Analysis: Palm is prime for acquisition

After revealing plummeting sales figures for its smartphones, there is little hope for Palm other than acquisition

Palm is reporting dramatically lower sales of its WebOS-based smartphones. It seems the once-dominant maker of PDAs has nowhere to go but down and its plummeting fast, making it a potential target for acquisition by a smartphone competitor.

Palm announced that it sold a meager 408,000 smartphones in the most recent fiscal quarter. That figure is less than 5 percent of the number of iPhones sold by Apple in its most recent quarter and represents a 29 percent drop in sales from the same quarter a year ago. The outlook for Palm is bad and getting worse.

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In the most recent report from ComScore, Google's Android operating system gained 4.3 percent market share, leapfrogging Palm and relegating WebOS to last place with a 2.1 percent drop in market share. With RIM lagging but still dominating market share, the smartphone battle right now is between iPhone and Android, with Microsoft's Windows Phone 7 a potential dark horse entry later this year.

When Palm launched the WebOS-based Pre smartphone last year, it was hailed as the first device capable of challenging the iPhone. Its performance in the market have been disappointing, though, certainly not living up to the hype and expectations.

Many still feel that WebOS is not only a capable smartphone platform, but a superior one. Unfortunately for Palm, being technically superior never trumps superior marketing. Just look at the history of superior technologies that are now extinct: the IBM OS/2 operating system, Sega Dreamcast game console, Betamax video tape players, and HD DVD. Marketing beats technology every time.

Palm can't rebound by being evolutionary. Getting back in the game and mounting a serious challenge for smartphone market share would require something revolutionary at this point -- and I don't expect there are any such tricks up Palm's sleeve. RIM and Apple are solidly in the lead, and Palm can't compete with the marketing clout of either Microsoft or Google.

The Palm Pre initially launched only with Sprint, but it is now available from the leading wireless provider in the United States -- Verizon -- and AT&T has announced that it will add WebOS-based smartphones to its portfolio later this year. The broader exposure is good, but Palm's smartphones still have to compete against devices like the iPhone and the Motorola Droid. The only thing that would really spark the platform is if they started giving them away, which might win back some market share, but lose a ton of revenue in the process.

The best possibility for the future of Palm at this point is acquisition. Unfortunately for Palm, potential suitors are limited. Apple has no need, and Microsoft and Google are already heavily invested in developing their own "iPhone-killer" smartphones.

Nokia was rumored to be considering acquiring Palm, but its recent alliance with Intel to merge their Linux-based mobile operating systems and look beyond smartphones with MeeGo most likely means it has gone a different direction. That only leaves RIM.

RIM did gain 1.7 percent market share in the most recent comScore report, and it is still comfortably in the lead among smartphones, but the BlackBerry platform is not innovative and has lost much of its appeal. RIM is basically riding on the coattails of its enterprise dominance, but offers little to compete with the iPhone and the growing list of next-generation smartphones.

RIM could benefit from purchasing Palm and incorporating the innovations from the WebOS platform to create a more compelling version of the BlackBerry. Without some sort of shift for both companies, Palm may soon be extinct, and RIM is in danger of stagnating and watching its market share get slowly chipped away by Apple, Microsoft, and Google.

Tony Bradley is co-author of Unified Communications for Dummies. He tweets as @Tony_BradleyPCW. You can follow him on his Facebook page, or contact him by email at tony_bradley@pcworld.com.

This story, "Analysis: Palm is prime for acquisition" was originally published by PCWorld .

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