Palm - Great Product, Bad Strategy
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Palm - Great Product, Bad Strategy

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  • Definition of SmartphonesSmartphones usually have extra features such as GPS, Wifi, touch screens compared to general mobile phone, but what really make smartphone different from the others is the Operating Systems:“A smartphone is a phone that runs complete operating system software providing a standardized interface and platform for application developers “so that hundreds of thousands of applications can be developed on the smartphones. (Wikipedia)
  • http://www.gpsbusinessnews.com/IMS-Smartphone-Shipment-Grew-15-in-2009_a1997.html CAGR: 24.5%(global)Smartphone shipment growth is expected to accelerate in the future, with IMS Research projecting a CAGR of 24.5% between 2010 and 2015. Much of this growth is forecast to come at the expense of the feature phone segment, as the average selling price for entry level smartphones approaches the same levels as high end feature phones.
  • The economic and industry boost is 17.9%. Companies competing solely in the smartphone space, like RIM, Apple and HTC, achieved higher ROA than companies that also sold dumb phones. And then there is Palm…
  • This graph show the smartphone stack from suppliers to the carriers.We will talk all around this chart through out the analysis,Currently, the suppliers of the smartphone are IC chips manufacturers who produce standardized CPU, GPS chips, or communication modules. The standard components make the smartphone manufacturers easier to switch from suppliers to suppliers, and therefore the power of suppliers is low.
  • The OS play a crucial part in the smartphone industry. So we have to look at the market share of both smartphone sales and OS installation base.Rim and Apple dominate both the hardware and software sides of the market. This has allowed them to gain influence in the market and reap higher profit margins due to synergies between business divisions. The development of the OS would affect the sales of smartphone, the new entrant – Google Andriod started to gain market share aggressively in the last half year of 2009.
  • The strategy of the manufacturers are very different.RIM: Business focus with Apple: Focusing more on service integrations that including all their product portfolios (iMac, iPod, iPad…) and services (iTunes, & App store) by leveraging the Network effect.HTC: employs an attack or penetration strategy with a complete portfolio of smartphones from high end to low end.Palm: is struggling with cash flow and the carrier relationship, so there is no specific strategy here.
  • HTC is more close to cost leadership http://www.cio.com/article/557863/They_re_Here_Cheap_Android_Smartphones“Taiwan has traditionally led the way with cost cutting in everything from PCs to game consoles and mobile phones, through low cost manufacturing on the island and in China. The prices of the two new smartphones are around half that of comparable models from major handset vendors. Taiwan Mobile next week will start selling the TWM T1 smartphone for NT$8,990 (US$280) with no service contract.”Yet except for apple and RIM, mostsmartphones are less differentiated to the customers. Then thus every player is stuck in the middle.
  • Since the competition is less differentiated, the rivalry is high.
  • Direct Sale: How this helps Google is that it gets to market and sell phones to you in a marketplace without competitors -- no iPhones, BlackBerries, or Palm Pres here -- and gives carriers and incentive to compete over you, the customerIt's much easier for Google to seal the deal this way. (Bonus: It probably gets a few hundred bucks for helping sign up mobile subscribers, the way any third-party retailer -- Amazon, RadioShack, Best Buy, etc. -- does.)Google is not the first to try selling phones direct to consumers. Apple, of course, sells many of the iPhones in the U.S. via its retail stores. Palm has sold unlocked phones direct to consumers for years (at steep, unsubsidized pricing) with limited success. Nokia does this with some phones that don't make it to the U.S. at major carriersRead more: http://www.businessinsider.com/googles-biggest-mobile-move-disrupting-carriers-by-selling-direct-2010-1#ixzz0lGnV4WYwOther carriers have done this: Nokia (not in U.S.), Palm w/ limited success, iphones via Apple Store
  • Verizon is #2 & AT&T is #4 advertiser in 2009, sprint is #8 and yet increased their ad spend by 30% in 2009Manufacturers spend 18% of what the carriers spend on advertising, making the carrier/manufacturer partnership even more important.Source: http://www.marketingcharts.com/television/annual-us-ad-spending-falls-123-12327/http://www.textmessageblog.mobi/2008/06/26/market-share-by-cellular-carrier/http://www.tomsguide.com/us/verizon-at-t-cellphone,news-1419.html
  • Predominant “locked” phone model, locking in a consumer to a contract with a carrier. Smartphone sales depend heavily on carrier to subsidize the phone price & network externalities. Carriers also need innovative product as a market “hit” to win competition. (such as Droid & iPhone)
  • Overall the buyer power is moderate as they both need and help each other.Thing would get different when different manufacturers partnering with different carriers.For example, minor manufacturers (such as HTC & Palm) may face strong buyer power when partnering with leading carriers such as AT&T or Verizon.
