Hewlett-Packard, the world's largest PC maker, announced yesterday a massive corporate U-turn that involves spinning off its computer-making business, ditching its tablet and phone business, and acquiring Autonomy Corp. in order to sell cloud services to enterprises. The reasons behind HP's dramatic shakeup are relatively straightforward: The PC market is a low-cost, commodity business that is being seceded to Asian manufacturing companies like Lenovo. (Also, as HP CEO Léo Apotheker explained, "the tablet affect is real," which means that Apple's (NASDAQ:AAPL) iPad is cutting into the business for PC makers.)
And HP's phone and tablet business? "Our webOS devices have not gained enough traction in the marketplace with consumers and we see too long a ramp-up in the market share," explained Apotheker during HP's quarterly conference call yesterday, according to a Morningstar transcript of the event. "Due to market dynamics, significant competition in a rapidly changing environment and this week's news [Google's (NASDAQ:GOOG) proposed acquisition of Motorola Mobility (NYSE:MMI)] only reiterates the speed and nature of this change."
Everything about HP's decision to ditch webOS devices is summed by this chart, which is based on comScore research and shows monthly U.S. ownership figures for Palm OS and webOS devices from September 2009--shortly after Sprint Nextel introduced the market's first webOS device, the Pre--to May 2011.
That tiny, almost imperceptible bump in share from January 2010 to July 2010? That's the result of Palm expanding Pre and Pixi distribution from Sprint Nextel (NYSE:S) to Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T). That was webOS' high point, and it amounted to an increase in Palm market share of about 1 percent.
So HP won't make webOS devices anymore, but the company is hoping to recoup its investment in webOS. How? "We will be looking at all possible [business] models ... in order to evaluate how we can best extract value out of webOS," Apotheker said. That means that basically everything is on the table for webOS.
According to This is my next, HP is not "walking away" from webOS, and is working to hold the webOS team together for the next few weeks. This will be challenging considering the demand for talented smartphone engineers; web app company Sencha said it is "heading down to W. Maude Ave, Sunnyvale tomorrow with coffee, pastries and the prospects of fun and challenging jobs for the webOS web framework engineers. Great web app developers are in short supply and Sencha's hoping that some of the webOS crew might consider Sencha a perfect spot to land, should they be looking."
This is my next also said HTC and Samsung were floated as potential licensees or buyers of webOS, though such transactions might be complicated by the integration of webOS into Qualcomm (NASDAQ:QCOM) chips. HP executives in the past have said the company is looking for other webOS hardware partners.
I would be amazed if HP finds another hardware company to license webOS or buy it with the intention of building devices. First, webOS had its chance in early 2010 with distribution through the nation's three largest wireless carriers, and that amounted to a 1 percent market share bump. Second, webOS is one of a number of platforms currently available--Intel is currently selling MeeGo, which is a fully baked, advanced smartphone operating system; Google is selling Android for free with the promise of Motorola patents for protection; and Microsoft (NASDAQ:MSFT) is selling Windows Phone with the hope of a thriving ecosystem and millions of devices thanks to the complete and total support of Nokia (NYSE:NOK).
Finally, why would any company want to purchase webOS with the knowledge that they would have to support it? HTC CEO Peter Chou told the Wall Street Journal that, in the smartphone game, "it's not the operating system, it's the ecosystem." While Chou's comments were in response to questions about HTC developing its own OS, they also apply to webOS. No matter how slick, speedy and elegant webOS is or could be, a buyer or licensee would have to develop a webOS ecosystem while concurrently building cutting-edge devices and marketing them properly. Apple and Google have managed to do this, and Microsoft has a chance with Nokia, but there's not much room for another player. HP's Apotheker conceded that "to make this investment [webOS] a financial success would require significant investments over the next one to two years creating risks without clear returns." Any company licensing or buying webOS would face the same troubles, likely compounded by HP's very public admission that webOS devices "have not gained enough traction in the marketplace with consumers."
So if HP is unable to scrape up a webOS buyer or licensee, what then? The company likely will attempt to recoup its investment via the sale of webOS and Palm patents. As the $4.5 billion sale of Nortel's patents showed (and Google's $12.5 billion purchase of Motorola cemented), patents are going for a premium this year, and HP may come out ahead if it manages to offload the patents Palm accumulated during its years inventing the personal digital assistant market, playing in the smartphone market with the Treo and Centro, and competing against Apple with webOS. TechCrunch reported in 2010 after HP purchased Palm that HP also acquired 1,500 Palm patents--a considerable asset.
Thus, I'm betting HP will unload Palm's patents to someone like Apple or HTC, and webOS will fade into the wireless industry's history books. +Mike Dano
P.S. For full coverage of HP's webOS debacle, check out these headlines:
- HP kills webOS device business
- Palm's webOS laid to rest in smartphone graveyard: A timeline
- webOS: A look at the devices
- HP kills off webOS--will mobile developers even mourn its loss?