Category Archives: Palm

Diverging Prospects for RIM and Palm

Research In Motion (RIM) and Palm both reported their latest quarterly results yesterday. RIM produced third-quarter results and guidance that were better than what the market expected; Palm disappointed.

As the smartphone market becomes more fiercely contested, these sets of results were analyzed for more than their immediate trading utility. Analysts and pundits carefully scrutinized them for clues as to how each vendor is faring in its bid for long-term prosperity in the smartphone market.

On that score, too, RIM emerged the better of the two. Not all the questions about RIM have been answered, but the company has a coherent strategy, ample resources, a credible brand, strong carrier relationships, and a track record of proving its detractors wrong. Palm doesn’t rate nearly as well on those counts.

As for RIM’s latest quarterly results, as reported by Dow Jones, revenue rose 11% to $3.92 billion, surpassing the company’s guidance of $3.60 billion to $3.85 billion as well as the Thomson Reuters estimate of $3.78 billion.

The company said it added about 4.4 million net new BlackBerry subscriber accounts in the third quarter, bringing the total BlackBerry subscriber account base to about 36 million at quarter-end.

Looking immediately ahead, RIM is forecasting fourth-quarter revenue of $4.2 billion to $4.4 billion and gross margin of roughly 43.5%, resulting in net earnings of $1.23 to $1.31 a share, all outpacing expectations of market watchers.

Unfortunately, where RIM is surging, Palm is treading water. Sales of its new smartphones, the Pre and the Pixi, are already starting to decline. Palm said it shipped a total of 783,000 smartphones during its fiscal second quarter, a drop of 5% from 823,000 smartphone units during the first fiscal quarter. (Palm’s year-to-year comparisons are irrelevant, with its smartphone overhaul occurring this year.)

Another area where RIM is doing well and Palm is not involves market coverage. RIM is pushing forward in China and everywhere else besides, whereas Palm is not. Breaking its dependence on North America, RIM reported that 37 percent of revenue is derived from overseas and approximately 35 percent of the BlackBerry subscriber base is now located outside North America.

Areas RIM is targeting for future growth include small- and mid-size businesses and China, where RIM has been building key partnerships lately. For example, a week after reaching a deal with China Mobile, RIM announced a similar partnership with China Telecom. Before that, RIM had inked a distribution partnership with China’s largest IT services provider, Digital China Holdings Ltd.

RIM is looking at doing more than selling its products in China. Said RIM co-CEO Jim Balsillie:

“To further support our efforts in China, RIM is also exploring opportunities to manufacture and conduct R & D activities in the region.”

Such a move would make sense. China is a burgeoning market, and RIM will have to commit to it, not only in terms of providing product localization, but also with regard to doing valuable R & D there. Perhaps, like McAfee in the security-software space, RIM will establish a wholly owned subsidiary in China.

While international expansion was a key contributor to the company’s success in the third quarter, RIM also is helping its cause with a more diversified product portfolio and gains in consumer patronage. Even though its installed base remains strongly represented by business customers, RIM said 80 percent of its new subscribers in the third quarter were non-corporate customers.

That’s all good news for RIM, but I still think the company will need to overhaul the look and feel of its BlackBerry software if it has aspirations of continued consumer gains amid intensifying smartphone competition.

The smartphone market is growing briskly, but it will consolidate. At that point, the leaders will reap the largest rewards, with the laggards failing or getting acquired, sometimes cheaply. That’s why maintaining and gaining share are so important, and why RIM’s latest solid results and bullish guidance are encouraging signs for the company.

Meanwhile, again, Palm isn’t looking so good. One can downplay Palm’s disappointing quarter by arguing that the company remains a work in progress and that it will have occasional stumbles as it goes all in as a smartphone player. Some apologists, with arguable justification, also will point to Palm’s early dependence on Sprint for sales of its webOS-based Pre and Pixi models. Nonetheless, Palm is losing momentum, doesn’t have the resources of its larger rivals, and the competition it faces in the space will only intensify.

