Should Microsoft save Palm?

For the record, I don't think Microsoft needs to buy anyone to be successful in the smartphone market space.  I don't buy into the notion that Windows Mobile is dead or that Windows Mobile 7 will arrive too late to matter.  Sure, it’s taken Microsoft far too long to field a competitive product in the post-iPhone landscape--even if Windows Mobile’s “uncompetitiveness” is more perception than reality.  By all measures, Windows Mobile 7 will arrive later than it should have, but I respect Microsoft for taking the time to do it right versus just rushing something out to market.  It’s a Nintendo-esque approach, but if Microsoft nails it, it will be setting the foundation for a mobile strategy that can endure for the long haul. 

Fortunately for Microsoft, I’m not sure there really is such a thing as coming to market “too late” in the cell phone space.  It’s easy to forget how things were in the pre-iPhone picture, but in terms of time, it wasn't that long ago that the Motorola Razr was the hottest “dumb phone” around while Blackberries, and smartphones in general, were still somewhat of a niche market.  And you see where Motorola is today.  The turnover rate for cell phones is a lot faster than for PCs since new phones always are around the corner and consumers are stuck with their phones only for the contract period, which typically is two years.  It might be different if consumers paid full price their phones, but the carrier subsidies keep the price point low enough to make upgrading your phone every couple of years a viable proposition. 

So, while I think Microsoft can hold its own without buying anyone, I do think we might see some consolidation in the mobile market space.  There are too many proprietary players in the market: Apple’s iPhone, RIM’s Blackberry and Palm’s Pre/Pixi.  Each of these devices tie the operating system to the hardware, making them closed platforms.  There definitely are merits to having a single company developing both the hardware and software, but personally, I think separating the software from the hardware is the way to go.  It allows both pieces to evolve independently without the software developers worrying about how OS changes affect the hardware guys and vice-versa.  Furthermore, this separation helps create a partner ecosystem, which drives standardization and portability: I don’t have to buy all new applications just because I changed devices. 

To me, the hardware-software tie-in is the blessing and the curse of the iPhone.  If you have a significant monetary investment in the App Store, you’ll be hard-pressed to switch to a different smartphone platform and abandon that App Store investment.  That type of lock-in is great for Apple from a competitive standpoint, but going back to the cell phone turnover rate, I’m not sure it’s sustainable or realistic given how fast the technology changes.  However, I think that model is fine for media devices like the iPod Touch because I don’t need, or necessarily want, to buy a new one of those every two years.  But then again, given the number of free and sub-$5 applications, do most iPhone users have a “significant” investment in the App Store? 

Regardless, when you look at the PC landscape, you see the market has generally settled on 3 platforms: Windows, Mac and Linux.  And 2/3 of those arguably are niche platforms themselves.  So, I just don’t think the smartphone market can sustain 6 major platforms (iPhone, Blackberry, Windows Mobile, Android, WebOS, and Symbian/Maemo), 3 of which are proprietary.  Obviously, the iPhone isn’t going away, and I think Blackberry is too entrenched and popular to disappear anytime soon.  So, of the proprietary players, that leaves Palm as the odd man out.

Palm has an innovative platform with the WebOS, but in a somewhat uncharacteristic move for the company, it dropped the ball on the hardware.  Think what you will of the Pre, but there are too many complaints about the hardware for it to be a definitive success.  I thought the QWERTY-bar design of the Pixi was tempting, but it had worse hardware specs than the Pre and its price and positioning didn’t make sense. 

Hardware maladies aside, Palm was very forward thinking with the WebOS.  As a  platform built around HTML, JavaScript and CSS, developers can create Web-based applications that potentially can run on multiple devices with little modification, reducing the need to write native apps for every smartphone platform.  The need for a JavaScript runtime engine inadvertently introduced some performance issues with the Pre; however, I think better hardware would have mitigated JavaScript overhead.  And given the momentum of cloud computing and the evolution of Web technologies, a Web-centric platform seems like a pretty smart bet.

If Microsoft bought Palm, it immediately would improve its perception in the market by inheriting a modern platform that supports touch-friendly usage and capacitive screens.  Furthermore, MS could embrace and extend WebOS development with technologies like Silverlight and .Net.  And it’s the Web-centric aspect of the WebOS that would make it relatively palatable to Microsoft from an acquisition standpoint.  Yes, WebOS is based on Linux, but Palm is less in-your-face about the Linux underpinnings than Google is with Android or Nokia is with Symbian and Maemo.  And perhaps Microsoft could port the UI stack, app runtime engine and development tools to Windows Mobile.  But if MS is confident that Windows Mobile 7 will blow WebOS out of the water, than the acquisition would be predominately around talent.  Perhaps WebOS developers would drive the next phase of Windows Mobile and Zune app development—kind of like an in-house SPB Software for Microsoft.

Of course, an acquisition of Palm by Microsoft is unlikely to happen.  Microsoft has given no indication that intends to acquire anyone and given its recent job posts, the company seems 100% behind Windows Mobile 7.  But if Microsoft doesn’t buy Palm, then hopefully someone else does (maybe Nokia?).  Otherwise, I’m not sure Palm can continue to exist in its current form.  Without a financial suitor or some sort of blockbuster device, I see Palm going the way of Sega and transforming into a ghost of its former, once glorious self: a pure software developer of premium mobile applications for Android and the iPhone.

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