HP to buy Palm: Now the hard part

April 28, 2010: 8:53 PM ET

For this to work, HP must fix its tangled approach to mobile software

On its own, Palm failed to mount a real challenge to the iPhone. But if HP acts boldly with Palm's webOS, it has a real chance. Photo: Jon Fortt.

This is either the end of Palm, or the restart it always needed. Either way, it's probably the iconic brand's last chance for survival – and Hewlett-Packard's best chance for mobile relevance.

When HP (HPQ) announced Wednesday that it's buying Palm (PALM) for $1.2 billion, we began the latest chapter in a tortured tale. Palm has been bought (U.S. Robotics, 3Com), split up (into software and hardware units) and spun out (as two public companies) more times than many of us care to count.

Sometime soon – before HP's fiscal third quarter ends in July, executives hope – Palm will belong to HP the largest company in Silicon Valley. (Regulators must approve this deal and shareholders might press HP for a bit more money, but some kind of deal is a no-brainer.) What next? At HP, Palm might struggle to distinguish itself within a juggernaut that unabashedly invests in enterprise software and services, and until now has treated smartphones as an afterthought. Or, bolstered by HP's unmatched scale and resources, Palm's well-respected webOS phone software might finally find lasting commercial success.

The Bradley factor

The outcome depends on the leadership of one Todd Bradley, executive vice president of the HP Personal Systems Group. Fortunately for HP, Bradley is intimately familiar with this new project. Before HP CEO Mark Hurd personally recruited him four years ago to resurrect HP's PC business, Bradley was CEO of Palm.

Of course, that was an eternity ago in Silicon Valley time – before Apple's (AAPL) iPhone and Google's (GOOG) Android operating system existed, and before both turned mobile app stores into one of the hottest areas in tech.

When Bradley last ran Palm, the main business challenges were logistics and distribution – getting phones built profitably and sold widely enough to make an impact. Bradley deftly trimmed the product portfolio, managed component costs and streamlined inventories. Back then, his most worrisome rivals were Microsoft (MSFT) and Research in Motion (RIMM), both of which catered to corporate users. He basically had the consumer market to himself.

A different world

Now, Apple's iPhone and Google's Android OS have struck a chord with consumers and software developers, selling tens of millions of devices and taking mobile computing mainstream. They have the momentum. This time around, Bradley's challenge is more fundamental: Can he redesign Palm's phones, win over consumers, and lure app developers? Or, more bluntly – can HP succeed where Palm failed alone?

Financially, this deal is solid. The $1.2 billion purchase price is just over 1x Palm's annual revenue (though sales are dropping), and investors can be sure HP will swiftly slash non-engineering costs and use its scale to get components at the lowest prices possible.

But the money is just one part of the picture. To have any hope of making this acquisition truly worthwhile, Bradley will have to untangle HP's mobile software strategy. Today, HP's small portfolio of iPAQ business smartphones and handhelds runs Microsoft's Windows Mobile OS. Its soon-to-launch HP tablet computer runs Windows 7. Its DreamScreen digital picture frames run a homegrown flavor of Linux, and its netbooks come in both Windows 7 and Linux varieties. And its high-end calculators run another OS. Compare that to Apple, whose iPhones, iPads and iPod touches all run the same OS, and use the same app store.

When I spoke with HP strategy and technology chief Shane Robison just after the acquisition announcement, he was non-committal about the mobile software strategy. And one developer I contacted was hopeful about Palm's future with HP.

"This seems like a good deal for both parties," Gowalla CEO Josh Williams wrote me. "webOS is an elegant mobile operating system and personally I still believe it can have a bright future. Though its reputation has dropped off as of late, HP has a history in the mobile device space with the iPAQ and other products, and I'm in hopes that they'll put the resources behind this marriage to make it a success. As developers, we'll keep an eye on this closely. I'd say we're cautiously optimistic."

A path to success

What can HP do to make this work?

The safest, most diplomatic route would be to keep offering all of its mobile platforms and sub-brands even after buying Palm. As it stands, HP is Microsoft's biggest customer (thanks to its top-ranked PCs and huge server business); if it were to ditch Microsoft's mobile products altogether, there would be painful weeping and gnashing of teeth in Redmond. On the Linux front, HP engineers have invested a lot of time developing HP's offering, and any effort to move away from them would ignite internal squabbles. Finally, HP calculators are their own quaint little niche, even though calculator software running on Apple and Google platforms is improving rapidly.

But if HP allows Palm and its webOS to end up as just another option in its mobile software toolbox, it will be a big mistake. Not only would that send a mixed message to consumers and developers, HP's own finite marketing and engineering resources will be spread too thin.

Instead, HP should commit to migrating all of its mobile products to webOS – and to using the Palm brand across as many of them as possible. That would not only bring an impressive base of consumers and business users to webOS, but also focus HP's internal software developers on providing a powerful base of apps for home and office. HP's hardware engineers could focus on building interfaces to work with one OS. And that simplicity and unit volume would encourage third-party developers to commit to webOS.

If Bradley does that, he and his proven team have a real shot at making this the biggest mobile buy ever, and going toe-to-toe with Apple and Google. If not, expect both the Palm brand and the webOS platform to sink into the abyss – probably for the last time.

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