The future that hasn't happened yet

Predicting the future is hard because it hasn’t happened yet. — Attributed to Yogi Berra

For the third and perhaps final time, my friend (co-author, consultant and startup CEO) Michael Mace came Monday SJSU to speak to my honors undergraduate students.

As in the previous visit, the subject was “knowing the unknowable.” The idea of the talk was to prepare these management students for careers at Silicon Valley tech companies.

Mike drew on his experience at Palm (chief competitive officer, VP of strategic marketing, VP of product planning), SGI (director of strategic marketing) and Apple (director of platform marketing, director of competitive analysis).

Predictions Gone Wrong

He recounted seven predictions from the best-selling business 1994 book Competing for the Future by Gary Hamel and (the late) CK Prahalad:

1. real-time oral translation
2. urban undergraduate distribution
3. miniature robots that can unclog arteries
4. satellite phones anywhere on earth
5. machine capable of reeling emotion
6. virtual meetings room replacing air travel
7. digital highway that bring torrents of information into the home

Only the last two have happened to any degree, with virtual meetings still a niche. Overall, he scores it as 1.5/7 — a .214 batting average "would get you sent to the minor leagues."

The problem is that "no business can bet on seven on those things"; if you bet on any of these, "chances are very likely that you'd lose your shirt". Exhibit A would the Motorola-backed Iridium satellite phone, that lost $2.6 billion in what Wired called the “Edsel of the Sky.”

Why They Go Wrong
Because there are so many examples of group think — what he calls the “flying car problem” — Mace advised student to bet against the consensus.

He listed a typology of reasons why things could go wrong:

• completely impossible
• economically impractical — you misunderstood the market
• competitive displacement — better alternatives (i.e. substitutes) such as the cellphone as a substitute for sat phones.
• no champion: the existence of tablets before the iPad. Could be great business, but nobody does the product right.
• possible but not practical yet: largest group of failed predictions (For example, for years he’s been hearing that fuel cells will be in cellphones in 18-24 months).

One problem with faulty predictions is trying to figure how long something will take. Mace advises: "If it's not working in an engineering prototype, you don't know when it’s going to ship”; or, to quote futurist Paul Saffo: "Never mistake a clear view for a short distance.”

In his views, there are two types of companies:

• visionary, who focus on what the future should be, led by people like Steve Jobs, Jeff Hawkins. “They are completely right up until the point that they’re wrong. … These are people who can march everyone off a cliff.”
• reactive react to what the future will be. Good at responding to incremental change, but prone to groupthink.

Competitive Analysis: Doing it RIght

Instead, he recommends that firms map and shape the future: "The fundamental thing about the future is that it hasn't happened yet".

He described the process he used at Apple and Palm; he argued that Palm proved prescient at predicting the future in 2001-2002 but lost resources to act upon it. (His approach overlaps what b-schools sometimes teach for scenario planning).

In Mace’s view, firms can create a roadmap of the future by integrating three different functions:

• market research: they identify destinations on the map, but need to overcome their narrow view of merely being reactive to external queries;
• advanced technology: they find the roads. If such functions exist, they tend to be in the CTO office and focus on “science experiments” rather than market reality.
• competitive analysis: where the competition will go and respond. At many companies, if this function is left it’s just a few interns without the experience to analyze the data.

Mace said it’s the responsibility of management both to force these three groups to work together, think about the implications and get decision makers to listen their conclusions.

HP's curious acquisition

I’m still not sure why HP spent $1.2 billion to buy Palm, other than it can. Yes, it has a minimal presence in mobile phones and other mobile devices, leading MarketWatch’s Therese Poletti on March 2 to predict an HP purchase of Palm:

Surely numbers-driven Chief Executive Mark Hurd is looking for ways for H-P to take advantage of the boom in smartphones. Buying Palm could be a way for H-P to get into the market for lower cost devices. It might have to abandon Windows, or offer two families of devices. H-P has often juggled competing product lines, diverse chip architectures and operating systems.

With its cash and global reach, HP can certainly do more with Palm’s technology that Palm has been able to do. And yes, Palm was available cheap, losing 73% of its market cap since its recent peak stock price of $17.07 last October.

It was a great victory for Palm and its investors, which despite good technology has been given up for dead for nearly two years. Elevation Partners, which took 25% sake in Palm three years ago, cashed in its (now) $460 million investment for an estimated $485 million — suggesting that it was worried about further deterioration rather than optimistic about a future upside. (Wednesday, Palm revealed Q2 revenues were expected to be 40% below analyst expectations, which would have punished the stock further.)

Obviously HP has been looking forward to the day when smartphones and other devices start to eat away at the Windows-based PCs that account for a nearly a third of the company’s revenues.

HP claimed the acquisition is even about the post-smartphone world:

"Smartphones are a part of this, but this is really about the Web operating system," Shane Robison, HP's chief strategy and technology officer, told Forbes. "It's a change in our business model to a connected device model." HP, he said, is assuming a world in which almost everything needs at least the potential to connect to the Internet.

But by taking on Palm and its webOS, HP is going down path it’s almost completely avoided during its 40+ years as a computer maker — as a sponsor of a proprietary computing platform.

Yes, it sold proprietary 16-bit mini computers in the 1970s, and it also bought two leading proprietary minicomputer companies: Tandem and Digital Equipment (when it bought Compaq).

However, its PCs have been DOS and Windows, and its servers Windows, Unix and Linux. The Unix (HP-UX) had its own development group, but the recent trend by HP and its customers has been away from HP-UX to Linux.

Of the world’s top five PC makers — HP, Dell, Acer, Lenovo and Toshiba — all have made mobile devices based on Windows Mobile (now Windows Phone) and Android. HP now seems to be abandoning this model and casting its lot with the leading proprietary vendors: Apple, Nokia and Research in Motion. (Yes, the operating system Nokia controls is open source, but its competitors are largely ignoring it.)

