Michael Vakulenko

Who Can Save Palm?

Who Can Save Palm?

[A strong service ecosystem has become the key to protecting smartphone profit margins and controlling post-sale revenues. Palm’s WebOS has little to offer in this environment and Palm is approaching dead-end for its software strategy. Which companies may gain from taking over Palm? Guest blogger Michael Vakulenko has the answer]
This article is also available in Chinese.

Competition of Ecosystems
Recent developments indicate emergence of three fast-growing smartphone platforms that will shape the market in the near future: Apple’s iPhone, RIM’s Blackberry and Google’s Android. All three are very different in their roots, market strategy and technology approaches. Yet, it’s becoming more and more apparent that the competition shapes around service ecosystems built around these platforms.

Despite high hopes, Palm and its WebOS software has barely made a difference in the growing smartphone market. According  to Canalys, Palm shares 3 percent of smartphone market with Linux and proprietary platforms in the “Other” category. Clearly, it is not enough today to make an excellent device powered by modern operating system based on Linux and Web technologies.

In contrast, all best-selling devices today are parts of service ecosystems blending Internet services, applications and digital content.

Both RIM and Apple build their service ecosystems around proprietary, vertically-integrated smartphone platforms. RIM’s Blackberry ecosystem is anchored in the enterprise messaging market and enjoys strong distribution network comprising large number of mobile operators. On the other side, Apple’s iPhone ecosystem is rooted in the consumer market, leveraging Apple’s leading iTunes content distribution platform.

Compared to RIM and Apple, Google takes very different approach with its Android platform. Instead of building proprietary devices, Google is arming legions of eager device makers with free-to-use smartphone software. Quite obviously, Android is strongly linked to Google’s ad-based service ecosystem.  Having no interest in device revenues, Google pushes for wide adoption of smartphones driven by its open source Android platform. This is to make sure that ever-increasing number of users have instant access to Google Mobile Search, Maps, Android Market and other Google services.

Palm’s technology can only make a difference if it will become part of a strong, larger service ecosystem. RIM will benefit the most from acquiring Palm and making WebOS part of its product strategy. Consumer potential of WebOS can take Blackberry user experience to a new level making it truly competitive with consumer-oriented iPhone and Android platforms.

Palm and its WebOS Platform
Palm’s beautifully engineered WebOS was conceived to become an iPhone killer. To be more precise, iPhone-as-a-device killer. In the words of Palm’s investor Robert McNamee “Not one of those people will still be using an iPhone a month later” [the Palm Pre launch]. The miracle didn’t happen. New Palm Pre devices based on slick WebOS failed to make a dent on iPhone sales supported by iTunes and explosion of available applications.

Designed by a veteran smartphone device maker, WebOS leverages modern Web-based software technologies, but is weak on the service ecosystem side. Without such ecosystem, WebOS selling points are quickly loosing relevance:
– Background application capabilities are matched by Android, Windows Mobile and Symbian;
– Use of Web technologies for application development is overshadowed by monetization potential offered by higher-volume platforms;
– Integration of social networking into the device UI is quickly becoming a standard feature of almost of all new smartphones.

In addition, Palm’s options are significantly constrained by weak financials and continued quarterly losses, making it dependent on cash injections by its controlling investors.

Unless acquired, it’s difficult to see how Palm, at best, can escape its niche role on the sidelines of a battle between Apple, RIM, Google, Nokia and Microsoft.

Who Can Take-Over Palm?
Clearly,the WebOS software is Palm’s the most important asset. Which companies can gain from taking over WebOS?

Neither Apple nor Google will gain much from making WebOS part of their strategy. In fact, the demise of WebOS can be another boost for Android as the most viable next-generation smartphone platform able to compete with iPhone.

On paper, WebOS could help Microsoft modernize its ailing Windows Mobile platform, which is vital for success of Windows Live services. However, WebOS conflicts in its almost every aspect with Microsoft interests: being it Linux vs. Windows, Javascript vs. .NET, Webkit vs. Internet Explorer and more.

How about Nokia, the driving force behind Symbian? Very unlikely. Nokia is already spread over Symbian, Maemo and Qt open source software efforts. It struggles to piece together its own service ecosystem under the Ovi brand. Adding WebOS to the already confusing mix won’t help much.

It seems it is RIM who can gain the most from making WebOS part of its Blackberry ecosystem. With 80% of its growth driven by consumer subscriptions, RIM’s Blackberry faces intensifying competition and pressure on its margins from consumer-oriented iPhone and Android devices.

WebOS can take Blackberry aging mobile software to a new level making it truly competitive with iPhone and Android. All that without compromising traditional Blackberry strengths, including enterprise-grade security, efficient push-messaging, integration with enterprise collaboration systems, optimized radio firmware and reliable hardware.

Palm’s acquisition by RIM may seem logical, especially in view of market capitalisation; $1.7 Billion for Palm and $38.5 Billion for RIM at the time of writing. However, so far the acquisition is no more than a hypothetical possibility. RIM is attempting to reverse a steep drop in its stock price by planning to spend up to $1.2 billion to buy back shares – not that far from Palm’s market cap. RIM’s stock has fallen about a third since September on concerns about competition from iPhone and Android-based smartphones.

Will RIM Save Palm?
Lacking its own ecosystem and constrained by weak financials, Palm can only hope for a niche role in the smartphone market. Palm’s technology can only escape this role if WebOS software will become part of a strong, larger service ecosystem.

One possibility is acquisition by RIM. Consumer potential of WebOS can take Blackberry user experience to a new level, including a slick UI optimized for multitasking apps, web-based application framework leveraging standard HTML, CSS and JavaScript technologies, advanced web browser with HTML5 support and deep integration of social networking into device’s UI.

Without significant improvement in user experience, Blackberry will struggle with increasing competition from consumer-oriented iPhone and Android-based smartphones. Of course, RIM can independently develop next-generation mobile software competitive with iPhone and Android. The question is whether RIM has enough time to do this in view of steady progress made by the competing platforms.

What do you think future holds for Palm and RIM? Your feedback and comments are greatly appreciated.

– Michael

[Michael Vakulenko has been working in the mobile industry for over 15 years starting his career in wireless in Qualcomm. Throughout his career he gained broad experience in many aspects of mobile technologies including handset software, mobile services, network infrastructure and wireless system engineering. Today Michael consults and provides expert training to established and start-up companies, and can be reached at michaelv [/at/] WaveCompass.com]

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