Palm reading: Will the Pre and webOS save Palm?

Last week all eyes were on Palm as it launched its new operating system, webOS, and its new handset, Pre,  at the Consumer Electronics Show in Las Vegas. The company delivered a knockout performance. Both the handset and OS seem to be a highly intuitive and innovative combination that promises to bring an elegant simplicity to the mobile web.

The big question is: Now what?

Palm has said the device will be launched exclusively in the U.S. by Sprint Nextel sometime in the first half of 2009, and has not revealed the price yet. Palm plans on launching an HSDPA/UMTS version in Europe also in the first half of 2009, which may eventually migrate to the U.S. market and make the phone available to AT&T Mobility and T-Mobile USA. For it to be competitive with Apple's iPhone 3G it will have to be priced around $200 when paired with a two-year service contract.  

Clearly, Palm has a lot riding on this: years of development costs, the expectations of nervous investors and, in all likelihood, the company's very survival.

Avi Greengart, and analyst for Current Analysis, tested the Pre before its launch at CES, and said he was immensely impressed. "They've taken the PDA, which is Palm's heritage, and taken that to the next level," he said.    

But even if the OS and the device are powerful, visually stunning, provide excellent ease-of-use and might be appealing to both the consumer and enterprise segments, will it pay off? And why Sprint?

Palm may have gone with Sprint, as Greengart argues, because Sprint has historically been Palm's launch partner, and Palm was the most comfortable with them. Or Palm could have looked at the other carriers--AT&T Mobility has the iPhone; Verizon Wireless has RIM's BlackBerry Storm, T-Mobile has the G1--and decided it would be best not compete with those phones. Or Sprint could have simply offered them the most marketing money.

However, if Palm is expecting customers to switch their wireless service to Sprint in droves the way they have gone to AT&T to get an iPhone, they are misguided. Both Sprint and Palm seem to have preempted this line of thinking, with Sprint CEO Dan Hesse saying at the launch that the companies want to lure "first-time users" to the phone--i.e. those who have yet to buy a smartphone.

"By all accounts, the device is a multi-tasking, multi-threading masterpiece with a distribution problem," said John Jackson, vice president of research for CCS Insight. "A lot of it is going to depend on the extent to which they can crack the distribution problem."

Are there enough customers out there who have not yet purchased a smartphone (and thus, up to this point have not felt comfortable enough to buy an expensive phone and a monthly data plan) to make the Pre a hit? And will this gamble pay off in the midst of a recession?  

"They did everything to meet the high expectations of Palm watchers and market watchers. It is one SKU at one carrier in one country," Jackson said. "That is not enough to save Palm." 

It may be that both Palm and Sprint, desperate for a breakout success, decided they could mutually benefit if the Pre takes off: Palm would have dedicated marketing support and could get the product to market quickly, and Sprint would have a bonafide hit.

"[Palm is] betting the company on this product and they want to go with a partner that will back them to the hilt," Greengart said.

Will it happen? I would love to see both Palm and Sprint deliver a compelling, reliable, fast and innovative mobile web experience. But Palm seems to have bet simply everything on this proposition. -Philip

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