This also means that HP hopes to use webOS to differentiate its mobile products, rather than merely shave pennies off of operating costs as CEO Mark Hurd loves to do. Perhaps the thought of competing against commodity Taiwanese and Chinese firms in the mobile segment prompted him to do something different.

It’s really too soon to say whether HP will have any luck here. However, in the short-term, I think the biggest negative is for Google. A lot of people have been assuming that Android will take over the world, coalescing all the various carriers, vendors and users into a single platform. Instead, fragmentation of mobile phone platforms — as well as tablets — will continue.

It‘s also bad for Microsoft and Dell. Perhaps this will be the nudge that gets Microsoft out of the handset OS business, or it may cause it to more aggressively ally with Dell (which previously aligned with Android.)

But in a perverse way, I think in the short-term it will be good for the other proprietary platform vendors. Together, Nokia, RIM, Apple and HP will be able to hold off Android, and may cause the other phone makers to reconsider whether they want to hand control of their future to Google.

The one sure thing is that the number of webOS applications is going to explode. The iPhone (nearly 200,000) and Android (around 40,000) application stores are already crowded, while webOS only has a few thousand. Developers looking to get noticed will flock to webOS, hoping to get in on the ground floor now that its survival is no longer an issue.

Because of this demand — and because the webOS tools are very friendly — I predict that HP/Palm will have more than 5,000 apps by the end of the year, and perhaps closer to 10,000 apps.

Palm undiversifies platform strategy

While multiple mobile platforms allow a firm to serve different target groups and also to hedge their bets, they are also expensive to support and defocus a company, particularly one that’s struggling.

Eleven months ago, in the face of a $400m quarterly loss, Motorola announced it was cutting from six (or seven) platforms down to three: Android, Windows Mobile, and its own proprietary platform.

Now it’s Palm’s turn to slash its platforms, from three down to one. In the earnings call that confirmed its widening loss ($161m on sales of $68m), on Thursday CEO Jon Rubinstein made clear that both Windows Mobile and (as expected) Palm OS are history:

Due to importance of webOS to our overall strategy, we've made the decision to dedicate all future develoment resources to the evolution of webOS. Which means that going forward, our roadmap will include only Palm webOS-based devices

(Moconews has the quote slightly differently: “So while there are still Centros and Treo Pros, our future engineering efforts are based on webOS.”)

That seems to suggest a US-only, consumer-only focus — and it’s a lot of eggs in the webOS basket. So far, Palm won’t say how many of the 810,000 phones sold last quarter were the Pre, but speculation puts it at the 400,000-500,000 range — a good weekend’s sales for the iPhone. The predictions of a Palm Pre blowout by investor Roger McNamee appear to have been overly optimistic.

Is Palm’s problem the product? (Not if you believe the reviews). The immature ecosystem? Its limited marketing clout to launch a new platform? The fact that it’s only on a weak carrier?

Only the latter is easily fixed, but rumor has it that the webOS phone for Verizon is not until 2010. Lord knows, Verizon desperately needs better phones, as this Wired story makes clear:

"They lack the star products that their competitors have," says Avi Greengart, research director, consumer devices for Current Analysis. "They recognize they don't have compelling devices right now but feel they can make up for it with network quality."
…
"Verizon doesn't have too many options," says Michael Mace, a former executive with Palm and Apple and currently a principal at strategy and marketing consulting firm called Rubicon Consulting.

"They can't get the iPhone right now and they can't take Nokia devices and start promoting them. All they can do all they can do is push the BlackBerry as hard as they can and hope for a new Motorola phone."

The Wired story (also available on CNN) notes that Verizon is promoting a HTC Windows Mobile phone at $200, less than the $350 that Sprint and T-Mobile charge.

I realize Palm is resource constrained, but clearly beating Motorola to Verizon would make a huge difference to the bottom line. Is it that Palm can’t ship another phone in time? Or is it that the 2009 exclusive that it gave to Sprint was for the entire webOS and not just the Palm Pre?

Either way, this is not a lot of runway to turn things around.

Pre is better -- so what?

Palm’s last chance for survival is going on sale Saturday. Operator Sprint has almost as as much at stake. It claims an exclusive on the Palm Pre through the end of the year, despite Verizon’s hope to offer it real soon now.

A number of sites (ZDNet, PC World, Barron’s) are summarizing the Pre reviews, which range between glowing and fawning. Take for example this AP review

Move over, iPhone. You've had two years on top of the smart phone world. Now there's a touch-screen phone with better software: the Palm Pre.

In a remarkable achievement, Palm Inc., a company that was something of a has-been, has come up with a phone operating system that is more powerful, elegant and user-friendly. …

So webOS makes the iPhone look clunky, which is stunning in itself. It also thoroughly shows up Microsoft Corp.'s Windows Mobile. That operating system has had multitasking for years, but few users have appreciated that. Rather, Windows Mobile has been blamed for making phones clumsy and slow. Now, webOS comes along and does multitasking right.

I am more that a little skeptical. Reporters like the underdog, both for personal biases and also because it makes for a more interesting “horse race.” So just because they say the Pre is better doesn’t mean that it is. (In fact, the only claim is that the software is better, not that the hardware is better.)

However, suppose the Pre is better: so what? We figured out decades ago that the aphorism “build a better mousetrap and the world will beat a path to your door” is an engineer’s self-dillusion.

The reality is that better is not the only reason people buy phones. There’s also carrier switching costs, status, price, form factor/convenience, and now the availability of third-party complements.

Palm is trying to leverage its hacked iTunes download capabilities
to equalize one difference — the iTunes store. (Apparently Apple is trying to break that effort via the iTunes 8.2 update).

Even with iTunes songs, Palm still needs an app store. Or rather, even with an app store, it needs applications — which means it needs to seed developers with tools. And then developers need to be convinced they should develop (unless they decide there’s an inherent advantage in coming early to a tiny but hopefully growing market).

So the odds are long. The Treo, once dominant in the US, has been a stagnant niche product over the past 3-4 years.

