store training, including "seeding many of the sales people with Pre models," until this February.
That's an issue that also faces Nokia and Microsoft, neither of which have a retail network like Apple's to sell and support new models. While Apple ships a major new iPhone product every summer, Symbian and Windows Mobile phones, just like Android, BlackBerry, and Palm's webOS devices, have all deluged the market with a flurry of scores of models that carriers simply can't sell as retail experts.
Palm Pummeling Portends Problems
A report by Eric Jhonsa for Fool.com similarly extends Palm's troubles to other competitors, writing that "the company's failings show why Microsoft will eventually join it on the list of firms whose smartphone comeback plans flamed out. And perhaps Nokia as well."
Microsoft's WP7 phones aren't shipping until the end of 2010 by the earliest, and the fact that they break all compatibility with the existing apps for the Windows Mobile 6.x platform and that the new system won't be able to be installed on existing Windows Mobile phones means that Microsoft will be "basically starting over from scratch," Jhonsa wrote.
If anything, the company's existing mobile developers and phone owners may be irritated enough with its scorched earth policy that they are likely to give up and head to a more viable platform.
"Nokia is trying to do something similar with its upcoming Symbian operating systems," Jhonsa wrote. "To be fair, Nokia is in much better shape than Microsoft. Market researcher IDC estimated that the company still accounted for 38.2% of global smartphone shipments in the fourth quarter of 2009. But the company's revenue share is undoubtedly much lower, thanks to a relatively low average selling price. And IDC's rosy number sidesteps how Nokia has become a marginal player in North America, and has lost considerable share in Western Europe, where Apple and RIM have made strong inroads."
Jhonsa's report concluded, "Microsoft and Nokia deserve credit for not resigning themselves to further market share losses at the hands of Apple, RIM, and Google, and for showing a willingness to innovate with their latest smartphone platforms. But if Palm's stumbles are any sign, that might not be enough."
Comments
Sprint exclusivity for TOO LONG is what hurt them the most, a weak SDK certainly didn't help matters. Palm expanding is a little too late now, a lot of damage was done from the hype and not being on other platforms where other alternatives were (iPhone/android/bb)
Microsoft has billions in the bank to back their platform with an even better SDK than Apple and will have widespread release amongst launch. Same for Nokia as well they have tons of money to keep their products afloat for quite some time.
These are the two I wouldn't be worried about, I'd be putting the death watch on Palm, Moto, and Sony Ericsson
Despite having checked out all the marketing literature and media the firm put out during launch,
I didn't really see what was so special with the device.
Sure the card multitasking UI was cool, but did it equate to significant value to consumers?
I didn't think so.
Just as is the case with Sony with it's myriad of state-of-the-art but insignificant products, perhaps management just got too involved in the details, and didn't keep up with the big picture.
If you can't answer "what can this product/service do that I can't do anyway else? How can it change my life?" with no BS, then there's no point in putting something to market.
Seriously there is really no real competitor to the iPhone. Most other vendors are not really looking at developing cool things they are busy killing the iPhone and doing a horrible job of it.
The iPhone is not for everyone but when there is nothing else people have no choice. And the iPhone is not a bad choice at all so once you get it you stick with it.
Yes I know that Android blah blah blah.. but hey Steve is still the KING! Long Live the King.
JD
Nice writing, very nice.
As for Palm, Gizmodo wrote that the advertising was of key concern, and I'd agree. iPhone's ads simply showed a hand using the iPhone to do what it does, with some enhancement. Simple. To the point. The Pre's weird girl didn't tell me anything about what the device did. I like off-beat commercials and it even put me off. They should've ripped off Apple's commercials only with a different color background, taken the hit that comes with doing that, and moved on to enjoy their higher sales and thus increased developer action. Show how it works, otherwise people think it's just another confusing phone from one of the also-ran manufacturers. That was a far bigger problem that received less attention than the iTunes fiasco.
Palm Pummeling Portends Problems
Nice writing, very nice.