  • More and more companies are interested in the smartphone industry. OS developers are entering the market by having their own brand (OEM) phones. And companies in related industry like Cell phones, PC, network equipment industry are all trying to get into the market.
  • Overall, Threat of Entry is moderate since only companies in relevant industries have the competency to enter
  • Convergence in action. Smartphones have a low threat of substitutes, rather smartphones are substitutes for mobile phones, MP3 players, GPS, cameras, and netbooks.Smartphones are convergence in action.Smartphones have redefined the mobile lifestyle.Threat of substitutes is low.
  • most of the threats are moderate also while rivalry is high... the profit potential is very high because of the app stores and stuffbecause of lock-in with the apps eco systemOverall the industry in attractive for incumbents.
  • OS competition becomes more fierceWindows Phone 7, iPhone OS 4.0, Android 2.1, WebOSHardware/Software integrationDevices become more commoditize, making money on software.Web2.0, Service Integration/ Convergence of Technology (Zune, Xbox), Consolidation, Manufacturers provide customization on OS to differentiateHTC Sense, Moto BlurExponentially Increasing mobile data usage, applications, (Network effects)Emphasis and Integration of social media applications on smartphone. (Kin One, Two)
  • Within the highly competitive hardware market the competition imitates any new feature launched by a rival company. For example, after Nokia added GPS and 3.2 megapixel cameras to their phones’ design, competitors quickly followed. Recently, HTC announced that they were planning to embed a 1 ghz. processor in their phones, only to have Apple make a similar claim a few months later. Hand = Multi-touchCamera= 3.2 Megapixel CameraGPS=GPSCPU= 1 ghz processor
  • As development cycles become shorter, it becomes more and more difficult for rivals to innovate and differentiates there OS from the competitions. It is often easier and cheaper to imitate than to innovate!
  • The # of blackberry apps may be less, but it quality or usefulness of them are far more valuable for business users.Those Apps in Apps stores or Blackberry are the true differentiators for smartphones. This is also a difference between users of BlackBerry users and Apple Users. On average BlackBerry Users only use 5 applications on their phone and those applications are mostly business related. http://en.wikipedia.org/wiki/List_of_digital_distribution_platforms_for_mobile_devicesHardware and even OS are becoming commoditized. Every company is developing or acquiring OS. Apps are a point of differentiation. Source: http://www.roughlydrafted.com/2008/03/07/apples-iphone-vs-smartphone-software-makers/iPhone, Apple is embracing both open source and freeware as well as commercial application development. Apple is creating a market for even the smallest of developers that is patterned directly upon its support for indie labels in iTunes.Apple will promote their software in iTunes and the iPhone App Store for a 30% commission. If that sounds like a lot, consider that the retail markup on most software is 50%, and developers typically pay to market, package, and distribute their work from their half.Open source works well at offering alternatives to proprietary, commercial products and technologies, but as yet there are few examples of hardware makers using Linux to take over new markets, particularly where tight hardware and software integration is important. In embedded applications, the use of Linux is often wrapped in so many layers of proprietary hardware that it begins to offer no real advantage over a custom designed system like the iPhone.
  • Break-through technologies and devices Inconsistent Corporate strategy Inconsistent Business strategy
  • Wrong time because, the internet penetration into mobiles was not sufficient while Palm has leading edge in the market and when the 2.5G high speed internet became available, the iPhone stole the market and Palm had to follow “I believe the best strategy is to be the first person to be second” – Henry Ford‧Engineering driven product development with little marketing strategy.
  • WebOS has a great emphasis on Social Media Palm Synergy combines feeds from various sources such as AIM, Yahoo Messenger and Google talk and provides user with a single stop access. It also combines the feeds from places like Facebook and TwitterWebOS is easy to program for the developers because it is built on the HTML5, CSS and Javascript standards which a large developer community is familiar with
  • Apple’s Big Picture Strategy: Apple takes advantage of the Entertainment and Utility Apps, anything that exploits the touchscreen. Palm did not release WebOS SDK to developers on time which led to reduced enthusiasm Palm’s Market Research has shown that Women are a great target market which turned out to be a disaster for Palm at the end The exclusive partnership with Sprint has caused “Hold-up” and virtually killed Palm’s hope of successIf Palm's WebOS products had gone on sale at Verizon before Motorola's Droid, Palm's fortunes today would be very different - Jon Rubinstein, CEO Palm Inc.