The most optimistic thought would be that no one thought Apple could enter the market late and challenge Nokia and Research in Motion. Clearly Apple succeeded and continues to have momentum. It’s possible that Palm could succeed too, but my hunch is that Apple, RIM and Palm are splitting the same market — which means that Palm will be competing against two very entrenched competitors.

Sprint is the low cost provider among the US Big Four operators. Perhaps Sprint and Palm can bring smartphone and 3G services to the masses. One can only hope.

Balance of power in China

The Financial Times reports this morning that both Android and the iPhone are expected to officially arrive in China Real Soon Now:

Google’s Android mobile phone operating system is set to make its legal debut in China in June when China Mobile launches specially adapted handsets.

The Taiwan-based handset manufacturer HTC said China Mobile would start selling a customised version of the HTC Magic, a handset based on Google’s Android operating system, through its stores.

Analysts believe that a successful launch of a high-end handset for China Mobile subscribers could help remove hurdles to the entry of similar handsets such as Apple’s iPhone into the country, the world’s largest mobile market.

Apple has negotiated for months with China Unicom, China Mobile’s smaller rival, to introduce the iPhone to China, but industry executives say regulators have sought to hold back an agreement until China Mobile has a device that will allow it to compete for 3G customers.

Of course, as the FT reports, grey market Android and iPhone models are available in China already.

The FT notes that the three major carriers — China Mobile, China Unicom and China Telecom — are being played against each other to maximize competition. It makes sense that the government wants China Mobile to go first: it is the world’s largest mobile phone carrier, but forced to deploy China’s home-grown (and China-only) TD-SCDMA technology.

The timing seems right for both the Magic and iPhone. The HTC Magic was released by Vodafone in Europe earlier this month. It is coming to the US (in June?) as the T-Mobile myTouch 3G. It’s also coming to Japan and Canada. In Japan, the Magic (there the HT-03A) would be sold by NTT DoCoMo, which already sells two other smartphone platforms — MOAP-S (Symbian) and MOAP-L (Linux). The Canada intro is via Rogers Wireless, which is also rumored to be selling the iPhone this summer.

Meanwhile, China Unicom’s iPhone launch is conditioned on the availability of the iPhone 3.0 model(s) next month. (Presumably if Apple releases more than one model, China will pick the more affordable one). Pundits argue whether the iPhone will or won’t be announced at WWDC in 13 days. I lean towards the “will announce” camp, because Apple needs to show developers the new device and demonstrate its features. Educating developers is the whole point of WWDC, and this year’s WWDC is more iPhone centric than ever.

China Unicom is also getting an Alcatel-branded Windows Mobile 6.1 handset next month.

The laggard appears to be China Telecom. I haven’t seen any reports of a 3G smartphone for its rapidly deploying cdma2000 network, which it got from China Unicom last year in the grand reorganization orchestrated by the Ministry of Industry and Information that is enabling the huge 3G rollout by all three operators. Thus far, China Unicom has denied persistent rumors of its own BlackBerry. Its main foreign handset suppliers are Samsung and LG, which sell Windows Mobile and Symbian handsets. (I’m guessing the first Symbian CDMA handset will come from Samsung or one of the Chinese makers early next year).

The only other major CDMA smartphone handset vendor — Palm — is introducing the Pre in the US June 6, but the only overseas plans I’ve seen are with Bell Mobility (Canada’s #2 carrier) and with Telefonica in the UK (O2), Spain and Latin America. Since there will not be enough Pre handsets to go around, there’s no rush on introducing the phone to the world’s largest market.

Odd Palm story du semaine

Daring Fireball and Digital Daily point to an odd posting by Palm, rejecting the over-the-top Pre claims of its key investor, Roger McNamee of Elevation Partners. It reminded me of the old Mission Impossible admonishment to Mr. Phelps about disavowing all knowledge of his actions.

The whole filing is worth reading both for its drama and (if nothing else) for the blow-by-blow dissection of the train wreck that was McNamee’s interview last week with Bloomberg. (In an odd coincidence, the interview was written up by Rochelle Garner, my onetime editor when I was a MacWeek columnist).

However, of broader interest to readers of this blog are Palm’s market share estimates for global and US smartphone market share:

One third party industry analyst report indicates that in 2007 and 2008, Blackberry’s share of worldwide mobile phone shipments was 1.1% and 1.9%, respectively, and Apple’s was 0.3% and 1.2%, respectively.
…
One third party industry analyst report indicates that smart phones made up 11.1% of U.S. mobile phone shipments in 2007 and 19.5% in 2008.
…
One third party industry analyst report estimates smartphone share of the U.S. mobile phone market will reach 42.0% in 2012.

BTW, Digital Daily also reports that Movistar has a Pre exclusive for Latin America. What DD doesn’t mention is that Movistar is already selling the iPhone 3G there on a non-exclusive basis.

High stakes pre-Pre announcement

Dow Jones and the WSJ ran interesting articles on the high stakes Palm faces with its planned announcement of the Pre sometime in the next four months. The news hook is that Palm’s current investors added another $100m to their prior $325m investment nearly two years ago.

Here’s what the WSJ said:

The product launch is likely to be costly. Consulting firm Altman Vilandrie & Co. estimates Palm will have to spend $50 million to $75 million to get enough phones ready and as much as $50 million for marketing, depending on how aggressive Palm wants to be and how much support it receives from its carrier partner Sprint Nextel Corp.

The DJ report was even more stark:

Palm Inc.'s much ballyhooed smartphone, the Pre, may end up being a costly affair for the embattled company.

With an aging product portfolio and nothing else in the pipeline, Palm is betting it all on the success of the Pre. A lot of capital goes into production and marketing to ensure a successful launch, which some peg as high as $100 million. As a result, Monday's announced financing move may not be its last.

"Palm's ability to recover from a shortfall in launch volume could be problematic," said Daniel Hays, a consultant at PRTM. "Having extra working capital to build up inventory seems prudent."

