Opinion: Why RIM should have bought Palm

HP “won” the five-way auction for Palm but may start feeling buyer’s remorse once reality starts to set in, but it is RIM who is missing out on the true bargain.
Happily, Palm’s most recent problems were not product based but resulted from a lack of consumer confidence that a newly purchased product would still be relevant in a year – or even in three months.
Palm was wise to recognize the fundamental fact that consumers were only peripherally aware of the Pre and Pixi variations as potential “third choice” options  – and launching on the “third choice” Sprint network did not help much either.
So the firm put itself up for sale, despite a proud history that in many ways laid the foundation of today’s vibrant/chaotic/balkanized mobile marketplace. For full disclosure, I feel I should note that I myself was the proud owner of both a Palm III and Palm Vx back in 1998.
Apparently Palm was also savvy enough to avoid further eroding its value proposition by selling off or licensing out its horde of patents separately from the rest of its faltering business.
But can HP truly justify spending $1.2 billion on Palm?  HP’s personal systems group (PSG) is lead by Todd Bradley who brings to mind Robert Nardelli, ex-CEO of Home Depot.  Both were late 1990’s CEO’s of GE B2B businesses under the tutelage of the renowned Jack Welch.
As such, both have a knack for finance and manufacturing efficiency, but are sorely lacking in consumer marketing savvy.  Nardelli was skipped over for Welch’s job and went over to Home Depot in 2000 but was eventually ousted in 2007 after losing touch with customers and employees. He subsequently lead Chrysler into bankruptcy in 2009.  No worries, his parachutes are more platinum than gold.
Similarly, Bradley went from GE to SVP of the consumer division at Gateway (remember them?) which promptly got sold off to AOL (remember them?) and has now devolved into just a subsidiary brand of Acer.
Bradley continued his career as a Palm CEO from 2002 to 2005 during the firm’s wilderness years which saw Palm’s hardware, software, and brand separating before recombining again, leaving customers confused and causing many to dump the firm for competitors.  Bradley left for HP in 2005 just as Palm was connecting the dots that PDA’s and cell phones might just have something in common.
With annual revenues of $42 billion, HP’s PSG group is the world leader in PC sales including desktops and laptops.  But its mobile offerings have been lackluster for a long time.
Having acquired the Compaq iPaq along with the rest of Compaq in 2002, HP released a stream of uninspiring PDA’s and smartphones  -bestowed with similarly uninspiring but cryptic XX#### names – all based on the even further uninspiring and now defunct Windows Mobile.
Putting the much ballyhooed Slate on indefinite hold does not inspire much confidence in HP’s mobile strategy either.
HP just does not have the time to wait months for the Palm acquisition to finalize, then linger around for another six to twelve months to come out with its first phones, tablets and netbooks based on WebOS. Not to mention that WebOS is supported by only a handful of developers, who would have to go head to head with Android and iPhone developers.
Nor has HP demonstrated the business leadership, mobile brand recognition, or consumer marketing cachet to kickstart the effort.  At stake is not the $1.2 billion HP bid for Palm, but a fair share of the roughly $250 million dollar annual global smartphone market (Coda Research Consultancy forecasts growth at 24% CAGR through 2015) along with the nascent tablet and non-Wintel netbook market.
Q1/10 Global Phone and Smartphone Unit Sales

Source: IDC
Without a horse in the race today, HP is definitely in dire need of a game changer.  It should latch on to Google’s Android bandwagon and have access to an instant ecosystem and behemoth marketing engine to challenge Apple, but possibly suffer from being just one of the crowd and utterly replaceable as a brand.
Then again, the company seems to have grabbed the lion’s share of the industry doing just that selling Wintel machines.  In any case, HP had the good sense to get off the slowly sinking ship that is Windows Phone 7.
On the other hand, however, RIM does have the time as well as a greater need for Palm’s WebOS.
With the first quarter out of the way this year, RIM is the elephant in the room that nobody talks about but still manages to take up a lot of space.
With the de facto #1 smartphone position in the US, double digit growth in APAC and Latin America -215% and 297%, respectively as reported by research firm Canalys- and displacing Motorola among the top five global phone producers, 2010 is shaping up to be a great year.

Source: NPD Group, ComScore
RIM, it would appear, may have nowhere to go but down.  Its dominant US position has been under steady assault by Apple for years and sales are not keeping up with market share due to the upsurge of Android devices.
RIM recently even recast its previous corporate badge of honor handsets as “starter” devices for consumers wanting to step up from plain feature phones to smartphones.
Core customer growth now includes texting crazed teenagers whose loyalties are as fickle as the latest summer movie.
The APAC market dwarfs all others but is also hyper competitive with scores of incompatible choices along with the fact that the character based languages almost require a touchscreen interface for user entry, which happens to be RIM’s Achilles’ heel.
Latin America will deliver positive growth but the market is relatively small.  Europe continues to be a bastion dominated by Nokia’s Symbian devices.

Source: Gartner
So the short-term outlook looks strong for RIM but with significant mid-term pressure and no long-term plan at all to go toe-to-toe with Apple and Google’s integrated ecosystems of phones, tablets, and netbooks.
But, then again, maybe RIM does not need to.  With its vaunted and unmatched global server infrastructure, reliable voice and data communications, compressed bandwidth – just look at AT&T’s tarnished brand due to the iPhone’s penchant for sucking data – and relatively long battery life RIM has an alternative set of metrics to compete on.
What the firm needs is a long term plan to migrate its legion of “starter” smartphone users to fully fledged smartphones or else eventually suffer the ignominious fate of irrelevance like Gateway and AOL.
The door on buying Palm is not yet closed, there are still months left before HP will be able to close the deal.
$1.2 billion will require a much larger commitment from RIM which has only a third of HP’s market cap and an even smaller ninth of its free cash to spend.
However, the deal also offers a whole lot more to RIM, not least a fully developed current generation WebOS compared to the seriously aged Blackberry OS  – OS 6.0 has fewer improvements over 5.0 than a 0.1 pastry flavored Android version upgrade.
Add to that a plethora of touchscreen patents that RIM is in desperate need of -see the disastrous attempts known as Storm and Storm II- and possibly most importantly a skilled team of mobile tech engineers to integrate the best of both RIM and Palm worlds.
RIM brings to the table strong carrier distribution channels across the world, successful mobile industry management, and ultimately consumer confidence that the brand will still be around in the foreseeable future.
With its current market share position, unlike HP, RIM does have the next year or two to strategically integrate WebOS into its long term plans.  But also unlike HP, this is not just another line of business, it is a choice to remain relevant into the very near future.
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Alex is a mild mannered office suit by day who harbors a deep affinity towards all things that go “beep.”  Only his wife knows about his closet geekiness and has learned long ago that a happy marriage is based on the ability to reply “Oh really?  So then what?” at just the right times.