  • WebOS is well positioned for future applicationsApplications for WebOS are easier to develop since it is based on established web standards and programing languagesProgramers who can write programs for the web can write programs for PalmSell the hardware development since it is not a core competency any moreCommoditized hardware squeezes profit marginFocus on OS development by leveraging two-sided network Strategic partnership to create more service convergenceThe key lies in encouraging network effects
  • Leverage two-sided markets Developer Side:Applications are low compared with competitors and palm needs to catch up. Subsidize developers and developer workshops by increasing royalties as well as allowing developers to embed ads into their applications. Continue to provide incentives like the $1 million contest for best application. Encourage developers to have versions of apps, allowing both Lite and Paid versions of their apps to be made available (Freemium). Experiment with other revenue models: trialware and adware. Increasing applications will help Palm leverage online application store platform further (discuss network effects) and capture long tail with introduction of more social media applications and user-created content (videos and photos)  Consumer Side:Focus on promoting entertainment services along with social networking, such as games and tv, in turn optimizing service integration  playing to Palm’s social media strength (versus business).Position Palm as broad and differentiated while shifting target audience to young professionals Market through social media by reaching out to people such as YouTubers who review apps Partner with complementors including Nintendo for Wii, application review sites, music distribution sites, etc.
  • Palm is very difficult to value: Given Palm’s rate at which Palm is burning through their cash reserves, the decision needs to be made fast
  • HP and Dell have already taken a pass. LG has not interest. Nintendo’s and Sony’s core competencies are not alignedAlready Committed: Google (Android), Microsoft (Windows 7), Rim (RIM OS), Apple (OS X), Samsung (Bada), Nokia (Symbian / Maego) and Intel Moblin. Last two creating MeeGo.Sony Ericson, Motorola and ZTE No fire and bad timing
  • Lenovo used to be just another laptop OEM. However, purchasing IBM’s personal computing division, gave them the creditability they need to shrug off preconceived notions about manufactures from China and become a dominant brand selling high quality, business notebooks for a good value. Recently they launched LePhone. Which runs Andriod and has yet to differentiate itself. Given their past, it would make sense that they would want to try something similar and possibly buy Palm. They also could use the acquisition to marry the Thinkpad technology with the Web OS to create new products like the LePad…similar to what Apple did. Unfortunately, Lenovo has been negatively impacted by the economic slowdown. Although they have the cash to purchase Palm, Lenovo posted negative cash flows in 2009 and breached certain terms with lenders that makes an acquisition unlikely.
  • Award Winning Service Delivery Platform (SDP)100 OperatorsReduce TTM < 12 weeksIncrease ARPU 5-8%Subject to holdup
  • Both HTC and Palm focused on smartphones. With only 6% of smartphone handset market the lesser know HTC is dwarfed by its larger competitors, Apple and RIM. Purchasing Palm will allow HTC to gain brand awareness and market share. In addition, currently the is a misconception in the market that devices from Taiwan and China are of lesser quality. A purchase of Palm will allow HTC to differentiate it self as a high quality product while maintaining a low manufacturing cost. As the hardware of phone become less differentiated HTC will be looking for ways to protect their 22% profit margin. Like its bigger rivals HTC could purchase Palm and develop a double sided market around Web OS. This has the potential to become a major player in both the NA and Asian markets. HTC has both the cash and incentive to do this. HTC has 58 Patents in the space. Google has 316, Apple has 3000 and Palm has 1650. In March, Apple filed suit against HTC for infringement on 20-30 of its patents. Many analysts believe this is because HTC doesn’t have the patent protection or deep pockets to fight back. This lawsuit has the potential to stop HTC sale in the US. In 2009, US sales totaled $2.2 billion. Therefore HTC may be willing to buy Palm for the patent shield it represents and the equity is just icing on the cake. Sources: Edible Apple, Palm 2009 10K, and HTC 2009 Q4 Financial Statement
  • 30,000,000 Elvis fans can’t be wrong!Source: http://www.engadget.com/2010/04/12/who-should-buy-palm/

Transcript

  • 1. - Great Product, Bad Strategy
    Team B6
    Sudhi Chada, Matt Ho,
    Malini Mansukhani, Alicia May,
    Kevin Schlabach, Betsy Stiles
  • 2. Outline
    Industry Analysis
    Industry Trends
    Palm Company
    Recommendations
    Conclusion
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    2
  • 3. What is a Smartphone
    Touch Screen
    Operation System
    Software
    Productivity Apps
    Web Access
    E-mail, Games,
    PDA…
    QWERTY Keyboard
    GPS,WiFi
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    3
  • 4. SmartPhone Industry
    2009 US Market
    Revenue: ~$7 billion
    Unit Sold: 47.2 million
    09’ Growth: 27%
    Major Players:
    RIM, Apple, HTC,
    Nokia, Motorola (Droid)
    Millions
    Source: Mintel, Frost & Sullivan, Canalys.