The DJ report predicts that Sprint will pay most of the marketing budget, but quotes analysts as saying Palm needs to also commit its own money to assure success:

Industry observers point to the lukewarm launch of Samsung Electronics Co. Ltd.'s Instinct by Sprint. The marketing campaign wasn't strong, and aside from an initial pop, the phone failed to live up to its billing as the "next iPhone."

The Pre is do or die for Palm: if the product fails, it’s the end of Palm’s 15 year existence as an independent company. But Sprint also badly needs a hit smartphone, since its competitors have been enjoying the hot phones the past two years.

Overdue Pre announcement

Yet another post during the week of Macworld Expo and CES.

Palm unveiled a new phone with a new OS at CES. Because I have to get back to my day job, let me react quickly to both the CNET and NYT stories.

The OS has the (IMHO terrible) generic name of “Web OS”; the phone (or phone family) is called Pre. Apparently, as with the initial iPhone, there are no native apps, just webapps (let’s see how long that lasts).

Of course, it is not the first (nor last) wannabe “iPhone killer” (which apparently counts any touchscreen phone). It has what any decent smartphone today has: a large (3.1") LCD screen, GPS, and (unlike Verizon phones) Wi-Fi. Like the Nokia N97 and the T-Mobile/Google/HTC G1, it has a slide-out keyboard.

The good news and the bad news is that the phone will start on Sprint. It’s good news because Sprint doesn’t have a decent smartphone — just some generic LG and Samsung phones (that many would not consider real smartphones) and of course the aging Palm Centro and Treo models.

The bad news is that Sprint is in serious trouble and the only one of the Big 4 US cellular operators that is losing market share.

The phone is still vaporware, promised at an unspecified date (“first half”) and unspecified price. It will come someday to other carriers: I’m guessing that 3-6 months after Sprint, the next carrier will be Verizon (relatively lame smartphones, same CDMA technology).

My snap reaction is that this would have been a great phone to release last summer. New architectures always take longer than expected, but perhaps they could have done it if they’d been more focused in 2006-2007 and not wasted so many resources on the Foleo.

Instead, it will arrive two years after the iPhone launch, at a time when when consumers already have at least three other credible smartphone alternatives (Nokia S60, various BlackBerries, and the gPhone), Palm’s handheld market share is at the lowest point of its 16 year existence, and their very survival has been in doubt for years.

For sentimental reasons, I hope Palm can make a go of it. I’ve owned Palm PDAs since 1996 and relied on a Palm PDA phone (Kyocera QCP-6035, Treo 650 and two copies of the Samsung SPH-i500) for the past 7 years. Despite this, I can’t see why I’d prefer the Pre for my own use, particularly given that its viability is questionable when compared to Apple, Google, Nokia or RIM.

Four dying SV companies

On Sunday, Chris O’Brien of the Merc wrote about four dying Silicon Valley icons. For some reason, it wasn’t posted to the website Sunday or Monday, but it’s there now. He aptly summarizes the problems of three of these companies, and I recommend anyone interested in innovation (or the Valley) to read the analysis.

In my reading, two of the companies are (effectively) single-product companies where their product is no longer compelling and increasingly no longer competitive. AMD once was threatening Intel on the performance front, and now they are asset stripping in hopes of raising enough cash to stay alive. Palm created the pen-based PDA and for a while was a leader in smartphones, but their Treo remakes have long since run out of steam and their last Hail Mary wasted precious time and money.

The other two companies are diversified systems companies which were built around the idea of integration and economies of scope. Their stories diverge somewhat, in that Sun Microsystems was the dominant firm in a category that’s been dying since the end of the dot-com era, while Yahoo is #2 in a category that’s still very much alive.

Still, there are important parallels. Sun has been cutting its way to greatness for years, and is still floundering in search of a strategy that will somehow make up for its loss of a raison d’être in a world of commodity Linux boxes. (Thank you, Intel).

Yahoo has only recent begun to emulate Sun by cutting its way to greatness — with cuts of 7% in February (announced in January) and 10% earlier this month announced back in October. Even their cutting is not being done well: pre-announcing them makes it like a water torture, and they are also cutting staff from its winners and not just deadweight.

However, Yahoo has been floundering for as long as Sun — ever since it hired Terry Semel back in 2001. Semel was cast off in 2007, but his successor hasn’t done any better.

O’Brien puts Yahoo in a separate category, because he thinks they will do a deal in Microsoft in 2009 that will pull them out of a tailspin. But I think Yahoo’s problems are systemic, and even if they make nice with Microsoft, that won’t substitute for a lack of a winning strategy.

So will Yahoo die in 2009? No, but neither will Sun: it has enough inertia (through enterprise sales contracts) to keep limping along for another decade or more, as did DEC and Unisys and Cray and SGI and all the other computer systems also-rans.

Still, if Yahoo doesn’t get a better CEO and better strategy, all its point successes (like Flickr and mobile) will be for naught.

Apple: We're #3!

On Tuesday, Canalys released its estimate that 115 million “smart devices” were shipped in 2007, where such devices are defined as “smart phones and wireless handhelds”; as best I can tell the numbers are 112 million vs. 3 million. (It’s hard to tell how many of the latter are Palm PDAs, Windows PDAs or an iPod Touch).

Canalys is coy about full year results, but the stats for Q4 allow comparison of the overall handset market (released last month by IDC) and the “smart device” market. Making some reasonable assumptions (in italics)

Vendor	All handsets		Smart Devices
Nokia	133.5M	40.0%	18.8M	53.0%
Samsung	46.3M	13.9%
Motorola	40.9M	12.2%	2.3M	6.5%
Sony Ericcsson	30.8M	9.2%
LG	23.7M	7.1%
RIM	4.0M	1.2%	4.0M	11.3%
Apple	2.3M	0.7%	2.3M	6.5%
Others	52.5M	15.7%	8.1M	22.8%
Total	334.0M	100.0%	35.5M	100.0%

Of the “other” smartphones, about half are Windows mobile. Apple is tied for third with Motorola on smartphones, but of course Motorola sells 20x as many featurephones.

