Blog Post

Palm's Road to Nowhere — Is It Really Worth $1B?


Pip Coburn, who runs an investment advisory firm and is the author of “The Change Function,” likes to say that turnarounds rarely turn around. For proof, look no further than Palm (s PALM), which has been a perennial turnaround candidate for as long as…well, since it stopped making the Palm V. But let’s face it: When a company has the foresight to develop a product as iconic as the Treo long before anyone else has even started dreaming of an Internet-connected smartphone, yet utterly fails to capitalize on its first-mover advantage, it only has itself to blame.

At the risk of offending my friends who are fans of The New York Mets, I think the team makes an apt metaphor for Palm. Like the Mets, Palm inspires more hope than actual achievements. And just as the Mets bought ace pitcher Johan Santana and slugger Carlos Beltran and dreamed of a championship, Palm brought in former Apple executive (and all-star) Jon Rubenstein. But it didn’t matter.

Nor did the $460 million that Elevation Partners has sunk into Palm. No amount of money is enough for this company. Why? Because you can’t graft corporate DNA — once a loser, always a loser.

Of course, no one saw that back in January 2009. Rubenstein and his team were viewed as saviors, thanks to a nice-looking phone (Palm Pre) and a great operating system (webOS.) But I didn’t buy it. Having watched baseball long enough, I know that anyone can be a champion before the season starts. What matters is who finishes with the pennant.

And Palm, despite the boasting, wasn’t going to win it. In a post entitled Can Pre Save Palm From Being Put Out to Pasture?, I wrote:

While most gadget gurus and lots of readers who follow me on Twitter) seem to be quite taken with the newest shiniest object, thanks to Palm Chairman Jon Rubenstein’s magic, the power of a press release and the drama of a CES keynote, I remain highly skeptical of Palm’s chance to succeed with this new effort. I may be the only one who isn’t buying it. I don’t think Pre has done anything to move the needle forward, though its backers — including the affable Roger McNamee — are waxing eloquent about its potential. In a market where the iPhone sets the pace, Palm is woefully behind the curve.

The Pre, which will be available on the Sprint network, won’t be released until sometime in the first half of 2009. From now till the time Pre launches is going to be a crucial time for Palm. Every single day will push the company deeper and deeper into the hole it’s dug.

Why? By announcing its product too early, Palm has turned up the hype cycle around its new product offering, and that means fewer sales for its existing products. Palm and its carrier partners were already having a tough time pushing Treos out the door, and now those carrier partners are going to be none too happy. With a new Palm device on the horizon, carriers have less of an incentive to push the company’s current devices, and that means a further decline in shipments.

The question now is, will Palm be able to get a lot of developers to come and develop for the platform? Yes, we know they have a loyal community and millions of developers, but the momentum is with Apple and Google. As I pointed out earlier today, the iPod touch is the secret weapon that makes the iPhone platform attractive to the developers.

Nevertheless, we have been following the story of Palm’s demise since the start so in order to save you time, I’ve summed it up in seven points:

  1. Palm announces a major new mobile OS and attractive hardware.
  2. It partners with a down-on-its-luck carrier for a six-month exclusive.
  3. It finds that rivals and other carriers have more money to spend on marketing.
  4. It develops ads that only a Zen master can decipher.
  5. It fails to generate sales.
  6. The lack of sales makes it difficult for the company to attract developers.
  7. It starts to spiral downwards.

So where does it go from here? To the highest bidder, apparently. Some think it could be sold for $1-$2 billion, even though there’s really only one serious buyer, HTC. And I’m not sure why HTC should pay that much money for a company that’s fallen this far.

Palm had about $592 million in cash as of late February, and is estimated to have spent $80-$90 million so far in the current quarter. Kaufman Brothers’ analyst Shaw Wu told the Wall Street Journal that while it’s hard to value Palm in light of its ongoing operating losses, he thinks it’s worth at least $600 million. Others, of course, disagree.

