Please read Palm Prē:
Chronicle of a Death Foretold, Part 1.
Winning markets is often a matter of timing. If the Palm Prē
had been available two years ago, the iPhone would have had serious
problems getting any traction. If the Prē had appeared 15 months
ago, it would have given the iPhone serious competition.
Now, after a successful launch, the Prē is looking at
challenging Windows Mobile and Android for 4th place in the smartphone
platforms market over the next 12 months. There is no way that the
Prē will take over from Apple (with 40 million+ iPhone/iPod touch
users), from RIM (with nearly 20% of the market and a strong lock on
corporate mobile email), or from Nokia (with nearly 40% of the market
and strong relationships with the non-US mobile phone companies).
Launch Problems
Clearly, Palm had problems getting the Prē out the door. No-one
in their right mind would launch two days before Apple's WWDC - but
maybe Roger McNamee made the decision. Maybe he believed his own words
in a March 5th interview: "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."
Reports from reviewers, such as Walt
Mossberg (WSJ) and
Jon Stokes (Ars Technica), show problems with software and early
hardware failures, but perhaps that was all designed to show off Palm's
impressive cloud backup so they could automatically download apps,
account information, and preferences again.
Prē's connection to iTunes looks like another shortcut to save
money. Apple doesn't need to sue over it. The support note shows that
Apple doesn't support the Prē. The "software fix" will be enough to
show users it just isn't safe to rely on Palm's hardware and software
skills, and
McNamee mouthing the M word at D7 won't protect them. Apple already
provides access to iTunes via XML - RIM and Nokia already use it.
Palm also had problems building
enough for launch. Most analysts estimate sales of around 50,000 for
the launch weekend. Stores selling out when they receive 20 or 30 units
and then not immediately restocked isn't impressive, especially when
you compare this "iPhone killer" to the 1 million sales of the iPhone
3G in it's first weekend or the estimated 500,000 of the original
iPhone.
Beleaguered Palm
This could well be a result of Palm's weak finances. While Palm may
be willing to commit to taking 50,000 units a week, suppliers will want
financial guarantees so they know they will be paid.
Last quarter, Palm burned through nearly $100 million and expected
to go through more this quarter, according to the 8-K filed on March 3.
This means little, if any, cash is likely to be left from the
successful share issue. In the 10-Q filed April 3, there was roughly
$230 million left in cash and cash equivalents, with $9 million of that
in Auction Rate Securities that are difficult to sell since the
collapse of that market. This will carry Palm through to Christmas at
best.
Unless the Prē is successful right away, Jon Rubinstein and his
team will need to raise more money to keep Palm going and to build the
market for the Prē. The problem is how.
Palm already carries $400 million in long term debt, and any new
long term debt will need to retire that. Elevation Partners is probably
still close to the limit it can invest and with other investments, like
that in Forbes, worth less than they paid, may not want to invest more.
Palm shares are up substantially from the $6 of the last sale, but a
share price around current levels, according to the analysis of Charles
Wolf of Needham & Co., needs sales of 8 million Pres to justify it
- and let's remember 8 million is more than iPhone sold in the first
year with no real competition and better distribution.
Hanging on to the $100 rebate will help Palm. If Palm manages to
sell 1 million Pres a quarter and the usual 40% of buyers fail to claim
their rebates, it will cut down on the cash Palm needs to raise.
Delaying the rebate checks will help too, so it could be interesting to
hear the excuses for any delays.
Of course, if Palm goes into bankruptcy, Prē buyers will be
lucky to see any rebate at all.
Prē Markets
Where will the Prē sell well, in the short term, so investors
will want to buy more shares? What niche markets can it take over? It's
already too late to hope to dominate the home or business markets.
McNamee may like to believe there is "white space" for Palm to move
into, but the more apps other platforms offer, the more those platforms
are likely to fill it. Until Palm can widely distribute the SDK for the
Prē, only a few developers will be able to write new apps to help
sales.
Palm also needs to put a microtransaction system in place to support
developers, unless they all want to write for free or are willing to
settle for less than the 70% share of revenue they get from the App
Store by selling through storefronts like Handango. Until good new apps
appear in quantity, the Prē is an expensive feature phone with
good browser and good messaging.
A Sprint Exclusive - for Now
Launching on Sprint, a CDMA network, at least protects the Prē
some from the iPhone competition. Apple won't move onto Verizon for at
least a couple of years. Sprint, though, as been losing customers every
quarter, as well as money, for some time, so it would have been better
for the Prē to launch on Verizon and, judging by recent remarks
about availability, maybe Verizon feels that way too.
Palm should, however, make it very public when Sprint's exclusivity
ends or customers who might otherwise buy Prē now will stay with
Verizon.
The Competition
The Prē has had much better reviews than the Blackberry Storm,
which has now sold over 1 million but needed strong marketing support
from Verizon/RIM to get there. Neither Sprint nor Palm have that kind
of money, so one of the big questions is how much publicity the
Prē will get in the aftermath of the iPhone 3G S launch. Palm
needs to get as much word of mouth as possible through Facebook groups,
geek gatherings, etc., or the Prē will be drowned by Verizon/RIM
Blackberry and Apple's iPhone marketing.
The short term rules out sales to any size of business that doesn't
already have a contract with Sprint. Also, businesses like to deal with
solid partners they know will be around, and they take their time to
evaluate new hardware and software. Significant business sales are
unlikely to start before 2010.
Geeks, Sprint Users, and Palm Users
The main short term markets look to be geeks who like to multitask,
satisfied Sprint users who want to upgrade to a smartphone, and
satisfied Palm users. Somehow, Palm needs to grab these markets and
reach at least a million Prē sales fast and then, if the SDK is in
good shape, more developers will come on board. Otherwise Prē
applications will fall further and further behind the iPhone (50,000),
Android (5,000), RIM (1,000), and third party applications are a major
attraction for smartphone users.
Palm Is No Apple
Palm is being talked about as though it will be another great
comeback story - another Apple brought back from near death. Anything
is possible before the last rites are read in bankruptcy court, but the
odds are much longer for Palm.
Apple had Steve Jobs and billions in the bank. It's major
competitor, Microsoft, was rightly concentrating it's efforts on taking
over the server market and defending itself against Netscape rather
than trying to add another 2 million or so desktop licenses a year.
Palm's main competitor is a lean and hungry Apple at the top of it's
marketing game, eager to take over the next big computer market and
occupy the position it should have won with the Mac. Other competitors
such as RIM, Nokia, and Android, are well financed and in a stronger
market position.
The End?
Palm had to bet the company, but it still looks like too little, too
late - and running out of cash to pay the wages and bills is what will
bring Palm down.
If WebOS is as good as it's supporters say, either the company will
be taken over or the assets will be bought out of bankruptcy court.
Palm shareholders will probably lose out unless there is a bidding war
between the likes of Nokia and Microsoft - and how likely is this when
the source code for WebOS is available under the GPL like any version
of Linux?
If the buyer has strong relationships with the carriers, Apple and
RIM will be up against a well financed competitor, but it will take
more than money to compete in what is becoming a two horse race.
