Palm holds a soft spot in every gadget geek’s heart. I’ve been a fan since my first Palm device, the Palm III — perhaps the first device that showed me where things were headed and the potential of mobile computing. It was followed with a Sony Clie (a palm licensee), a Treo 600 and a few others. But Palm faced a problem in that the operating system was stagnating. While Windows Mobile, albeit less user friendly, was innovating at a solid clip and was the software powering some of the most compelling mobile devices of the mid-2000s, Palm was finding any way they could deliver rehashes of the same device running Palm OS 5. That version, which powered the Treo 600, 650, 700p, 755p and the Centro, a device that up until last year was still sold by the major US carriers, was introduced in 2002.
The company had many challenges ahead of it as BlackBerry hit the big time, securing not only the enterprise and SMB markets but also achieving success in the consumer space with the Curve and Pearl models, and Apple who released the iPhone in 2007 which spelled doom for last generation touch devices like the Treo.
In January 2009, Palm announced its answer to the competition and placed its future in the hands of its new webOS software. Early adopters and investors seemed impressed but unfortunately it failed. Palm was acquired by HP (HPQ) on April 28th, 2010. The failure is three fold: business and marketing, software, and lastly hardware. In this post, I’ll cover the business aspects of the situation.
Palm chose Sprint Nextel as their launch partner of the device in 2009. The exclusive launch partner. It made sense, somewhat. Sprint was still hemorrhaging customers because of its divided attention after the Nextel acquisition, lackluster customer service, and deficit of focus. Palm expected that it could divide marketing costs with Sprint, receive more prominent placement in stores and have the Palm Pre, the first webOS device, serve as the flagship device for Sprint’s rebranding campaign. Having announced the device five months before it would actually ship, the hype machine was in full force and many were hopeful for its resurgence. Palm was trading at $1.42 as of December 8th, 2008 on the NASDAQ and by the launch of the device, it was at $13.01 in early June.
The single carrier exclusivity strategy was ill-fated. It limited the audience of the Pre to just too few consumers. In the quarter leading up to the release of the device, Sprint reported that it had lost 1,250,000 postpaid customers, 531,000 from the Sprint CDMA side of the business. That meant that at launch time, Palm had an possible embedded sales base of just 25.3 million customers, because remember, even though Sprint had 49.3 million subscribers, only a little over half are on post-paid CDMA contracts. Sprint led the industry in the worst way possible with 2.25% postpaid subscriber churn. Sprint bet, and most likely made concessions for the exclusivity, to draw in and keep high-ARPU smartphone users who would want the Palm Pre.
Yet Palm, even riding the wave of pre-CES hype in 2009, didn’t have a magical and lust-worthy device like the iPhone which would lead to customers ditching their old wireless providers in droves. Apple didn’t have that problem; even though they were new to the phone business, they picked a huge carrier and had a built in audience that would pay an early termination fee just because Steve Jobs blinked in their general direction. Palm had no such luxury, and they blew it. It wasn’t until the following CES in January 2010 when Palm announced the device would land on its second US carrier, Verizon Wireless, which would prove to be too little too late as the momentum in the smartphone space had shifted to Android and BlackBerry for other carriers and to iPhone for AT&T.