From my perspective, the smartphone monsters — Apple with its iPhone and Google with Android — have too much momentum, developer attention and cash to be beaten in this market. Rubenstein and his backers clearly agree and as such, their decision to fold now is a smart one.

Here is a series of posts we’ve written on Palm and its slow road to nowhere:

Related content from GigaOM Pro (sub req’d):

Marketing Handsets in the Superphone Era

42 Responses to “Palm's Road to Nowhere — Is It Really Worth $1B?”

  1. iamanshul

    I think Palm needs to redefine themselves.. slim down. Look at other model – like licensing their technology. They cannot compete anymore in the platform war. Thus I dont know what Motorola or HTC would gain my aquiring them.
    My view is this first of the few calamaties we are going to see with platform gravitation.

  2. Wifiguy

    The proverbial hockey puck is going to an unified Apple approach. Can you really trust Google once Android gets huge, that they wont just step in and want control of the whole thing like what Microsoft did with the Zune? Customization on windows phone 7 is dead leaving HTC few options but to get there own software platform. HTC is a much better company than just a makeup artist for Android. HTC DON’T MESS THIS UP GO AFTER PALM AND SHOCK THE WORLD. ANDROID FANBOIS WILL UNDERSTAND.

    • Will your next phone be a Palm? We’re not sure if they’ll still be around in the next few years to offer you that option. That’s what’s wrong!

  3. James katt

    Palm is dead.

    The only worthwhile part of Palm are the patents – if they are still active, and if they are relevent.

    Given how long Palm has been in the market, no doubt some of those patents are worthless.

  4. Diogenes

    Om, you neglected to mention the implosive combination of a vain investor like Roger McNamee fused with a DOA company like Palm. Anytime you see investment professionals spending media time with celebrities — let alone put them on their investment team, well, that’s a sell signal if I ever saw one.

    Turnarounds are serious, tough business. They’re not for wannabe rock stars with their rock star friends pretending to be investors.

  5. Alexis Hinds


    Minor correction: Palm did not envision or develop the Treo (at least not initially) – Handspring did. In fact, Palm has been unable to articulate a compelling vision at all without Jeff H & Donna D. That’s been their problem for a long, long time, and as one of the original and most successful PalmOS developers I could tell you many stories concerning complete lack of imagination, vision, and leadership that permeate the organization.

  6. Om, I agree with your comments and I really do not see any value in Palm against the competition who have doen an excellent job in market penetration, utility and market share.
    Perhaps they should look at a lighter version of the Pre and aim it for the emerging markets where the likes of iPhone is seen as too expensive and elite. India comes to mind

    • Nikhlesh

      Nokia is way too strong here in India while Palm is a relatively unknown entity. Given similar price points (Nokia can play low cost games with volumes), people would prefer Nokia over Palm. Unless Palm can get some solid operator deals, they might actually see themselves spending a lot more to establish in India. (Carrier deals have just started to take place here; Indians normally buy their Phones and SIM cards separate).

      • YUvamani

        Nokia is strong here just because the other smart phones are priced crazily here.

        Carriers for all practical purposes are a dump pipe (And thats awesome) so no subsidy.

        An iPhone costs 99$ in the us. Those phone go for 650$ in India. No wonder they have failed.

        Nokia cannot compete with a reasonably priced palm, because they have got shitty software. Palm doesnt – simple. Even RIM is making huge roads into the Indian market with great reasonably priced phones. So Nokias dominance in the smartphone space is and will be under serious threat.

  7. Ouch.
    I have long suspected that HTC will buy Palm — for the nameplate here in the US and for the prestige of acquiring them back in Taiwan.

    Probably not quite worth $1 billion, including the cash.

    It will be interesting to see what smartphones HTC develops with the (rumored) Windows mobile OS given how slick their Android phones are.

  8. Your reporting on Palm has always been Salient. The company is a strong phenomenon in Silicon Valley but has always been muted outside of the bubble.