Other smartphone stats from Canalys:

• Worldwide, the Q4 operating system share is 65% Symbian, 12% Windows, 11% RIM, 6.5% iPhone and about 5% Linux. Of the Symbian, 82% is Nokia; presumably most of the rest of Sony Ericsson.
• In the US, Q4 device market share was RIM (Blackberry) 41%, iPhone 28%, Windows 21%, Palm 9% (Note the overlap of Palm Windows devices).

Also on Tuesday Apple, introduced new iPhone and iPhone Lite models:

Model	8gb	16gb	32gb
iPod Touch	$299	$399	$499
iPhone	$399†	$499†

† plus a two-year contract unless you figure out how to unlock the iPhone

Apple is certainly holding off on cutting prices on either model, which presumably awaits the 3G iPhone in June or July.

Foleo was such a bad idea that…

I said in May and again last month that I thought Palm’s planned Foleo PDA-laptop was a bad idea. Apparently Palm’s CEO now agrees. As CNET reported:

Faced with biting criticism of the Foleo, a Linux-based psuedo-laptop gadget, Palm has decided to cancel the first generation of the device.

Palm CEO Ed Colligan broke the news on Palm's official blog Tuesday after the close of the stock market. Just last week, a financial analyst predicted that Palm would have to delay the Foleo's launch until September or October because of serious software-related bugs, but Colligan decided to kill the entire project instead.

"In the course of the past several months, it has become clear that the right path for Palm is to offer a single, consistent user experience around this new platform design and a single focus for our platform development efforts. To that end, and after careful deliberation, I have decided to cancel the Foleo mobile companion product in its current configuration and focus all of our energies on delivering out next generation platform and the first smartphones that will bring this platform to market," Colligan wrote. …

Palm unveiled the Foleo at the D: All Things Digital conference in May to widespread skepticism, despite the fact that Palm founder Jeff Hawkins considered it "the best idea I've ever had." The Foleo is basically an underpowered laptop that's designed to give Treo users a break from typing e-mails on a small phone keyboard. However, few could figure out why smart phone users — who ostensibly own a laptop already — would want to buy a separate $499 device that could do little more than send e-mails.

CNET blogger Tom Krazit called it an embarrassing admission of a company that hit “rock bottom.”

Rock bottom implies Palm has no where to go but up — which would be a good sign given how much trouble they’re in. I think the cancellation is a good thing: admitting you’re on the wrong course is very difficult for any firm, executive or individual, but it’s better to do so before you ship than after shipping another Newton (to recall the infamous PDA of a decade ago that also had functionality issues).

The blog entry also implies that Palm realizes its future depends on saving its smartphone franchise rather than launching a new product category. Hoping for the best, perhaps this suggests that the grownups are now in charge due to the 25% private equity investment in June.

Chairman Jon Rubinstein used to work for the most demanding (if not most disciplined boss) in the valley — so if he’s imposing a new product discipline, that’s exactly what Palm needs if it hopes to reclaim its former glory. The only caveat is that it’s easy for Rubinstein to kill his predecessor’s bad idea, but will he apply the same discipline for ideas developed on his watch?

Technorati Tags: Palm

Mobile LinuxWorld: Accessing the other Palm story

If Palm Inc. (née Palm Computing) is trying to find life after the PDA, its former alter ego (PalmSource) is trying to run to the front of the parade of adapting Linux to mobile platforms.

Of course, PalmSource was purchased in fall 2005 by Access of Japan, outbidding Palm (Inc.) and Motorola. This was only about six months after PalmSource started shifting towards an embedded Linux strategy with its money-saving strategy of buying China MobileSoft, a Nanjing-based Linux developer.

Today, the business cards in the booth say Access Systems Americas, but the address show the same Sunnyvale address of the former PalmSource.

“How did they hope to make money off of Linux?” is what I asked myself after the original sale, rebranding, and abandonment of ongoing Palm OS revenues. Actually, after visiting the booth (and doing some background research), I realized I already had the answer. What ASA (PalmSource) is doing is exactly what I would have recommended from my 7 years of studying “how do firms make money from open source” — and they didn’t have to pay me a dime.

The most obvious point was the Access Linux Platform (ALP) architecture diagram — which is a mixture of off-the-shelf open source (shown here in blue), technology developed by ASA released as open source (purple), and the proprietary code licensed by ASA (gray).

As I understand it, ASA’s open source contribution is mostly found in the “Hiker” project, which is intended to supply many of the key APIs missing from GTK/GNOME but necessary for writing real native Linux mobile applications. (Hiker is described in a PDF white paper and now has a downloadable tarball). The Hiker part was originally MPL (because it’s a better license) but OSS guru “Lefty” Schlessinger said it will be available Real Soon Now dual-licensed in LGPL(v2) to make the GPL-centric GNOME community happy.

As befitting all the ex-Apple people at ASA, its decision to give away some (but not all) technology parallels the early Apple Computer open source strategy, which I described in a 2003 research paper as “opening parts.” It also fits the general pattern I found in my subsequent larger study of open source business models, where firms sell some parts and give away others.

In addition to the opening parts, the other key point was that (as Bill Lee of ASA developer relations told me) “On this side [of the Pacific], we’re a services company.” Services (despite lower margins) are also common with open source companies. Services have historically been big in the embedded market because no two devices are identical. Unlike the PC industry (where commonality is sought to reduce costs), embedded device makers relish differences (and differentiation) as they seek to push the envelope. There are lots of reasons why hardware companies need help with embedded software, which is why there are companies like MontaVista.

In fact, (today) ASA doesn’t sell a Linux distribution, but assumes that most of its customers have an existing distribution from MontaVista or Wind River (which just won Palm Inc.’s business). This was probably the part that made the least sense: once upon a time PalmSource sold an entire operating system, so the dependency on MontaVista or Wind River doesn’t make sense in the long run. That seems easily fixed: four years ago, WindRiver was a proprietary embedded OS company and the ultimate anti-Linux — and then they got into Linux. So Access could buy (or sell to) an existing Linux distro, or build it from scratch.

