HP/Palm Merger Yields Big Opportunities

1Executive Summary

HP’s recent acquisition of Palm surprised a lot of analysts. Though the company has long held the ability to enter into the mobile segment from a position of strength — what with its global partnerships, the fact that it started the PDA market and the resources it can bring to such a venture — HP has been floundering for years and actively looking for a suitor to take over.

But it may now be rekindling its business, particularly in the mobile space. The big investment by HP to pick up Palm’s webOS platform creates a demand for the company to get a return, and soon.

How serious HP is about getting this return is evident, given two additional acquisitions the company has announced since the Palm deal. First, HP purchased technology from Phoenix Technologies that has direct implications on the development of products with webOS. Phoenix’ HyperSpace technology makes it possible to boot any Windows computer into a second OS for web work. It has primarily been used with Linux as the second OS, but webOS would certainly work with this system.

More recently, HP partnered with video conferencing company Vidyo and stated this had implications for mobile applications. Video chatting is a big feature of the next iPhone, as well as other phones, such as the HTC EVO 4G, so HP’s intention to push into the mobile space with Vidyo seemed clear from the acquisition.

HP will keep Palm around as a separate company, according to information provided in the acquisition announcement, but will almost certainly bring the Palm organization fully into the parent company, and likely within two years. That’s what it did with Compaq, and will likely do the same with Palm.

What makes the opportunities so big with the HP/webOS package is that the platform will cross over into the two hottest mobile segments. Apple made the tablet the device of the moment, and smartphones have already been growing like weeds. These two areas are filled with opportunities for companies with the right plan, and HP is now positioned to be a big player, and possibly a disruptor, in both. Throw in its prominence in the printer space and those opportunities are even bigger. Companies looking to leverage opportunities created by the recent merger had better be talking to HP from the beginning.

The slate is hot

HP has already teamed with Microsoft to tout its HP Slate, even though subsequent criticism about a Windows-based tablet cooled some enthusiasm for the device. The Tablet PC hasn’t gone mainstream, since it’s merely an attempt to put a touch interface on top of a desktop OS (Windows). But producing a tablet with a mobile OS would be a different thing altogether, and HP will be making webOS tablets based on the webOS platform, which will give the company a real shot at becoming serious competitors for the hot iPad. The iPad demonstrates the advantage a tablet has when it uses an OS designed around touch input, and webOS is better with touch than iPhone/iOS4 on the iPad.

The webOS platform under Palm had a problem as the quantity and variety of apps was simply not competitive with the iPhone or Android platforms. While this was a huge negative for Palm, it does create a tremendous opportunity for developers willing to sink resources into an effort to build apps. The app landscape is, in essence, wide open for those who partner with HP, particularly in the new tablet category, a blank slate for apps, as none exist currently.

Productivity apps are a natural fit for touch tablets, as the ability to work with existing documents opens the platform up to both personal and business use. Apps that work with existing cloud storage, such as Google Docs, are also a natural fit. Games present another big potential for developers, as webOS already contains the tools to produce world-class games. While very few have been produced for the Palm line, the landscape is wide open for the ongoing HP webOS platform. Games are big business on the iPhone, and now the iPad, and they represent a good potential for the webOS platform too.

Smartphones are big

HP hasn’t made it clear what it will do in the smartphone area, but it’s a hot segment the company clearly can’t ignore. HP has the resources to make phone hardware much better than the Palm webOS phones, and we should see these hit the market next year. It is not clear that webOS will stand up to the fierce competitors in the smartphone arena. The company has a decent chance though, as HP is one of the biggest players in the computer and mobile spaces. Its network is vast and global, and there is reason to believe HP is big enough to make a go of this webOS endeavor.

The company was a big player in the early PDA/ smartphone space, but squandered that position, due to the dependence on a stagnated third-party platform (Windows Mobile) to power those devices. HP will now control the entire ecosystem on new webOS systems, for both smartphones and tablets. The company owns and controls the development and advancement of the webOS software and it will design and build the hardware on which webOS phones will run. This sets the stage for a big run by HP in both hot device segments. The webOS interface is more advanced that that of the competition, and the platform handles multitasking as well as anything currently on the market.

Hit the print button

There is another area providing good opportunity with the HP webOS efforts, and this is the printer business. Printers are a big part of HP’s total business strategy, and HP will be putting webOS on them. That opens up a wide area of opportunity for those willing to think outside the box. HP will need apps and services to leverage this new webOS printer effort, and the opening for them exists.

Imagine a company’s east coast office needing to copy a document for someone on the west coast. With the right software, the document can be copied on any photocopier and appear on any HP webOS printer world-wide. Now imagine a customer service representative dealing with a customer on the phone and needing to send a document to the caller. With the right software, a simple click on a computer screen can have the document printing on the customer’s own printer immediately. These are just simple examples of the opportunities that exist for those with imagination, but it might be the area with the biggest opportunities, given just how big HP is in the printer business.

Those willing to jump in this new business with HP will be on the ground floor in three of the hottest areas in computing today — tablets, smartphones and printers. It is not often that such potential is simultaneously up for grabs in these areas, and while it’s unclear just how much of a disruptor to other major players these endeavors may be, the worm is huge for early birds willing to take some risk.

Relevant analyst in consumer electronics
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