    Being married to an also-ran CDMA carrier like Sprint is part of the problem, sure, but the company’s consistently poor execution in marketing is a far more concerning. They’re geeks who only know how to sell to other geeks.

    • Blaming Sprint for Palm is a tired theme, Ian. How do you figure? Is CDMA the problem? Verizon and Sprint (both CDMA) have about 54% of US subscribers. Is Sprint too small? Maybe, but they have about 42% more subscribers than T-Mo. Would AT&T have stewarded the Pre better? Hardly, they were far too busy selling a zillion iPhones. Sprint has their problems, but short-changing Palm wasn’t one of them.

      Palm was MIA for years, and then released an (apparently) great phone two years after the original iPhone, and 3 months before the iPhone 3GS. That is some very unfortunate timing.

    • YUvamani

      HTC already has a multipltform strategy and counting Brew and winmo7 and 6.5 supports 4 different platforms.

      Android is good, but with NexusOne you never know what will happen to device makers on it, google seems to be pushing towards vanilla experiences instead of sense like experiences because of fragmentation.

      Windows Mobile 7 has removed all possibility of customisation.

      Moving forward and seeing longterm, the software makers will win and HTC will become commoditized.

      Having you own os, and at that the best os which is not an iPhone is a great asset. If you can support 4 platforms, you can support 5 platforms …

      • Nexus One among others was made by HTC. A weaker competitor like Huawai (so far only big in nameless 3G USB modems with utterly bad software ;-/) may profit more from Palm, but stronger vendors like HTC probably have more money.

  9. Om, Palm did a fantastic job on the software. May be you should have used a Pre for your main phone. The issue really is with the money. With few millions left, they faltered at marketing the phone resulting in few sales. Folks at wall street punished the stock. All palm need is another round of investment or a sale. Regarding sale, it is probably the smartest strategy for any other company. Whoever buys palm get to own the patents. They get the WebOS and the team behind it. Mostly importantly, all the 50K gaming apps that Steve Jobs boasts rivaling Sony /Nintendo can be ported to WebOS with relative ease.

    OTOH, I have a question.Why would Vodafone,SFR and ATT , few of the worlds biggest cellular carriers are signing up palm phones ? Do they think Palm will survive ?

    • If money was the solution, why wouldn’t elevation put more money into the company. Sure they Have a nice OS but that doesn’t mean they should be worth a billion dollars.

      On your other question — carriers have nothing to lose in this game and are happy to offer palm. If pre demand takes off, then they win. Otherwise it is palm’s problem.

  10. Om, Palm’s current position is simply due to strategic error. They lacked a clear plan hoping instead that “If you build it, they will come”. No firm is going to consider Palm as an investment based on repeating this strategy. What they are going to consider, however, is their technical expertise. And when it comes to that, there is a lot to value in the company.

    I fully expect that behind the scenes there’s a bidding war. And, just like Conan on TBS, I expect many of you in the media to be will be surprised. I just hope they choose the right suitor.

    • Manoj

      Mozilla is not a corporation and instead is a not-for-profit group. Also, They are doing well because they actually make a product people want — firefox. Palm on the other hand is just a company riding it past reputation but not being able to turn things around.

      • jbrandonf

        I don’t understand your logic here..over 90% of perpsectives I’ve read about webOS in comments sections on engadget, gizmodo and even here say webOS is comparable or BETTER than iphoneOS…people like webOS, they don’t like the hardware webOS is on. If HTC can provide a great form-factor with Palm’s software who wouldn’t want it?

      • jbrandonf, I’m more inclined to agree with you:

        I loved the webOS features — although other platforms are catching up in some areas — but the hardware was just OK. Unfortunately, without sales, developers don’t seem interested and that’s why I left Palm: not enough apps for what I need to do on my phone. I agree with you that HTC’s hardware expertise along with webOS would simply rock. But would it rock enough to attract programmers?