ASA is evangelizing developers (using the process perfected by Apple in the 1980s) to support its new Access Linux Platform. (To run the installed base of 25,000 old Palm OS apps, the ALP has a Palm OS compatibility layer). I’m sorry I couldn’t make Tuesday’s developer event but they wanted money and besides I was out of town. In addition to courting ISVs, ASA has also won support as the preferred Linux provider to Orange, the large French mobile phone operator.

There was one more surprise as I riffled through the various ALP white papers, i.e. marketing brochures (in the dead tree version handed out at the booth but also available online.) To put it starkly, Access wants to be the Symbian of mobile Linux.

Specifically, their white paper “Mobile Linux - Going Native” contains arguments that could have been ripped from a Symbian brochure. For users of “smartphones” (a term practically invented by Symbian), it extols the importance of making full native applications (as with a PDA or PC) rather than using lightweight application frameworks like Java or BREW. One excerpt:

Applications that run in a “sandbox” are nice, but future users of smartphones will come to expect the performance and capabilities of applications designed to run in native mode.

So Symbian and Access are predicting a world in which native applications continue to matter, while Google and thus far Apple expect mobile devices to use device-independent rich internet apps (based on things like Ajax) to be the wave of the future. The jury is still out.

Technorati Tags: business models, conferences, embedded Linux, GNOME, mobile phones, open source, Palm

Mobile LinuxWorld: A tale of two Palms

Regular readers know that I spent 15+ years as an Apple Computer ISV and did my dissertation on Apple’s missteps and struggle for survival in the 1990s. I published a book chapter that IMHO is the definitive treatment (thus far of their woes), plus another paper on the operations and e-commerce aspects of their turnaround.

During Apple’s troubles, many of its employees bailed to the next great thing in computing platforms, i.e. Palm Computing, founded in 1992. Palm picked up a lot of Apple people and from the outside it seems like Palm picked up much of the Apple culture. Now it seems to be reprising Apple’s woes, but a decade later and with a different root cause.

Since 2003, the company founded by Jeff Hawkins has been split into two. (In fact, I met my now-coauthor Mike Mace back in May 2002 when we tried to get Palm to let me study the split.) Palm originally split into PalmOne (hardware) and PalmSource (software), but PalmOne immediately bought rival Handspring to get Hawkins and Donna Dubinsky back.

When PalmOne (now Palm) bought back an OS license and the trademark from PalmSource, I assumed that its future was stable. Meanwhile, PalmSource — deprived of its only remaining major customer, seemed doomed, particularly after it was bought by Access, an obscure Japanese web browser company.

After my visit to LinuxWorld, I’ve pretty much done a 180°. The PalmSource strategy today makes a lot of sense, whereas I still can’t figure out what Palm Inc. is going to do to survive.

Palm was showing the Foleo, the “mobile companion” unveiled to great hoopla in May. At the booth they said the Foleo is due to ship “this summer” (which I pointed out would have to be sometime in the next 6 weeks).

Fitting the Apple legacy, the Foleo is a lot like the eMate 300 — Apple’s last gasp to save Newton PDA by making one with a bigger screen and a keyboard. The Foleo is somewhere between a PDA and a laptop in price and capabilities. The one difference is that it doesn’t run PalmOS, it runs Linux; during LinuxWorld Palm announced it would use the WindRiver Linux distribution from now on.

I see three problems with the Foleo. First, it’s neither fish nor fowl so the market may not understand it. Although it had some dedicated owners, the eMate was no great market success. And since then, laptop computers have fallen below $800, eliminating the price argument for the most price sensitive.

Second, it’s a new platform, with a new ecosystem and a new user training curve. If desktop Linux were established, a slimmed-down Linux subnotebook could be a smash hit. As it is, there are few desktop Linux apps. Even if there were, they wouldn’t run because Palm went off and invented their own UI because (unlike Motorola or PalmSource) they didn’t like GTK or the other technologies that seem to be coalescing in the Gnome Mobile initiative.

Finally, there are already devices in this intermediate position. They’re called smartphones, specifically the Nokia Communicator series of phones, which have been shipping to European loyalists since 1996.

	Nokia	Palm	HP
	E90	Foleo	nc2400
Price	~~ $1100	$599†	$1400
Weight	7.4 oz	2.5 lbs	2.9 lbs
Screen size		10.2"	12.1"
Resolution	800x352	1024x600	1280x800
Keyboard	mini	compact	standard
Wi-Fi	yes	yes	yes
Phone	GSM	-	-
Optical drive	-	-	CD-RW/DVD-ROM
OS	Symbian 9.2, S60 Rev 3.1	Linux 2.4, proprietary UI	Windows XP
Applications	thousands	built-in	hundreds of thousands

† Before $100 rebate

The Nokia is smaller, more portable, and makes phone calls to boot. Plus the new ones share a common platform with 70+ million S60 phones out there. Ordinary laptops also are available for a slightly higher price at roughly the same weight. So if I were an internal MIS dept., would I choose to develop for the world’s leading cell phone maker (with a 12-year track record on this product family), the ubiquitous PC platform, or the last surviving firm in a dying product category with its brand new and unproven platform?

The only advantage is the price: it’s cheaper than the most portable business-oriented computers (or the Nokia), although still quite a bit above the $200 of today’s OLPC price.

Technorati Tags: embedded Linux, Linux, mobile phones, Palm

Other shoe dropped at Palm

After Palm’s less than impressive debut of the Foleo, I wondered what was next.

This morning brought news of the $325 million sale of 25% of the company to a bottom-fishing private equity firm, Elevation Partners. The investment firm is best known as the $2b fund with rock star Bono as one of five partners.

The best news for Palm, however, is that Jon Rubinstein will become executive chairman. Even better news is that he takes the board seat long held by 3Com chairman Eric Benhamou (a networking guy who was co-founder of one of 3Com’s predecessor companies).

