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Can the Palm Pre Revitalize This Company?

Palm has been spiraling downward in recent years. The company hopes the new Palm Pre will reverse its fortunes, but the jury's out and that makes buying Palm a wait-and-see game for SMBs.

How many smartphone suppliers are too many? The answer to that question should start to become clear in the coming months and could impact small and midsize businesses. With the economy in a funk, businesses and consumers have been reducing their expenditures. As smartphone sales drop, the number of vendors building the devices is expected to shrink. Consequently, one supplier seems to be reaching an important crossroad.

Once the leading smartphone supplier and the company that helped to define and develop the market segment, Palm has recently experienced difficult times. The company's sales plummeted since the introduction of devices such as Apple's iPhone, Google's Android, and Research In Motion's BlackBerry Storm. In its last fiscal quarter, Palm's smartphone sales decreased by 42 percent year over year, which resulted in a $98 million loss for the company. Ouch.

In addition to paring its workforce, the company has focused on designing its next-generation system, the Palm Pre smartphone, which features a touch screen and a new operating system. The device has a standard set of hardware features. Palm Pre has a 3.1-inch display with 320-by-480-pixel resolution, a 3.0-megapixel camera, built-in GPS, and 8 GB of flash storage. The phone works with Sprint Nextel EV-DO Rev. A, has built-in 802.11b/g Wi-Fi and Bluetooth connections, and includes a micro-USB port, USB mass storage support, and a 3.5 mm headphone jack.

Like others vendors, Palm focused on software to differentiate its device. The Palm webOS supports a bevy of Web software standards, including CSS, HTML, XHTML, and JavaScript. The company's goal is to let developers build applications without having to learn a new mobile programming language. Also, the vendor is trying to deliver a simpler experience for customers by layering software to integrate a user's phone experience with the Web. Palm Synergy is one example. The code creates a single, integrated means of tracking and organizing multiple calendars, contacts, and messaging applications. If a user updates a contact on a Palm Pre, Synergy updates the same data on any online account.

As Apple has demonstrated, one other element is needed in a successful product launch: carrier support. Palm paired with Sprint, which will soon begin selling the Pre, but Sprint may not be a very good choice. Like Palm, the carrier has experienced rough times recently. In 2005, Sprint seemed to make a smart move with its acquisition of Nextel, but that decision sent the company in a downward spiral. For a few years, Sprint had trouble integrating the two companies and developing a coherent marketing strategy.

In addition, consumer devices such as Apple's iPhone overwhelmed the cell phone market, and Sprint struggled to maintain its customer base. The company seemingly hit bottom in 2008, when it lost 4 million wireless customers, and many complained about poor customer service. So in effect, a struggling smartphone supplier has teamed up with a downtrodden carrier. Not exactly an intimidating pair, are they?

Perhaps more help for Palm is on the way. AT&T CEO Randall Stephenson stated that the company would be interested in examining the possibility of offering the Palm Pre on its network once Sprint's exclusivity runs out. However, no one is sure how long the Palm/Sprint pact runs, and there's no guarantee that AT&T would pick up the device. In essence, Palm's future is uncertain at the moment.

The company was once the leading smartphone supplier, and many small and midsize businesses still rely on its products. Consequently, they have to be concerned about the company's murky outlook. The Pre is a touchstone product, one that will determine the company's short- and long-term future. Palm wants--and needs--it to be a runaway hit, but that scenario is difficult to envision. The Pre may offer some alluring features, but Palm will probably be overshadowed by Apple's and Google's marketing silhouettes. In addition, RIM has done a good job of meeting the needs of business customers, who traditionally had been Palm's mainstay. Throw Microsoft into the equation, and the difficulties that Palm faces crystallize. The company is fighting hard to rejuvenate itself, but it's difficult to envision a scenario in which it emerges as one of the market's top players. Consequently, small and midsize businesses may want to hold off on purchases of its products for a few months until it becomes clear whether or not the Pre is the game changer that Palm desperately needs.

Paul Korzeniowski is a Sudbury, Mass.-based freelance writer who has been writing about networking issues for two decades. His work has appeared in Business 2.0, Entrepreneur, Investor's Business Daily, Newsweek, and InformationWeek.

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