Why the Palm Pre Will Fail

Thursday May 28th 2009 by Mike Elgan
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Pre is not ready for business, can't top the iPhone for consumers and is entering the market at the worst possible time.

I know, I know. Apple iPhone: old and busted. Palm Pre: new hotness. Palm's new phone will be June's flavor of the month, etc.

The Pre will have smartphone enthusiasts squealing with delight at its feature-rich and innovative user interface, which appears to do everything the iPhone does plus a gazillion things the iPhone can't do.

Multitasking, for example. The Pre also has a real keyboard, faster hardware, a better camera with flash, a removable battery and a carrier that's not AT&T. An optional, no plug-in inductive charger is just plain cool. The Pre even has something for the vain: A mirror for seeing how awesome you look, located on the top back when you slide out the keyboard.

The Pre is great! Too bad it will fail.

How to Predict Market Success

The way to understand Pre's inevitable failure is not to think about how good the phone is compared with other phones. That's useful for picking your own handset, but useless for predicting market success.

The formula for predicting success is to identify what kind of person will buy each handset model, then count the warm bodies in each category. Subtract the market share you expect will be taken by competitors. And finally, you need to factor in the business execution side -- the stuff that analysts like to focus on and gadget enthusiasts like to ignore.

Pundits predicting Pre's primacy are assuming the phone will succeed in both business and consumer spaces. Why? Because Palm is strong in business, and the Pre has all kinds of entertaining goodies that consumers will enjoy.

I'm sorry, but that's wrong on both counts.

I think it's more accurate to divide users into not two but three categories: business users, consumers and power users.

Businesses need secure phones capable of running proprietary apps that hook up with company databases. It takes years to cultivate customers in this market and to get enterprises committed to writing their mission-critical apps on a specific platform. Microsoft, RIM and, yes, Palm dominate this market.

But like the iPhone, the Pre will not succeed in the business market any time soon, and Palm knows it. Palm's 22-page Pre Business Launch Guide distributed to Sprint employees warns that Palm "can’t afford to sell the Pre to the wrong customers."

Who are the "wrong customers"? Well, according to Palm, it's "IT-centric business users." But isn't "IT centrism" the very quality that separates the business market from the consumer market?

When confronted with an "IT-centric business user," Sprint employees are asked to blow the dust off of that old Treo in the corner and try to sell that instead. The Treo is old, but at least it runs an OS the IT folks have seen before.

The Pre runs the brand spanking new webOS. Big IT shops want stability and compatibility, but Palm changes operating systems like underwear.

OK, forget business for now. The Pre will succeed in the consumer space, right? Well, no, actually. The consumer category includes teenagers, college students, parents -- OK, just about everyone. These users are looking for something brain-dead easy, but packed with toys and entertainment.

The Palm Pre UI is slick and appealing, new and innovative. But in the mass consumer handset market, only three things count: Brand appeal, simplicity and apps. And on all three counts, Apple clobbers Palm. That's why iPhone has destroyed every other "better" phone that has come along.

Palm's Synergy feature allows users to pull together contacts from multiple sources, and maintain threaded conversations across SMS, GTalk and AIM. Cool for tinkering geeks, but will your mom use it?

Gestures are less intuitive than iPhone's. 3D game development is poorly supported in the webOS SDK. The UI is feature rich, but complex and only semi-intuitive for average users.

The conventional wisdom is wrong. The Pre is not suitable for the business market, and it doesn't have what it takes to compete against iPhone in the consumer marketplace, either.

Which brings us to the smartphone power users. They tend to care more about power than beauty, and want to tinker. They're comfortable with complexity and want flexibility more than simplicity.

One reason Pre gets such good press is that the phone is targeted at precisely the kind of power-hungry geeks who write about phones on the Internet. Average users who think phones are too hard to use don't write gadget blogs. But they are the majority.

If you're salivating over the Pre, ask yourself: Are you a typical user? No, you're not.

Pre will capture power users, as well as Treo holdouts and a few people who really want an iPhone but are put off by the Kool-Aid-guzzling Apple fan cult.

So the Big Question is: Are there enough power users out there to drive the sales Palm needs to survive as a company?

"Gotchas" that will Wreck the Pre Party

Palm also confronts three "gotchas" that have nothing to do with the quality of the phone.

First, the Pre will be rare for a while . Yes, the phone launches June 6, but only in the US. And the number of units available for sale at Sprint stores, Best Buy, Radio Shack and a few Wal-Mart stores will be very limited. One analyst predicts fewer than 150,000 units units at launch. Best buy will reportedly average just four handsets per store!

By comparison, Apple sold some 270,000 iPhones on the very first day, a million within the first 74 days and more than 21 million to date.

What this means is that if I'm wrong, and the Pre is a runaway, mass-market hit, Palm won't be able to supply them fast enough. Palm needs a blockbuster success to survive, but cannot produce handsets at a blockbuster pace, at least for now.

The second major "gotcha" is that we're in a massive recession. People aren't buying phones like they would in better economic times. Sure, smartphone sales are up for the first quarter, but that's mainly because iPhone doubled it's marketshare over Q1 last year. Cold comfort for Palm.

And finally, we must remember that any comparisons made in the press between Pre and iPhone are between the future Pre and the past iPhone. The future iPhone, which will probably be announced within a week of Palm's Pre launch, may feature faster 3G, better exterior, more storage (32 GB!), better camera with auto-focus and video recording, built-in compass and will definitely include copy and paste, push notifications, multimedia texting, embeddable Google maps, landscape mode for all apps and tethering. Most of Pre's key differentiators will be erased.

The Pre will provide at least one major benefit for Palm, however: It makes the company a more attractive acquisition target. (Dell would be an ideal buyer.)

Look, I'm not here to bash the Pre. I think it's a fantastic phone, and for many users far superior to any other. It's just that no matter how much the power users love it, the Pre is not ready for business, can't top iPhone for consumers and is entering the market at the worst possible time.

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