HP Buys Palm: How It Changes Everything

Rejoice: HP is buying Palm! If the boring beigeness of HP doesn’t kill it in the process, this could only be good for anyone looking for a neat solid smartphone that beats Google and Apple in many areas.

What Happened

After a precipitous decline in Palm’s business and several weeks of speculation, HP announced today that they’re acquiring the beleaguered phone company for $US1.2 billion. The deal is expected to close by July 31, the end of HP’s third fiscal quarter. Palm CEO Jon Rubinstein will remain with the company, though it’s not clear in what capacity.

The announcement comes as a huge surprise, after rumours had linked everyone from HTC to Lenovo as possible suitors, and after Rubinstein insisted that they’d be fine on their own. For Palm, it’s the lifeboat they’ve desperately needed ever since their stock price was targeted at zero earlier this year. For HP, it’s an opportunity to instantly become an major smartphone player.

It’s also a relative bargain for HP; the purchase price of $US5.70 is a decent premium over where Palm was trading yesterday, but this is a company that was valued at twice that not very long ago. And HP’s not just acquiring Palm’s hardware; the real crown jewel here is webOS, which HP SVP Todd Bradley made a point of saying could apply to a number of mobile devices. Most enticingly: tablets.

Why, though, not just stick with Windows Phone 7, or Android? Palm’s webOS might be a robust platform, but its lacking a robust developer community – its 2000 apps pale in comparison to what the Apple App Store and Android Market offer. The answer is that HP’s hedging: they’ll continue to work with other platforms, while hoping that their scale will help ramp-up dev interest in broadening the webOS ecosystem.

It’s not the first time Palm has come back from the dead. First Palm PDAs came and went, then the Treo and Handspring temporarily resuscitated the business. Now it’s webOS’s turn to save the day – and Palm and HP are both hoping that the third time’s the charm.

Worst Case Scenario

The real challenge might come in reconciling the brand personalities. Palm’s products, regardless of how well they’ve sold, have always been innovative – the Pre was a breath of fresh air when it was released. HP, on the other hand, has tended to paint in broad beige strokes. And their products that do stand out, like the Envy laptop, have come across as derivative. There’s also the unfortunate case of iPaq – another HP acquisition that was left to rot.

So will Palm fuel HP’s creative capabilities? Or will HP stifle the ingenuity that’s made Palm worth buying in the first place?

Best Case Scenario

HP has the resources to fully leverage Palm’s software and hardware, and not just on smartphones. And while Palm’s problem was never that it couldn’t keep up with demand, its main issue – generating demand in the first place – is no longer a problem with HP’s reach and marketing budget. HP’s made a significant investment thus far in their TouchSmart interface, and while it’s a fine skin it can only stand to gain from webOS insights. Can you say webOS tablet?

What May Happen

As for when we’ll actually start seeing webOS in Palm products, HP’s being mum. It’s reasonable to expect we won’t hear anything more official until the transaction is complete, but there are some very clear paths they can (and probably will) take:

Phones – Whither the iPaq? Ha, who cares! It’s doubtful that HP would spend this kind of money on an established brand like Palm just to murder it in service of a flimsy brand like iPaq. HP’s phone line has always been undistinguished, so for them to buy Palm is effectively to install a pre-made, well-regarded mobile division into their company. So, what does this mean in terms of actual phones?

There will probably be another generation of webOS phones. Yesterday, I wouldn’t have felt certain about this; today, it’s a good bet. Palm was living and dying by the Pre and Pixi, which were first-gen products running a first-gen operating system. HP’s massive resources will give the OS the kind of time it needs to spread its wings on time-appropriate hardware. Imagine a webOS phone with WVGA resolution; with a Snapdragon processor; with a genuinely responsive interface. That’s what we’re talking about here. Forget the Pre Plus – it’s time to start waiting for the Pre II.

The only awkward point here is that HP is an official partner with Microsoft for Windows Phone 7. They’ve committed to continue working with Windows Phone 7, although one might imagine that their interest in Microsoft’s platform diminishes significantly now that they’ve got their own in-house mobile operating system.

Computers – With this purchase comes a wealth of intellectual property (patents) spanning decades, much of which concerns touch interfaces. HP has been very, very aggressive in developing touch interfaces for Windows machines with its TouchSmart line, and could easily incorporate some of Palm’s mobile tricks into its software. By and large, though, HP’s expansive computer lineup will remain unchanged.

Tablets – HP’s tablet strategy is heading in a dangerous direction. The anticipated HP Slate runs Windows 7, a desktop OS, while much of the rest of the industry seems to have opted for mobile OSes. HP hasn’t shown a ton of interest in Android in the past, and their tablet plans have so far ignored Google’s OS – the presumed competitors to the iPad’s iPhone-based OS. Which brings me to what is quite possibly the most exciting possibility here: The webOS tablet.

No, seriously – think about it. WebOS has a more intuitive interface than Android, and better notification system than anyone else, and prodigious social networking abilities. It has a fair amount of apps. It’s compatible with the same mobile hardware that’s powering many of the first wave of Android tablets. This – this – would be awesome.

Winners and Losers

We’ll have a lot of time to see how this plays out in the long run, but for now it’s pretty clear who’s gaining the most from this scenario – and who’s not. The winners: Palm, who gets the white knight they’ve been praying for. Consumers, who get the dual benefits of a healthy, broadly supported webOS and increased competition, generally. And developers, who will have another viable platform on which to showcase their goods.

The losers, predictably, end up being pretty much every other company with a smartphone OS. Microsoft, though, must be feeling the blow in particular. While HP will continue to make Windows Phone 7 products, they’ve gone from being a key partner to a serious competitor in a single afternoon.