Monday, March 23, 2009

For Palm, Some Tough Acts to Follow

COMEBACK stories are irresistibly appealing, in business as well as in sports. But recovering from some strategic mistakes is awfully hard. A case in point is Palm’s failure to anticipate the threat that Apple posed to its core business.

Nearly two years since Apple introduced the iPhone, Palm has yet to release the Pre, the successor to its aging Treo. Much is riding on the Pre, which the company says will available before July 1: sales of Palm’s older smartphones have collapsed.

Last Thursday, Palm reported smartphone revenue for the quarter ending Feb. 28 declined to $77.5 million, from $171 million the preceding quarter. Its net loss of $94.7 million was its seventh consecutive quarterly loss.

“The Pre is a bet-the-company product,” says Ken Dulaney, an analyst at Gartner.

A Palm spokeswoman said it is not the Pre, but Pre’s new operating system, WebOS, that is the bet-the-company offering. Palm plans to introduce additional products for WebOS, but has not announced any specifics.

Apple, meanwhile, has been bounding ahead. Last week, it previewed the third generation of iPhone software, which over all has attracted 50,000 companies and individuals who have registered as software developers. After only eight months, Apple’s App Store is stocked with more than 25,000 applications, the company says.

Palm was once in a similar position, boasting of an unmatched collection of third-party software in the 1990s, when the Palm Pilot brought computing power to the palm of one’s hand.

In the innovation race, Palm has fallen behind not just Apple but also others, like Google and Research In Motion, maker of the BlackBerry, that have introduced products or software in response to the iPhone.

In January, Palm demonstrated the Pre at the Consumer Electronics Show, where it impressed industry observers. The phone uses finger-flicking gestures, which the iPhone popularized, but it also has a full-sized qwerty keyboard, which the iPhone lacks.

Neither Palm nor Sprint, its exclusive United States distributor, has been willing to announce the Pre’s price. I spoke with Brodie C. Keast, Palm’s senior vice president for marketing, about how Palm planned to position the Pre.

“We don’t want to go head-to-head with Apple, and we don’t want to compete with RIM,” he said. The Pre, he suggested, could find a comfortable place between them: “If RIM is about your work life and Apple is about simply entertainment, then the Pre is about having a single phone for your entire life.”

But aren’t different flavors of the single essential phone already here? After all, the second-generation iPhone works nicely with corporate e-mail and provides security features demanded by I.T. departments. And BlackBerry now runs Facebook, Flickr and MySpace software.

One thing that the Pre will do that the iPhone does not is multitasking, running more than one program at once. Having such capability will be welcome, but we must await the chance to test the Pre in actual use. Last week, Apple said it would permit software developers to send notification messages to the iPhone, such as news headlines or Twitter updates, while a user is looking at another software application, but had decided not to add full background processing because it drained the battery unacceptably.

Pre’s success will hinge on consumer perceptions of not only the phone but also of Sprint. In January, Consumer Reports published the results of a survey for cellphone service ratings among its subscribers. Of the 22 cities in the United States in which Sprint is mentioned, Sprint came in last in 20 cities, and third among four in the remaining two.

Asked about the results, a Sprint spokesman said that “third-party analysis shows Sprint is making progress” and that this year it shared first place in the West region, as measured by the Call Quality Performance Study from J. D. Power & Associates. (Sprint remained in last place, alone or with others, in four of six regions in the same study.)

David Owens, a Sprint marketing executive, said that he understood that “consumers don’t perceive Sprint as having the best network,” but that if they were to “look at actual network performance, there’s a gap between perception and reality.” He said that his company’s 3G data network in the United States covered an area populated by 250 million people, which “is significantly larger than AT&T’s.”

(A spokesman for AT&T said that it plans by year-end to expand its 3G network to 370 metropolitan areas, populated by approximately 258 million.)

When the Pre is ready, Palm has a lot of catching up to do in achieving sales that will attract software developers in large numbers. Last week, Apple said that it had sold 30 million devices running iPhone software.

In 2006, the year before Apple unveiled the iPhone, Ed Colligan, Palm’s chief executive, brushed aside the notion that Palm had anything to worry about from new entrants like Apple. “I would just caution people that think they’re going to walk in here,” he said.

“We’ve struggled for a few years here figuring out how to make a decent phone,” he added. “PC guys are not going to just knock this out.”

Apple, the novice, didn’t merely walk into the business. It climbed a 10-meter platform and executed a back two and a half somersaults with two and a half twists in the pike position.

Palm’s turn.


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