Palm had an early chance to carve out a growing niche for itself, but its window of opportunity is closing rapidly. While RIM has gained ground and positioned itself well for the future by expanding in markets outside North America with a diversified product portfolio, Palm is something of a one-trick pony, still focused primarily on North America with a narrow product line and an overwhelming dependence on getting and keeping the favor of fickle consumer who are bombarded by the heavier and slicker brand advertising of Palm rivals such as Apple, the Google Android mafia (Motorola and Verizon with Droid, for example), RIM, HTC, Nokia, and others.

It’s too early to perform last rites – how many times has RIM proved doomsayers wrong? – but Palm’s prospects are dimming.

New figures from AdMob, measuring worldwide smartphone Internet traffic, demonstrate how quickly the market might be consolidating. With traffic attributable to the iPhone and Google Android-based handsets dominating and on the rise, respectively, everybody else is struggling to hold market share.

RIM is positioning itself for future growth in China and other foreign markets, while maintaining its hold on its sizable installed base of enterprise-messaging customers, means it is likely to stay the course, though it’s anybody’s guess how the situation might look three years from now.

RIM has the resources to play a game of attribution, however. Palm doesn’t. Unlike RIM, Palm doesn’t have the luxury of a lucrative, money-spinning installed base of corporate mobile-email customers. It doesn’t have option to reinvent itself one more time.

If Palm’s smartphone unit shipments continue to slip sequentially from quarter to quarter, it won’t remain in the race much longer. Time isn’t on Palm’s side.

Microsoft’s Consumer Entropy

I must be doing something wrong. Actually, I know I’m doing something wrong — a few things, if truth be told.

Still, I never get invited to speak at industry dinners, and I don’t understand why. While I get some things wrong, and will continue to do so, I occasionally get some things right.

Something I have gotten right for a long time about Microsoft is that the Kings of Redmond are woefully unsuited to the pursuit of consumer markets. Microsoft not only lacks “consumer DNA,” but it also fails to empathize or understand consumers to any meaningful extent. To use popular phraseology, Microsoft doesn’t get consumers.

I’ve been saying this for years, sometimes on this blog, and frequently in conversations with friends, family, and strangers. I’ve been assailing and bemoaning Microsoft’s consumer ineptitude for so long, in so many places, that my audience has grown tired of my routine. I, too, have gotten tired of trotting out the same earnest, well-rehearsed arguments ad nauseam.

There’s no time limit on truth, however. Because no matter how hackneyed, hirsute, weathered, and wizened it might get, it’s still the truth, ugly or not — and it must be honored.

Some other folks — industry luminaries, no less — share my views on Microsoft’s inability to grasp the consumer domain. Some of these people get invited to speak at industry events. One of them is Mark Anderson, the sage behind Strategic News Service, which bills itself as “the most accurate predictive newsletter covering the computing and communications industries.”

Speaking with Steve Lohr of the New York Times, Anderson said the following:

“Except for gaming, it is ‘game over’ for Microsoft in the consumer market. It’s time to declare Microsoft a loser in phones. Just get out of Dodge.”

Well, yeah. Windows Mobile is a donkey.

As we all know, even a champion jockey can’t ride a donkey to victory in a race against thoroughbreds. Apple, RIM, Google, even Palm and Nokia have better entrants in the mobile-operating-system derby. But, Anderson’s recommendations notwithstanding, Microsoft will keep riding its donkey until it can make the donkey better and faster — maybe through the application of expensive steroids — or until it retires the donkey after buying a real horse.

Even then, if Microsoft doesn’t bring some much-needed coherence and focus to its mobile efforts, it will fail. It’s all about understanding who it is and where it belongs.

Anderson sees the root of the problem at Microsoft:

“Phones are consumer items, and Microsoft doesn’t have consumer DNA.”

“Walk the halls at Microsoft and you can see it is not a place that gets consumers Just as if you walk the halls at Google, it’s obvious it is not a place that gets the enterprise world.”

He’s absolutely right. I would add, though, that Google has a better chance of adapting to enterprises than Microsoft does of adjusting to consumer needs.

