Palm, It Never Pays to Be Arrogant

Roughly a year ago the release of the Palm Pre kept me from defecting from Sprint to AT&T for the iPhone. But today I'm an unhappy camper. Compared with the iPhone and Android it turns out that Palm has almost completely failed. The venerable company may have created a great OS in "webOS" but the overall execution is poor.

Yesterday that harsh reality was acknowledged when Palm said it was way off revenue targets:

Revenues for the quarter and full year are being impacted by slower than expected consumer adoption of the company’s products that has resulted in lower than expected order volumes from carriers and the deferral of orders to future periods. Accordingly, Palm expects fiscal year 2010 revenues to be well below its previously forecasted range of $1.6 billion to $1.8 billion.

"Lower than expected" . . . attempts to soften the failure. Palm isn't going to sell Pre handsets at anything like the volumes originally anticipated. In fact, the Pre is dead. The Pixi may have a future however.

The following comes from a letter to employees from Palm CEO Jon Rubinstein:

As we mentioned in our press release, our softer than expected performance is due to slower than expected customer adoption of our products, which in turn has prompted our U.S. carrier partners to put additional orders on hold for the time being.

The company is now clearly takeover bait, worth just under $2 billion. But the reason someone might buy the company is almost solely for webOS, which is worth less than the company as a whole. Arrogance blinded Palm to the challenges it faced in the market, including apparently the features and functionality to release on the Pre.

In addition, the company should also have done a lot more, earlier, to cultivate the developer community and build a better set of apps for the device: 

 Picture 99

Image credit: Distimo/Wired

Finally, let's revisit comments made in early 2009 before the Pre's release by Roger McNamee, co-founder of Elevation Partners, which owns 39% of Palm:

"If you bought the first iPhone, you bought it because you wanted the coolest product on the market,” said McNamee, 52. “Your two-year contract has just expired. Look around. Tell me what they’re going to buy.”

How wrong could someone be? So wrong in fact that Elevation may lose lots of money on its investment Palm. Yesterday AdMob put out data showing that "webOS users are 3.4x more likely to not recommend their device relative to iPhone OS users."

Microsoft has said with Windows Mobile 7 that it no longer needs an acquisition to be competitive. Nokia may turn out to be the buyer, itself struggling to compete in the smartphone market against more advanced rivals. There are other OEMs that might also be interested too. 

It's pretty clear to me, however, that Palm's days as an independent company are numbered.