As for Palm, Gizmodo wrote that the advertising was of key concern, and I'd agree. iPhone's ads simply showed a hand using the iPhone to do what it does, with some enhancement. Simple. To the point. The Pre's weird girl didn't tell me anything about what the device did. I like off-beat commercials and it even put me off. They should've ripped off Apple's commercials only with a different color background, taken the hit that comes with doing that, and moved on to enjoy their higher sales and thus increased developer action. Show how it works, otherwise people think it's just another confusing phone from one of the also-ran manufacturers. That was a far bigger problem that received less attention than the iTunes fiasco.
I wonder what the Windows Phone Series System Seven Series ads will look like? MS has been all over the map, as of late, from "regular joes love them some MS" to "so freakishly arch as to be incomprehensible" to "our products are drugs."
I'm guessing "drugs" plus "Joe" plus "terrifying urbanites empowered to the point of lethality."
And to think that Apple once wanted to buy Palm...
Please, please, please...
When Palm goes belly up, would they please release BeOS as open source?
Please?
The board of directors should remove the entire Palm senior management team, starting with CEO Jon Rubinstein. Palm stupidly got involved in a cat-and-mouse game concerning media syncing with Apple's iTunes. Palm got slapped by the USB folks when it turned out that they were faking Apple's unique vendor ID (against USB standards). Above all, this cat-and-mouse game showed a complete disregard for their customer's user experience. They should have worked on their own native media syncing tool instead of lying about how the device presented itself to computers.
That episode showed a basic and systemic lack of honesty and respect. The Palm senior managers are charlatans and hubris-laden bumblers.
At this point, Palm's greatest challenge is to retain top-quality engineers. That's particularly difficult because the best and brightest of a company are usually the first to leave (they're smarter and have more opportunities elsewhere). The people stuck pulling the galley oars are the ones who didn't have the foresight to bail.
Without top-quality engineers, Palm will find it difficult to release new products in a timely matter in what is now a very competitive marketplace. And no, you can't stick a bunch of snot-nosed 22-year-old EE/CS grads to replace those valuable engineers.
My biggest regret is that I didn't put my money where my mouth was and short these nitwits. Rubinstein has no right to be the chief executive of a technology company and I should have known that he would fail spectacularly.
In only one year, Palm went from top of the heap to bottom of the barrel. From being better than the iPhone 3G to getting left in the dust by the iPhone 3Gs.
PALM's PROBLEMS:
1. Extremely Poor Marketing.
2. Serious Quality Problems - where most reviewers had to return the Pre for a replacement. Flimsy battery cover. Web OS causes short battery life.
3. Serious Design Problems - e.g. too small of a screen, too thick for the pocket - should have chosen thin design like iPhone.
4. Seriously Flubbed SDK - preventing the development of Apps. Choosing Web-Apps initially (much like the original iPhone did) without a native app SDK. Now it is stuck with 1000 apps in the time that Apple's minions developed 195,000+ apps.
5. Jon Rubenstein may have been an Apple alumnus, but he seriously flubbed at multiple levels when it came to leadership and direction for the company. He sat like Nero, waiting for Rome to burn.
The Palm Pilot had 50,000+ apps.
The Palm Pre has 1,000 apps.
You do the math.
And to think that Apple once wanted to buy Palm...
I wouldn't mind having WebOS in my iPhone, presuming that Application Store and iTunes integration would be the same, for good or bad...
The market certainly didn't expect Palm to turn it around. The short percentage is almost 75%.
The board of directors should remove the entire Palm senior management team, starting with CEO Jon Rubinstein. Palm stupidly got involved in a cat-and-mouse game concerning media syncing with Apple's iTunes. Palm got slapped by the USB folks when it turned out that they were faking Apple's unique vendor ID (against USB standards). Above all, this cat-and-mouse game showed a complete disregard for their customer's user experience. They should have worked on their own native media syncing tool instead of lying about how the device presented itself to computers.
That episode showed a basic and systemic lack of honesty and respect. The Palm senior managers are charlatans and hubris-laden bumblers.
At this point, Palm's greatest challenge is to retain top-quality engineers. That's particularly difficult because the best and brightest of a company are usually the first to leave (they're smarter and have more opportunities elsewhere). The people stuck pulling the galley oars are the ones who didn't have the foresight to bail.