Anderson sees the computer universe splitting into two very different galaxies: one for consumers and one for enterprises. He consigns Apple, Google, and most of the Asian hardware makers to the consumer galaxy. The enterprise galaxy will host the likes of IBM, Dell, Cisco. and Microsoft. Anderson sees HP as the colossus that will straddle both galaxies, at home, though perhaps not equally, in either realm.

This is neither the place nor the time for me to critique Anderson’s broader taxonomy and to quibble over where he has placed individual vendors within the structure he’s prescribed. I will say that I agree with most of what he has said above, with a few cavils and caveats.

He definitely gets it right regarding Microsoft, though. Perhaps, now that he is legitimizing the viewpoint with his gold-plated imprimatur, the formerly minority opinion that Microsoft was (and is) a consumer basketcase will gain currency and maybe even evolve into conventional wisdom.

If it does, I want it remembered that I was on the vanguard, barking and howling the truth at anybody who would listen and even at those who wouldn’t.

By the way, if you want a cheap dinner speaker, I’m available. I promise to forgo the Tiger Woods jokes.

Google Android’s Soft Target

In mobile operating systems, and particularly the fast-growing smartphone neighborhood, many observers foresee a cage-match showdown between Apple, with its iPhone, and Google with Android. Some wonder whether Google’s Android will “kill” Apple’s iPhone.

I think they’re missing the point.

Apple controls nearly ever aspect of the iPhone, from its hardware design through to the approval process for applications that can be offered on Apple’s App Store. Even the most ardent open-systems proponents would have to concede that Apple’s approach has been commercially successful and that the iPhone has been enormously popular.

At last count, there are 85,000 applications available on the App Store. The iPhone and its entertainment-device sibling, the iPod Touch, are used for practically every purpose imaginable for a mobile device. If we’re honest with ourselves, we’ll recognize that the iPhone will continue to find favor with a large number of users well into the future.

So, if Apple’s franchise is relatively secure, who will Google’s Android hurt the most?

Let’s think about it. Apple owns and tightly controls its own smartphone operating system, as does RIM with its business-messaging Blackberry. Nokia has its quasi-open Symbian, which is looking a little long in the tooth and rough around the edges, definitely vulnerable to market-share erosion. Palm has its Pre, loaded up with the nascent webOS, which again is a single-vendor integrated solution. The jury is out on the Pre, but Palm’s fate is essentially in its own hands.

But which mobile vendor looks most like Google? Which vendor offers a mobile operating system to third-party handset and smartphone vendors of all shapes and sizes?

It’s Microsoft, of course, with its Windows Mobile, the latest version of which has just been soundly thrashed by reviewers.

Yes, one could quibble that Windows Mobile is a closed environment and Google Android is open. Still, the fact remains that both license their mobile operating systems to third-party handset vendors. Neither has its own handset. They compete directly with one another for the handset real estate of third-party vendors who do not have mobile operating systems of their own.

Now let’s look at Google’s early Android licensees: Motorola, Acer, HTC, LG, Samsung. What do they have in common? Give up? Each one also is or was a licensee of Windows Mobile.

That means that each vendor that shifts a handset from Windows Mobile to Google Android contributes to a corresponding market-share loss for Microsoft and a market-share gain for Google. If these vendors enjoy more commercial success with their Android handsets than they had with their Windows Mobile phones, it’s likely they’ll never return to the Microsoft fold.

For Android to be reasonably successful out of the gate, Google need only ensure that it converts as many Microsoft licensees to its mobile OS as possible. To achieve that objective, Google also will have to ensure that developers build great applications for its platform, and that it establishes and maintains strong business and technical relationships with the handset vendors.

Google Android will not have to take share from Apple’s iPhone at all – not initially, anyway. That’s a good thing, too, because the Apple mobile franchise is pretty strong.

Google is wise to start its mobile march by exploiting a soft target. They don’t come much softer than Windows Mobile.

