Analysis Of HP-Palm Acquisition - InformationWeek

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05:54 PM
Eric Zeman
Eric Zeman

Analysis Of HP-Palm Acquisition

HP turned the smartphone space on its head Wednesday with its surprise purchase of Palm. At first blush, the deal would appear to help both companies, but it is far from a sure bet to save Palm's line of webOS devices.

This news is the result of a large number of bad decisions and miscalculations on both HP and Palm's parts. Before today, HP had no legitimate play in the vital smartphone space, and Palm's good software was dying a slow death in bad hardware. Both companies needed a fix, and HP's $1.2 billion acquisition of Palm looks to be the salvation each firm so desperately needs.

Let's spin the clock back a few years to gain some perspective, starting with Palm.

Palm defined the smartphone with its Treo line of handhelds. The Treos married the PDA form factor with a cell phone and birthed a new device segment that is now responsible for hundreds of millions of units sold per year. Palm used its own operating system, Palm OS, which was an evolution of its Palm Pilot OS. With the Treo 600 and later Treo 650, Palm suddenly had serious clout and sold its devices by the boatload. It even had a good developer story, and plenty of applications for users to buy.

Then some interesting things happened. RIM introduced its first BlackBerry devices and Microsoft created "Pocket PC Phone Edition." With these devices, RIM and Microsoft officially became much tougher competitors with Palm. Based on the success of its mobile email system, RIM grew quickly. Microsoft did too, with its strong enterprise base. This all added up to a healthy and competitive smartphone market.

The problem is, Palm stalled in developing its base operating system and its hardware. Palm, for one reason or another, decided to stick with its Treo line of devices, despite the fact that the competition was fielding more attractive hardware with more advanced capabilities. Palm eventually went so far as to license Windows Mobile from Microsoft, because its own software -- good though it was -- just wasn't strong enough for business users. Then the iPhone was announced. Then Android. While those devices (and their operating systems) broke new ground, Palm made only the most evolutionary upgrades to its line of devices. It also made a bunch of silly moves to separate its hardware and software businesses.

Palm was in trouble. Its sales were dwindling, and with no future for Palm OS, it had to make a drastic move. Enter Jon Rubinstein. Palm stole its now-CEO from Apple, where Rubinstein headed up development of the famous iPod.

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