    Accelerating growth at the expense of the feature phone segment.
    Worldwide smartphone growth : CAGR 24.5% (2010-2015)
    Within five years, all phones in US will be smartphones.
    Source: Frost & Sullivan,
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    4
  • 5. Industry Profitability
    +9%
    +12%
    -0%
    -4%
    -16%
    -13%
    -39%
    5.9%
    Source: Yahoo Finance, Company Websites
    Highly profitable industry with high margin
    Concentrated company enjoys higher returns
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    5
  • 6. Smartphone Stack
    Hundreds of thousands of individual developers
    Power of Suppliers
    LOW
    6
  • 7. SmartPhone Industry - market share
    Source: comScore
    Source: Canalys
    Proprietary OS dominates 75% of the market
    Fierce battles in both phone manufacturers and OS developers
    Google Android is the fastest growing OS in the past 6 months
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    7
  • 8. Competitive Landscape
    OS
    # of
    Models
    2
    11
    2
    23
    Service Integration
    Attack Strategy
    Penetration
    Survival
    Business Focus
    Strategy
    Carriers
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    8
  • 9. Smartphone Competitor Position
    Cost Leadership
    Differentiation
    Broad
    Narrow
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    9
  • 10. Smartphone Stack
    Hundreds of thousands of individual developers
    Rivalry
    HIGH
    Power of Suppliers
    LOW
    10
  • 11. Distribution Structures
    Distribution Channels
    Smartphone Manufacturers
    Carriers
    Retailers
    Consumers
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    11
  • 12. Carrier Details
    Source: Best of media group
    Source: Kantar Media
    • Partnership determines the potential customer base
    • 13. Ad spend is an incentive for manufacturers to partner with carriers
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    12
  • 14. Carrier Partnership
    subsidize smartphone prices
    SP Manufacturers
    Carriers
    “Hit” product
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    13
  • 15. Smartphone Stack
    Buyer Power
    MODERATE
    Hundreds of thousands of individual developers
    Rivalry
    HIGH
    Power of Suppliers
    LOW
    14
  • 16. Threat of Entry
    Huge market potential draws great interests
    Carrier partnership, HW/SW integration cost and heavy AD budgets prevent other new entry
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    15
  • 17. Smartphone Stack
    Buyer Power
    MODERATE
    Threat of Entry
    MODERATE
    Rivalry
    HIGH
    Power of Suppliers
    LOW
    16
  • 18. Threat of Substitutes
    Unique Features of Smartphone
    Portability
    Integrated functionality
    PC-like jobs
    Netbooks
    Smart Phones
    Mobile
    Phones
    MP3 Players
    GPS
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    17
  • 19. 5 Force Analysis
    Buyer Power
    MODERATE
    Attractive Industry
    Rivalry
    HIGH
    Threat of Substitute
    LOW
    Threat of Entry
    MODERATE
    Power of Suppliers
    LOW
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    18
  • 20. Industry Trends
    Devices are getting commoditized
    Network effects driving differentiation in OS
    Smartphone as a central part of service convergence.
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    19
  • 21. Hardware: Commoditized
    Smartphones similar features look the same in consumers minds
    1 GHz
    3.2MP
    2006
    07’
    2010
    09’
    08’
    Source: Company websites and press releases.
