HP Kills Palm

In April 2010 - not even 18 months ago - I wrote my comments about the then announced acquisition of Palm by Hewlett-Packard. Back then, I was speculating about five possible scenarios and I guess I was wrong. The scenario number 6 has occurred and HP pulled the plug on the Palm devices and probably also on the webOS mobile operating system today.

This move doesn't come as a big surprise. Yes, it is unusual for a company with the kind of resources that HP has to give a project that little time to prove itself - particularly a relatively recent $1.2 bln acquisition. But since the launch of it's new webOS based devices just a couple of months ago (in February 2011), it became apparent that they were flopping in the market place. Just earlier this week, it was reported that Best Buy sold less than 10% of the 200,000 Touchpads they ordered. Clearly, the mobile devices market is becoming a market space where you either make it big or go home. HP is leaving now.

That begs the question: how will this move reshape the mobile market. Apple is today clearly the player to beat. Until this week, I thought that Google was the a number 2 (or even number 1) but their acquisition of Motorola announced earlier this week has potentially put Android on a new trajectory and I see plenty of challenges ahead. But today, Google is certainly one of the top 2 vendors in the mobile market place.

The position number 3 is heavily contested. Microsoft wants it really bad and they have made a lot of good moves so far. Their deal with Nokia was received somewhat skeptically at first, but it makes much more sense since the Google/Motorola deal. Microsoft now stands a good chance to take over the spot number 3 and perhaps even number 2 in the foreseeable future, particularly should Google mess up with Motorola.

The position number 3 is currently occupied by RIM and RIM appears to be under a lot of pressure now. RIM has missed its numbers in the June earnings announcement and has been losing market share at an alarming pace recently. Yet, RIM and its BlackBerry franchise do have an impressive installed base and an access to the enterprise market that other vendors envy. That makes RIM a likely target and there is plenty of possible suitors about.

So where does that leave HP? Well, they may decide not to participate in the mobility games any longer just like their big rivals IBM and Oracle. HP's new strategy appears to be following IBM's example by divesting the PC business (which was also announced today) and focusing on "higher margin growth categories". Both were acquisitions, by the way - remember Compaq (2002) and EDS (2008)?

If HP decides to participate, it has three options:

1. Embrace Android which would make them a Google partner. That's less likely now as Google's Android strategy is at crossroads and since HP also announced the acquisition of Autonomy today which puts it on a collision course with Google in the enterprise search space.

2. Go with Windows Phone which would continue HPs long standing partnership with Microsoft. This is quite a feasible scenario but HP appears to be wanting to get out of the hardware business today. By the way, how ironic is it that while HP is getting out, Google - the ultimate Internet company - is getting into the hardware business by acquiring Motorola?

3. Acquire RIM which would fit HP's focus on the enterprise market. As I said above, RIM is likely to be in play soon and HP could indeed be one of the suitors. HP would probably not shy away from the high price tag of $15-20 bln or more - they have spent big money like that in the past. And the RIM acquisition by HP appears less problematic than by Microsoft, Google, or some of the fence-setters such as IBM, Oracle or Cisco.

In the end, I dare to predict that HP will stay out of the mobile devices market. If they want to be more like IBM, they are better served by focusing on services and remaining hardware agnostic. Too bad about Palm, though, as that was a good piece of technology. I still remember when US Robotics shipped the first Palm Pilot back in 1996 - the first successful personal digital assistant (PDA) which is how we called smartphones before they had the 'phone' feature. Well, an era has come to an end. After the demise of Nokia's Symbian, there is yet again one less contender in the mobile race. It is a four-horse race now with Apple, Google, Microsoft and RIM and there are only three (or less) spots left!

Why the Google's Purchase of Motorola Could Be Great News for Microsoft

Google surprised many this morning by announcing its intent to acquire Motorola Mobility, the mobile device manufacturer that has recently created by the Motorola split. At $12.5 bln, Google is spending some serious change - not that they can’t afford it - which only underscores the importance of mobility today and going forward. The stakes are high and so it is not a surprise that the key contenders are jockeying for positions.

So what are the consequences of this move? Google has been touting its Android operating system as open and open sourced and it was very successful in attracting many different hardware manufacturers including Samsung, HTC, LG, Dell, and, of course, Motorola. By buying Motorola, Google will need to convince the other vendors to stay with the Android OS which may be tricky now that Google is a direct competitor. Sure, Google sold its own smartphone in the past - the Nexus - but that was just a tactical maneuver to get Samsung and co. motivated and the phone was discontinued soon after they started shipping. Now with Motorola, Google is firmly in the competing corner.

None of the vendors licensing Android have been using Android exclusively and they all have other options. To stay with Android, Google will have to convince them that there is a solid Chinese wall between Motorola and Android to avoid any channel conflict. Google doesn’t have any credentials in that. Google will have plenty of struggle to combine its highly profitable advertising business with the low margin, highly competitive hardware business from Motorola and Motorola isn’t a small bite to swallow. Controlling both the software and hardware could give Google a leg up over the immensely profitable Apple franchise which in a way validates Apple’s closed and vertically integrated strategy.

The Motorola acquisition may motivate other Android phone makers to look for alternatives and the most obvious one is Microsoft. Many of these vendors are already shipping a Windows Phone based product and the Google acquisition of Motorola is likely going to send a strong breeze into Microsoft’s sails. It could possibly also give RIM a little bit of a reprieve, even though RIM is not ready to license out its own mobile operating systems (yes, they have two - the BlackBerry OS and the QNX). Similarly, Apple will not likely license its iOS to other vendors but should enjoy a boost in marketshare while the Motorola deal is being sorted out.

Some pundits call for Microsoft to acquire RIM and/or Nokia in response to Google’s move. I suggested the Microsoft-RIM marriage a long time ago but since the Nokia deal, that acquisition is less likely. In fact, Microsoft is standing strong right now as a dependable operating system vendor from whom all the device manufacturers can safely license the mobile OS. All of a sudden, that sounds much more attractive than licensing from the hard-to-predict Google. I think that the status quo is working really well for Microsoft. And even Nokia, having bet the house on Windows Phone must be breathing a sigh of relief.

Google actually claimed that the primary rationale behind the Motorola acquisition is the pile of patents that come with the deal. Well...whatever. I think that the patent wars that are currently raging between Google, Apple, Microsoft and others are not helping customers and that they are very detrimental to the industry in general. The patent laws may have to evolve but that could be a topic for another blog post. Besides, why is everyone claiming that their pile of thousands of patents is better than the other guy’s pile? Since when are patents sold by the pound?

To sum it up, the Motorola acquisition is a very risky and pricey move for Google who’s finding itself on an unfamiliar ground with hardware and who’ll have a lot to prove to keep Android open. I also believe that this deal has opened the door for Microsoft who’s suddenly looking like a safe bet when it gets to licensing a decent mobile operating system. It will be fun to watch how this is going to play out.