Hewlett-Packard’s $1.2 billion purchase of Palm means several things — but the most important ones are not about phones.
Yes, new life for Palm devices means there will be real competition in smartphones, with HP alone pushing operating systems from Google, Microsoft and now Palm (and facing competition from Apple and Nokia). The companies will aim for different market segments, like business, consumer and specialty purposes. Longer term, however, among the phones the fight will be in consumer devices.
But so-called “connected devices,” more than just phones, are the future of hardware, as voice becomes one more asset. Already HP Senior Vice President Todd Bradley is talking about phones, tablets, slates and other kinds of hardware that guarantee Internet connectivity. Voice calls themselves may be disappearing into the Internet, to the consternation of the Verizons, AT&Ts and Sprints, which prefer revenues from separate voice minutes rather than connection charges.
Palm’s backer Elevation Partners championed Palm’s webOS as something that would start in phones but move into all kinds of Internet devices. The first consumer products were the Pre and the Pixi, which were nicely reviewed but had insufficient consumer uptake to get Palm the cash to build more. HP, with $13.5 billion in cash and distribution channels of all sorts, in 170 countries, is not so constrained. (Disclosure: Elevation Partners, which has a stake in Palm, is also a shareholder in Forbes Media.)
“Smartphones are a part of this, but this is really about the Web operating system,” Shane Robison, HP’s chief strategy and technology officer, told Forbes. “It’s a change in our business model to a connected device model.” HP, he said, is assuming a world in which almost everything needs at least the potential to connect to the Internet. Michael Gartenberg, a partner with the Altimer Group, noted that HP’s ownership of its own OS, on several devices, should worry HP’s competitors. The others “have to rely on other people’s platforms to drive their business forward,” he said. “It allows HP to leverage webOS and tie it back to its enterprise and consumer businesses.”
The acquisition is also another great test of HP’s ability to make tech dreams come true–in this case, Palm’s dream of its operating system inside all kinds of machines. Doubtless there are plans for all kinds of new nonphone Internet connection devices inside Palm, and HP’s technologists and manufacturers will have at them at first chance. In his call to analysts Wednesday, Bradley identified vertical markets like health care and education in which devices might soon appear, sold through HP’s partners.
HP will also try to do what Palm could not: excite a global community of software developers for the webOS. While Bradley said Palm has 2,000 applications now, it was unable to get the kind of response from developers that Google has received for its Android OS or that Apple has received for its iPhone and iPad. According to Robison, Palm at last has an attractive set of tools for developers, and HP will begin marketing to them based on HP’s scale. “Developers will go where the volume is,” he said.
Elevation Partners, which is said to have acquired its Palm shares for enough to make a small profit on the Palm deal (but far less than the monster hit it hoped for) may console itself that its vision was correct, even if it lacked the scale and cash to see it through. If so, it will join an impressive crowd. In May 2008 HP bought consulting firm EDS for $13.9 billion, gaining with that the assets of a company called Opsware, originally Loudcloud, Marc Andreessen’s too-early venture into cloud computing. It is now at the heart of HP’s global push in the business of automating large-scale technology operations. Andreessen is now a member of the HP board and as the head of its technology committee doubtless played an important role in the Palm acquisition.
Last November HP purchased Chinese switch company 3Com for $2.7 billion, acquiring little recognized technology in powerful Internet switches that HP hopes will rival Cisco’s stuff. Like Palm and Loudcloud, the Chinese company, with little brand or marketing strength, could not get what it built to sufficient scale. Which is not to say “HP can’t invent.” What it can do is spot opportunities, diamonds in the rough, and put them into a rigorous operational machine. At least, HP shareholders hope so.