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    20
  • 22. OS: Less Differentiated
    Smartphone OS Evolution
    Source: Wikipedia, Lexis Nexis
    New OS entrants forced incumbents to reduce product development cycle
    Imitations between OS make them less and less differentiated
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    21
  • 23. Apps: Point of Differentiation
    Market Place
    OS
    42,000
    1,561
    Apps Available
    4,071
    140,000
    376
    $25
    Free
    Developer Fee
    $200
    $99
    $99/app
    70%
    70%
    80%
    70%
    70%
    Royalty
    Easy
    Easy
    Hard
    Hard
    Moderate
    Ease of development
    Differentiation is driven by Applications & Network Effects
    Source: Wikipeida
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    22
  • 24. Palm Company
    Palm-istry – Glory and Fade
    WebOS – Superior but Unpopular
    Great Product, Bad Strategy
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    23
  • 25. Palm-istry
    1992
    1993
    1999-2000
    2000-2005
    2005-2008
    Palm.net service
    PalmConnect
    Palm Vll
    Palm Tungsten
    Palm Treo
    Palm Treo
    Palm Centro
    Palm Pilot
    Stock Price
    Source: Wikipedia.org , Finance.yahoo.com
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    24
  • 26. The Fall of Palm
    Great Ideas
    Bad Timing
    The use of productivity applications is limited
    PalmConnect software, to sync PDA (smartphones) with PC
    Mobile Network Infrastructure not ready by then
    Palm.net, an always-on internet service
    Great Product,
    Bad Strategy
    PDA prices too high, limited customer base.
    275,000 developers and 50,000 apps for PalmOS
    Source: Wikipedia.org
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    25
  • 27. Palm Strikes back
    Palm Pre is the most legitimate rival to the iPhone - CNet
    Intuitively designed around web 2.0
    Advanced Features:
    • Multi-tasking
    • 28. Palm SynergyTM
    • 29. Wi-fi hotspot
    • 30. Automatic backup and more
    Source: Palm Website, CNet .com
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    26
  • 31. Go-to market strategy
    • Large user base
    • 32. Strong marketing push
    • 33. Limited user base
    • 34. Weak marketing support
    Carrier
    • Announced in Jan
    • 35. Released in July (A week after iPhone 3Gs)
    • 36. Announced in Jan
    • 37. Released in June
    Release
    Again!
    Great Product,
    Bad Strategy
    Feature Leverage
    Target Market
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    27
  • 44. Current situation
    Competitor Imitation
    Carriers
    Palm Pixi Plus - $29.99
    Prices
    Palm Pre Plus - $49.99
    OS Features
    Sales
    408k devices sold
    (57.5% devices on shelf)
    Until 2007
    2008
    2009-10
    Palm is losing
    competitive advantage
    Michael Abbott, software chief and key contributor to WebOS, quit Palm
    Dumped the ad agency, Modernista
    Stock Price Plummeting
    Rumors of sale
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    28
  • 45. Recommendations
    Palm Turnaround
    Turnaround strategy
    Leverage two-sided OS Market
    Palm for Sale
    Palm for Sale
    Potential Buyers
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    29
  • 46. Palm Turnaround
    Hardware:
    Software:
    ‧Commoditized hardware
    squeezes profit margin
    ‧Not core competency any more
    ‧Financial Hardship impede
    hardware R&D
    ‧WebOS is well positioned for
    future applications
    ‧Open Platform encourages
    application developers
    • Sell hardware department
    More resource on OS dev
    • Focus on OS & Platform development
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    30
  • 47. Leverage two-sided OS Market
    App Catalog
    Developers
    Consumers
    Subsidize and educate developers:
    • Increase Royalties to 80%
    • 48. Educate about new revenue models: versioning, adware and trialware
    • 49. Continue $1m contest
    Draw new customers:
    • Target young professionals through new social media campaign
    • 50. YouTube reviews of applications
    • 51. Freemium applications
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    31
  • 52. Palm for Sale
    Crazy Financials:
    Artificially elevated cash flows
    Recent Accounting Adjustments
    Recent Equity Sale
    Vague IP Portfolio Value ($1.5b?)
    Burn Rate: 12 Months to live
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    32
  • 53. Potential Suitors
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    33
  • 54. Lenovo
    • Successfulmerger of ThinkPad
    • 55. Pursue Foothold in Smartphone industry
    Past
    Now
    Future
    Full Product Portfolio:
    PC, Laptop and
    Smartphones
    Breached terms of credit in 2009
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    34
  • 56. Hongwei
    Don’t print Hongwei
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    35
  • 57. Large telecom & handset manufacturer in China
    Heavy investment in 4G
    68% US Growth / 9 offices
    Weak brand recognition in U.S.
    ‧Foothold in the U.S. Market
    ‧Fill out product portfolio
    ‧Rumored to have been in talks
    since February
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    36
  • 58. Small player big competition
    Pure hardware manufacturer
    Commoditized hardware
    New revenue from software side
    Current Patent Lawsuit
    ‧Hardware & OS marriage
    ‧Gain market presence
    ‧Patent Shield
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    37
  • 59. Crowdsource
    What’s your vote?
    Source: engadget
    Industry Analysis
    Palm Company
    Industry Trends
    Recommendations
    38
  • 60. Q & A
    39