Rubinstein has been (somewhat misleadingly) described as an ex-Apple executive and the iPod Pioneer. Instead, he was the Nextie who as Steve Jobs’ right hand man for hardware (as Avi Tevanian was for software) was part of the management team imposed upon Apple as part of the NeXT acquisition of Apple.

Rubinstein was certainly capable, disciplined and worked well as part of Jobs’ team. My one personal interaction with him was at an Apple party (ca. Jan. 1998) arguing for a subnotebook successor to the Duo and 2400 series laptops. His answer was: it’s a niche outside Japan, and our small run rates don’t justify making one. (Ironically, today many Mac owner are holding off buying their next laptop, waiting for Apple to ship its first subnotebook in a decade, rumored to be due in late 2007 or early 2008).

However, it’s hard to measure Rubinstein’s contribution to Apple’s success. The Jobs II management model seems to be that low-level contributors and managers (such as Tony Fadell for the iPod) champion an idea, middle managers help vet and prepare the ideas for a Jobs interrogation, and then Steve makes all the final decisions. Still, Rubinstein was part of a spectacularly successful team, and Palm could use more product success right about now.

Rubinstein will be joined on the board by Fred Anderson, who as Apple CFO from 1996-2004 shepherded the company through its darkest hours. Anderson’s star has been tarnished by his association with Apple’s problems backdating stock options, but from my 2002 study of Apple’s turnaround, it was clear he was the fiscal and operational sanity that the company needed across three CEOs.

Twenty years ago (back when MTV was on free cable), Sir Paul David Hewson famously sang “I still haven’t found what I’m looking for.” Let’s hope that Palm employees, users and shareholders won’t say that in 6 months about Bono’s investment and the management team that he brings to Palm.

Technorati Tags: Palm

Pull the plug on Palm?

A week ago I said Palm is facing a life-or-death innovation challenge. Today, at the WSJ D5 conference, Jeff Hawkins unveiled “a new category of mobile device.”

And what is it? The Foleo. A low end laptop, reminiscent of the Apple eMate. The eMate was based on the Newton OS (rather than a full-featured laptop OS), but here the Foleo is based on Linux.

The plan is that the computer be a smartphone companion. Some phone makers (NB: Nokia) might say a really smart phone needs no companion. Other smart phone users have a two pound Japanese subnotebook, or an ultracompact Windows laptop like the one pound OQO. Me, I just make do with a regular laptop, and it’s hard to imagine many Treo owners who don’t already own a laptop.

The computer is underpowered and doesn’t do much on its own (other than surf the web over WiFi). It has no software yet, and I can’t see any developers taking it seriously. CNET sums up what must be the widespread reaction:

“I think it's probably the most disappointing product I've seen in several years,” said Todd Kort, an analyst with Gartner. “To think that anyone would carry something with a 10-inch display at 2.5 pounds as an adjunct to a phone just doesn't make any sense to me.”

Today, Palm stock is down only 1.6%; the stock has spent May under $17, down from the 52-week high of $19.50, and the $24 price of 13 months ago. The bread-and-butter of the company is the Treo line, and if they don’t do something to catch up with RIM (or Motorola or Nokia or Samsung) soon, it’s toast.

If this is the bet-the-company breakthrough innovation, I say pull the plug. When you check out of a hotel, they close your folio, so I guess the new product name is (unintentionally) apt.

Technorati Tags: Palm

Palm’s life-or-death innovation challenge

Rob Pegoraro of the Washington Post is my favorite personal technology columnist. While Walt Mossberg of the Wall Street Journal is more influential, I enjoy Pegoraro’s best columns more — probably because, come hell or high water, Mossberg is limited to 900 words.

Today, in a (dead tree) column entitled “Palm’s Dumber Smart Phone,” he points to Palm’s exact problem:

Not even three years ago, the Treo 650 smart phone looked revolutionary. But its latest successor, the Treo 755p Palm unveiled two weeks ago, feels more like a relic.

The Treo’s basic concept — uniting a cellphone, handheld organizer, miniaturized keyboard, touch-sensitive screen, Web and e-mail access and media playback in one device — makes sense. But while competitors have advanced, Palm has been napping on the train tracks.

The new Treo 755p gets online no faster than last year’s model. Its basic design features few changes from the 2004 version; its dimensions almost match those of the 2003 edition. And its operating system and software for desktop synchronization received their last major updates in 2002.

Over that same period of time, almost every other hand-held device — Windows Mobile smart phones, BlackBerrys, iPods and even plain old cellphones — has seen major upgrades in capability and notable shrinkage in size.

In other words, the world will pass by even the most innovative companies if they stand still. In his blog, Pegoraro amplifies further:

Seeing how badly Palm has lost its way makes me feel like I’ve been had. I’ve recommended this company’s products many times in print and online and spent my own money on a Treo 650 two summers ago. The first year with the thing was great, as I wrote last summer. But since then, my smartphone has grown steadily less stable, especially when browsing the Web or checking e-mail. And none of the newer models shipped since then cure that reliability problem, since they all still run the same, increasingly fossilized software.

Of course, for Palm’s financial problems a key reason is that their operating system strategy is all mucked up due to the ill-advised spinoff of PalmSource, and PalmSource’s subsequent troubles leading to its ill-fated sale to Access (instead of Palm or Motorola).

This brings to mind a similar story told by Charles Ferguson about Netscape — which was unable to update its spaghetti code browser while Internet Explorer was catching up, a failing that eventually killed the company. Fortunately for the executives, it failed after AOL spent $4.2 to buy Netscape.

There are rumors of some great Jeff Hawkins breakthrough that will save the company. If Jeff’s planning on pulling a rabbit out of the hat, now would be a good time to do it.

Photo credit: Geek.com

Technorati Tags: mobile phones, Palm, smartphones

Open vs. Profitable Strategies

With my morning breakfast, I happened to read a column on Palm’s current woes in the Wall Street Journal. There was nothing dramatically new, but it provided a nice summary of how they got to where they are. And the stock price results were an eye-opener. Apple has been volatile, but Palm is only a slightly better investment than Iridium.