    • The really discussion about any of these platforms is not about what they had in the past or even what they have today. It is about whether or not the platform will be a source of innovation going into the future. This market is clearly NOT standing still. Today’s WebOS is tomorrow’s also-ran without investment and an ecosystem. Apple, Android, and Nokia have huge investments and huge ecosystems. Palm cannot compete and HTC buying them won’t help. There is no way that the necessary technical work to even keep up with these other three could be made. Heck, even Microsoft is failing to make sufficient investments in their platform (and has almost completely failed at ecosystem development).

      Increasingly manufacturers like HTC will have to rally around open platforms in order to be on a bandwagon that encompasses all of the innovation in the devices we’ll be using in 5 years, not tomorrow. Palm may be valuable for a brand name that is, while tarnished, well recognized in the US. Maybe a few patents. But I’d be surprised if the lot was worth more than a few hundred million. And think of the outstanding liabilities! You’d have to leave the current entity as a bankrupt shell just as a placeholder for all of the long term consumer liability and potential commercial claims against the company. So this will be an asset sale, and a wind down of a shell company by Elevation Partners.

      Sad end.

  11. exAOLVP

    I think HTC buying Palm is a very big threat to Android and a decent shot at a mass-market, cheaper competitor to the iPhone. HTC sells a lot of phones, and Palm O/S is a great O/S constrained by substandard hardware. Put the Palm O/S on HTC phones and you immediately have something that from a consumer perspective is better than Android, and that from a developer perspective starts to have a sizeable enough audience to be interesting.

    • Hi

      I am one of those people who actually feels that Htc has more to lose than gain from webos. Their whole value proposition is the htc user interface on top of any generic operating system. — windows or android for that matter. Also palm is a huge distraction for a company that is clearly executing very very well.

      • Charlie

        Meh, you’ve dumped on Palm pretty consistently, Om, in good times and bad (what did they ever do to you?), so why should we care about your opinion now? In fact, had I listened to you, I wouldn’t have made the money I did investing in Palm back in the winter of 2008.

      • exAOLVP

        The other big gain for HTC is to eliminate dependency on outsiders – with their own OS, they can likely innovate faster than they can working with Android where even the big guys are dependent on Google (and where Google has demonstrated at best indifference and at worst nastiness toward developers – we’ve certainly experienced it). So instead of having 4 or 5 different platforms, over time they can converge toward one.

      • Scoopster

        Om: With Windows Phone 7 (WP7), HTC will not be able to layer their UI (Sense) on top of the OS as MS prohibits that as of now. That will leave HTC to try to differentiate their WP7 phones via hardware designs only, or to fight the masses of other manufacturers using Android.

        I think you’re not seeing HTC’s “whole value proposition” the way that Peter Chou and Co see it. We don’t see HTC in the top 5 of mobile phone marketshare, and they won’t get there using commodity software platforms only. Sure, I’ll grant that they only want to play at the high end, so they’re not really competing with Samsung and LG.

        Look at HTC’s evolution over the past 12 years from OEM to ODM to now burgeoning software powerhouse. Their own OS is coming….the only question they have to answer is “build or buy?” And there may never again be such an opportunity to buy a solid base OS plus an attractive patent portfolio for under $2B.

      • Om, HTC might be executing very well in terms of money. But they have no control over the mobile world as they do not own any operating system. Microsoft shut them from Windows mobile 7 customization. They have to depend on Google, which is only there to make money on Search/advertising. HTC is probably the best hardware manufacturer ( better than APPLE) out there. And their software team is good too. Buying PALM would be the best thing that can happen to HTC. Samsung is making Android phones while promoting its own BADA platform.
        So why not HTC ? You might disagree, but the fruit of the merger will be a phone everyone will be waiting for.

  12. Bravo, Om. Unless there is some magical value in their IP portfolio – why would anyone buy them? Surely not for hardware capability, HTC and Motorola each must be as good. And surely not for WebOS, either – how could any Smartphone OS be good enough to rise above the current batch? That is not to say that WebOS isn’t terrific (I have no idea) – but the market is already over-saturated.