Palm Made Right Call in Shutting Down Windows Mobile

Some analysts and investors have debated whether Palm made the right decision last week when it chose to abandon Microsoft’s Windows Mobile operating system in favor of an exclusive commitment to webOS.

In making the announcement, Palm CEO Jon Rubenstein said the following:

“Due to the importance of webOS to our overall strategy, we’ve made the decision to dedicate all future development resources to the evolution of webOS, which means that going forward, our road map will include only Palm webOS-based devices. . . .

. . . . We are going to be focusing all of our effort in the future on building webOS products. And so while there are still Centros and Treo Pros moving through the (Windows Mobile) channel right now, our future engineering efforts are based around webOS because we are absolutely confident in where we are going with webOS.”

I understand the reasoning put forward by those who questioned Palm’s decision. On a quarterly basis, Palm is suffering from steep declines in year-over-year revenue; and the Palm Pre, in limited release, doesn’t seem to be doing as well as some had expected and hoped it would.

In ending its commitment to the Windows Mobile-based Centros and Treo Pros, Palm has discouraged consumers from purchasing them. Revenue from those products will recede even faster and more severely than would have been the case had Palm chosen to allocate a modest percentage of keep-alive resources to them.

Nonetheless, while I sympathize with the position of Palm critics, I don’t agree with it. Palm had to commit unambiguously and unreservedly to its homegrown mobile OS. It isn’t a big enough company to have one foot planted in Microsoft’s Windows Mobile camp while trying to make meaningful strides with webOS. It would have tripped over its own feet.

Palm isn’t a hedge fund; it’s a technology company. It must have the courage of its convictions or risk becoming irrelevant. Palm might have become just that if it had attempted to juggle resources in a bid to marginally extend a diminishing stream of Windows Mobile revenue.

Now, though, it has a chance at survival, at emerging as a strong alternative to a smartphone market where the long-term winners appeared destined to be Apple in the consumer sphere and RIM in the enterprise realm.

It won’t be easy. An armada of Google Android-based smartphones will hit the market’s high seas before the end of this year. Those much-hyped and eagerly anticipated competitors will gain an inordinate amount of media coverage and industry buzz. Meanwhile, Apple won’t stop innovating, and RIM will continue to do its best to prevent encroachments on its enterprise turf.

Windows Mobile, though, is a spent force. I don’t see how Microsoft can revive it. The Windows Mobile 6.5 release won’t do it, and neither will next year’s Windows Mobile 7.0. The only possible road to redemption for Windows Mobile would be to refocus entirely on enterprise applications and markets and hope to chip away at RIM’s market share.

I will say it again: Microsoft has a lot of expertise and knowledge, and it remains stocked with plenty of smart people, but it doesn’t understand consumer markets. It does poorly in assessing the needs of consumers. Not surprisingly, it does just as poorly in designing and developing products for consumers.

That means Palm’s objective is to position itself as a viable top-three vendor. It has a chance if it can withstand the initial onslaught from the gaggle of Google Android licenses. Much depends, then, on whether on this impending wave of Android-based devices is favorably received. I think the initial buzz for the Android smartphones will be intense, but I wonder about their staying power — and I wonder about Google’s commitment to Android.

I’m probably in the minority, but I’m not persuaded Google will go to the mat to defend a mobile operating system that isn’t essential to its business. Google services don’t have to run on Android, as Google’s application support for the iPhone attests. Google can still generate service and advertising revenue without Android, though it would have more control over the presentation and delivery of those services and advertisements if it owns the mobile platform on which they are delivered.

If Android wobbles — if developers don’t support it with a a sufficient quantity of high-quality applications, if handset manufacturers waver if their first Android handsets don’t reach sales targets — will Google cut or run? I’m not sure of the answer.

Getting back to Palm, it will have to weather an intense storm. It will have to stay the course, it will have to get better at marketing itself and its devices, and — most important of all — it will have to win the hearts and minds of application developers and relevant content creators.

Can it succeed? I’m not Nostradamus, but Palm’s unalloyed commitment to webOS suggests it will at least put up a good fight.