The article (subscription required) by Robert Cyran of BreakingViews emphasizes the failure of Palm to be proprietary enough. Normally we think of Palm as being a proprietary OS platform, but his view is that being proprietary in one layer is not enough:

How did this happen? In a nutshell, Palm failed to build competitive barriers around its devices, so consumers weren't locked into its products. The Palm Pilot became a dinosaur once cellphones could store contact details and other information. All the data stored on a Palm Pilot was easily transferred to other devices.

(It’s a short article, so under fair use I won’t quote more).

After recounting the fall in market cap from $92 billion to $2 billion, Cyran goes on to praise the Apple moat built using the iTunes Music Store, and Research in Motion (and its BlackBerry product) with its server (and associated services). This is consonant with the advice given by Berkeley’s Carl Shapiro and Hal Varian in Chapter 6 of Information Rules almost a decade ago.

It turns out that the Apple refugees at Palm copied Apple’s old playbook at a time when Apple had to learn a new playbook. Once upon a time, a proprietary platform was enough to extract profitable rents. Now, however, with the co-existence and interconnection of devices (via the Internet, Wi-Fi, etc.), the individual product technology may not matter. The good news is (as I argued four years ago) is that niche platform (like the Mac) can co-exist via open Internet and web standards.

The bad news is that buyers care less and less about the software technology that goes into a phone to make it work, any more than they care about the software technology that goes into a TV or DVD player. Despite new products like HDTV, all vendors get release similar products in parallel and the consumer electronics industry has long-since been in brutal commoditization and price wars. Perhaps a few products can be truly innovative and unique (e.g. the iPhone) but most products are me-too. That would suggest opportunities for pooled R&D, either through a for-profit consortium (like Symbian) or open source done right (which is easier said than done).

Nowadays, it appears that enterprise infrastructure like servers and the associated services have much higher switching costs than client devices and appliances. Addition to RIM and Apple, there’s Microsoft BackOffice, and the granddaddy of them all, IBM Global Services. Of course, the closed interfaces for these servers have gotten Microsoft and Apple in trouble.

Update (4:45pm): Unstrung claims that interest in Palm is fueled by Jeff Hawkins’ mystery device which may not be a cellphone, while PalmAddict says it will be demo’d in May. This would both be an Steve Jobs-style re-invention of Palm, and give Nokia a reason to get involved beyond the phone technology they don’t need.

Technorati Tags: open source, platforms, Palm, smartphones, standards

Silly Palm Acquisition Rumors

A bunch of reporters are spreading the rumor that Palm is up for sale. While some claim Palm is in no hurry, others flatly predict Nokia is going to buy Palm. Yes, the Palm team is no longer as influential or generating the buzz it once did in the first years after the Treo’s introduction or even when Palm bought the Treo line.

Still rumors of Palm’s sale — like Apple’s imminent death a decade ago - appear to be greatly exaggerated. As Ed Hardy wrote last September:

Rumors that Palm is going to be bought out surface a couple of times every year, but these never turn out to be based on facts.

The timing for Palm seems wrong — yes if the ship were about to sink you’d want to sell while it’s still afloat, but thus far it doesn’t seem to be that bad. For 2007, Palm seems to have important new products coming, while it has recently enjoyed iPhone-like gross margins in excess of 30%. The stock has been in a trading range for nearly 3 years after recovering from the bottom in early 2004.

Perhaps Nokia has done poorly — particularly with US smartphone buyers, but the idea they would buy Palm is just silly:

1. Nokia already has a smartphone operating system and various BlackBerry-type phones.
2. Nokia knows how to make hardware, so nearly all of their recent acquisitions seem to be software. What would they do with the Palm OS software if they bought it? (See #2 above)
3. Has Nokia ever done a billion dollar acquisition? Last year’s purchase of Intellisync was less than $500 million, but Palm (at least for now) has a market cap of $1.7 billion.

4. Large technology acquisitions with incompatible technologies are usually a disaster. The only things that saved the HP-Compag merger were that a) some divisions were weak enough to shut down (e.g., Compaq peripherals, HP PDAs) and b) for some class of products (notably PCs) both companies use the same technology.
5. When acquisitions (rarely) makes sense, usually it’s to acquire smaller firms that are into markets where they aren't — when it's quicker to buy in than to work your way in (A good example is Cisco getting into the home market by buying Linksys). Nokia has an unusually broad range of products, so there would be considerable duplicated and wasted technology.
6. Silicon Valley firms don’t well when acquired by outsiders.
7. As the biggest handset maker, Nokia would face certain antitrust review, and could face particular problems over the combined smartphone share.
8. Nokia has exited CDMA phones and will be unwilling to give Qualcomm any negotiating leverage until the current impasse (with Nokia’s threat to not renew its agreement to pay Qualcomm W-CDMA royalties) is resolved.

The rumor of an acquisition by Motorola is a little more plausible:

1. In its best years, Motorola has had a Silicon Valley-type culture, and its middle management is trained at Northwestern, which is certainly similar to many of the other practically-oriented among the top business schools.
2. Motorola doesn’t have much of a smartphone platform strategy. The first decent smartphone in years is the Windows-based Q. In 1998, they were one of the earliest Symbian shareholders but later dumped their shares: now all they have to show for it is three discontinued phones and one current mode (although the forthcoming Motorizr Z8 could be a serious entry.)
3. Motorola was once interested in Palm OS (for which Palm now owns rights). In response to their smartphone problem, 1½ years ago Motorola thought it had bought PalmSource — which would have been a better fit than then the actual outcome.
4. Both Motorola and Palm are trying to use Linux for the lower layer of their respective platforms.

But if anyone makes sense as a Palm buyer, IMHO it’s HP. Palm is eight miles down El Camino Real from HP and its culture is heavily influenced by Apple (whose founders first worked for HP). And HP is trying to get into the cell phone business.

Technorati Tags: acquisitions, HP, mobile phones, Nokia,Palm