The Lovers: HP buys Palm

April 29th, 2010

The excitement never ends these days in the mobile realm, and I’m not talking about the iPhonegate scandal — you know, the one providing Gizmodo so much free publicity that Gawker publisher Nick Denton is probably thinking he should get his bloggers to break the law more often. To start with, let’s look at the lovers: HP and Palm, who will be joined in corporate matrimony this summer. (Awwww!) Tomorrow I’ll take a look at the fighters, as Microsoft moves against alleged patent infringement by Android.

In a move that surprised pretty much everybody, HP agreed today to acquire Palm, the troubled maker of the Palm Pre and Palm Pixi, and creator of the much-liked but seldom-bought WebOS software platform. The $1.2 billion deal is scheduled to be completed by July 31st, at the close of HP’s fiscal third quarter.

An Era Ends, Another Begins
The acquisition saves Palm from an uncertain fate, as its flagging sales, ongoing losses and management defections have caused many to believe it was circling the drain. The acquisition brings to a close the company’s rocky history, which saw it dominate the handheld market in the early 1990s with the Palm Pilot and presage the age of smartphone with the Treo series, only to lose its momentum as costly missteps and the iPhone caused its market share to plummet.

There was a palpable sigh of relief among many in the tech news world upon hearing of the deal, as Palm has been easy to root for as an underdog in the smartphone race. Palm was initially caught flat-footed upon the release of the iPhone, as evidenced by then-CEO Ed Colligan’s now-infamous remark to the San Jose Mercury News that:

“We’ve learned and struggled for a few years here figuring out how to make a decent phone,” he said. “PC guys are not going to just figure this out. They’re not going to just walk in.’”

Of course, walk in Apple did, and stole Palm’s lunch. After two more years of hand-wringing and soul-searching (and former-Apple-employee-hiring), Palm debuted the Palm Pre, a cute little pebble of a phone featuring an OS that actually put the iPhone to shame. (After two years of loving the iPhone, I myself grew tired of it and jumped ship to the Pre.) Unfortunately, the Pre and its non-sliding cousin the Palm Pixi never quite got a foothold in a market dominated by the iPhone, Blackberry and a growing army of Android phones. The HP acquisition means Palm and its devices will live on, though exactly how they will evolve under HP’s leadership remains to be seen, and will be watched closely.

Why Not HTC?
HTC was considered a front-runner in the race to acquire Palm initially, though it dropped out, citing a lack of “synergies.” An HTC-Palm deal would have been more of a merger of equals, a premium hardware manufacturer with an innovative software and hardware developer — one on the way up, the other on the way down, both in need of help competing in an increasingly-crowded marketplace. HTC doesn’t have Palm’s pedigree, but it also doesn’t have Palm’s (recent) patina of failure, as HTC has seen considerable success as the premier manufacturer of Android smartphones.

Many speculated that Palm’s patent portfolio would have provided HTC with valuable ammunition against Apple’s patent-infringement lawsuit. However, HTC has done very well as a hardware partner for Google and Microsoft, and with Android’s popularity surging and Windows Phone 7 on the way, it may have decided to simply stick to what it does best.

After the Honeymoon
HP may not be the sexiest brand, but it has the deep pockets Palm needs to grow and develop WebOS into a more serious competitor. WebOS still enjoys significant critical acclaim and the love of a small but passionate community, but it hasn’t caught on in a major way with developers, with just over 2000 apps available. The Pre’s unfortunate Sprint partnership, marketing misfires and limited hardware options have held it back, but HP’s war chest could remedy all of those problems. In addition, it seems likely (and many are predicting) that HP will develop a WebOS-powered tablet at some point in the future. That is, assuming the Windows 7-sporting HP Slate doesn’t set the world on fire (I’m officially not holding my breath).

Now all HP needs to do is resist the urge to start micromanaging the recipe for Palm’s secret sauce. The innovative spirit Palm fostered as a scrappy start-up may be more difficult to maintain under the oversight of HP’s executives and shareholders. But for now, Palm has a shiny HP ring on its finger, and you can expect the fruits of its new marriage to start popping up, oh, real soon now.

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