How Will HP Define Palm’s Success?

I was thinking a bit about how HP will define success relative to the Palm acquisition. That is, when they’re asked in a few years whether their $1.2 billion investment (let’s say, $2 billion before Palm starts generating meaningful revenue) was worth it and whether acquiring Palm was the right strategic move, what do HP execs want to be able to say?

Here’s what I think: they’ll want to be able to say that they were successful enough in the smartphone business that they were able to achieve their vision of a family of connected devices all providing a unique, compelling, and common experience. That is, they’ll be able to offer smartphones, tablets, netbooks, multifunction devices, and probably other products that we’ve not yet talked much about, all running webOS. Those could include standalone media players to compete with the iPod and perhaps even notebooks and all-in-one destops with alternative, instant-on modes using webOS.

Now, I haven’t figured out what this means in terms of sheer numbers and market share in the smartphone space, and doing so is probably impossible from outside of HP and without access to all of the needed information. Because HP’s product line is so deep and wide, they don’t necessary need to dominate in every market to be successful. Not everyone who buys an HP notebook is going to want a tablet. Not everyone who buys an HP tablet is going to want a smartphone. And etc. But, everyone who does want, say, a notebook, tablet, smartphone, and multifunction device from the same manufacturer and with a common experience across all of them, will pretty much have to go to HP to get it. Even Apple isn’t likely to be able to offer the same level of integration across so many disparate products.

And so, HP could perhaps maintain a merely respectable showing in any given market and still accomplish important objectives in the mobile/connected devices market overall. HP’s Todd Bradley said the following during the Q3 earnings report conference call:

The yardstick I use for PSG has been in remains (sic) profitable growth. As you heard Cathie report, we had very solid revenue growth this quarter at 17% and I think very good profitability. We had 4.7%. There is bad business to chase in the PC market, if market share is your primary and your only goal. That’s not what we’re working on.

It may be taking this quote out of context to use it in this analysis, but I’m not so sure it is. The notion that HP’s strategy isn’t always about market share but rather is really more about profitable growth makes great sense here. If HP can be a strong player—but not necessarily a dominant player—in many markets using the strategy outlined above of a family of connected devices, then that could be enough for them to continue to achieve profitable growth. That would mean that Palm doesn’t need to dominate in smartphones or tablets (or any other, perhaps niche markets) in order to accomplish what HP envisioned when they made the Palm acquisition.

Some might conclude that, if true, this means that HP might not be so aggressive in pursuing the smartphone or tablet markets, which they might think implies that we won’t see a steady stream of great Palm products. I don’t think that’s the case, however. In fact, I think the opposite is true.

Instead, I think this strategy means producing nothing but the most exciting, cutting-edge products priced to meet the needs of many—but not all, or even most—potential customers. “Bad business” in the quote above probably means cheap business, such as netbooks, extremely low-end PCs, and the growing number of inexpensive Android-based tablets on or hitting the market soon. In short, we may never see very inexpensive Palm smartphones or tablets, but rather products that are reasonably priced for a very high level of performance and capabilities. They may not be less expensive than, say, Apple products, but they’ll offer specifications and capabilities that exceed anything else on the market. At the same time, given HP’s supply chain strengths, they also wouldn’t have to be terribly expensive to be profitable.

If this is indeed their strategy, then webOS remains the key to accomplishing it. Because HP now owns their own (outstanding and future-proof) mobile (or rather, relatively lightweight) operating system, they’ll be able to tailor it to provide the kind of unique customer experience that allows them to cater to those customers who will purchase multiple, highly profitable products across a variety of markets. Again, there many not be quite as many of them as are buying iPhones and maybe iPads, but spread them across notebooks, desktops, media players, multifunction devices (with their residual consumable revenues), etc., and suddenly you have the recipe for significant profitable growth overall.

My conclusion, then, at least absent more information at this point, is that Palm could place third or even lower in smartphones and tablets and still be considered tremendously successful for HP’s purposes. This alludes to what ex-CEO Mark Hurd was saying when he said “We didn’t buy Palm to get into the smartphone business.” He might and probably did mean some other things as well when he said this (and I’ve written about this elsewhere), but the notion that Palm doesn’t have to give HP a dominant position in smartphones is certainly supported by this statement.

HP’s long-term success requires a strong showing in smartphones and tablets, but doesn’t require that Palm unseat Apple or Android (taken as a whole). What it does require is that Palm produce industry-leading mobile webOS products that integrate well with the rest of HP’s products—and that would mean great things for webOS enthusiasts.

Update: Note that consumers and enterprises wanting to create their own bundles of products from a common vendor with a unique and consistent user experience is only one piece of the puzzle. Another is HP’s ability to create their own bundles, particularly for the enterprise. On that note, they’re already doing it, even with the Palm products already on the market. Here’s a promotion they have going on that offers a Palm Pixi free with the purchase of a business-class notebook (and a qualifying activation):

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Don’t forget that this kind of bundle creates value for the carrier, as well. I’ve no doubt that this is one of the tactics being taken by HP’s new VP of Telco Sales to drum up carrier support.


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