Without top-quality engineers, Palm will find it difficult to release new products in a timely matter in what is now a very competitive marketplace. And no, you can't stick a bunch of snot-nosed 22-year-old EE/CS grads to replace those valuable engineers.
My biggest regret is that I didn't put my money where my mouth was and short these nitwits. Rubinstein has no right to be the chief executive of a technology company and I should have known that he would fail spectacularly.
Superb post. Agree 100%.
But the reason why the Palm Pre never had a chance was because Palm was basically running on financial fumes even with help from that investor group headed by the loudmouth McNamee. The Pre's sales timing was all wrong and Apple only had to drop the prices of the older iPhone and the Pre was dead from the start. I doubt that most consumers looking for smartphones were even aware of the Palm Pre. The geek population isn't large enough to help with sales. Even so, Palm hardly had enough Pres in inventory to go around and any faulty Pres took weeks to replace.
I don't want to see Palm close down and I'm hoping it is bought out by a larger company and that most of the staff is kept. I suppose Palm could license the OS, but there's already more than enough OSes floating around.
Palm Pummeling Portends Problems
As for Palm, Gizmodo wrote that the advertising was of key concern, and I'd agree. SNIP
i'm not sure i agree. it's probably true that palm's advertising contributed to the lackluster sales, but i think the main reason is this: the pre feels like a piece of junk.
i've never seen a pre in the wild, so i went to a store to check it out. the moment i had it in my hand i knew i didn't want one. palm's financial state probably didn't allow for the level of quality in manufacturing that the iphone conveys. i'm not too familiar with the current pricing of the palm phones, but i think you had to shell out a similar amount for either phones at point of purchase.
the solid 'touch & feel' of the iphone definitely gives it a leg up over the creaky, cheap plastic of the pre. while i think that the complaints about hardware problems are at best anecdotal, that certainly made it appear as if palm didn't pay enough attention to detail, or couldn't afford it.
shame, really - but i guess when you put out grandiose statements like 'not one of the current iphone users will buy another one, after we launch the pre', you should expect a little schadenfreude when you fail.
Microsoft has billions in the bank to back their platform with an even better SDK than Apple and will have widespread release amongst launch. Same for Nokia as well they have tons of money to keep their products afloat for quite some time.
Yeah, sure.
Nokia = fail. Microsoft = failed. (In this arena).
The failure of the once hotly anticipated webOS to gain traction over the last year does not hold out much hope for Nokia's efforts to turn its aging Symbian platform around as an open source project.
It's my understanding that Symbian is essentially being replaced by Maemo (as seen in the N900), at least for Nokia's high end smartphones.
Yeah, sure.
Nokia = fail. Microsoft = failed. (In this arena).
Nokia makes the most popular smartphones in the world. This excludes the US because Nokia doesn't want to bother with CDMA phones that are basically only used in the US.
http://en.wikipedia.org/wiki/Smartphone
EDIT: Better link, showing Nokia's share rather than Symbian: http://www.reuters.com/article/idUSTRE61B1MA20100212
While I am a big fan of WebOS they killed themselves really.
Sprint exclusivity for TOO LONG is what hurt them the most, a weak SDK certainly didn't help matters. Palm expanding is a little too late now, a lot of damage was done from the hype and not being on other platforms where other alternatives were (iPhone/android/bb)
Microsoft has billions in the bank to back their platform with an even better SDK than Apple and will have widespread release amongst launch. Same for Nokia as well they have tons of money to keep their products afloat for quite some time.
These are the two I wouldn't be worried about, I'd be putting the death watch on Palm, Moto, and Sony Ericsson
I wouldn't put a death watch on Motorola. The Droid has sold well despite being imperfect, and Motorola is harnessing Google's OS for some good looking future products. Plus, Motorola is a huge company that doesn't just make consumer products.
I wouldn't put a death watch on Sony Ericsson either. They simply don't focus on the US. I'm pretty sure they only make GSM phones. Last time I was in Europe I saw Sony Ericsson phones everywhere.
I would put Palm on a death watch, but they have valuable assets so I would expect them to be purchased by someone.