Palm's Troubles Are Bad News for Microsoft and Nokia

It sure isn't the best of times for Palm (Nasdaq: PALM  ) , not after its revival efforts collapsed faster than you can say "Pixi Plus." But if misery loves company, then Palm might be in luck: I think the company's failings show why Microsoft (Nasdaq: MSFT  ) will eventually join it on the list of firms whose smartphone comeback plans flamed out. And perhaps Nokia (NYSE: NOK  ) as well.

Why Palm came up short
What's especially troubling about Palm's second fall from grace, from the standpoint of a Microsoft or a Nokia, is that no one can blame the company's underwhelming performance on delivering a me-too product that couldn't match up with Apple's (Nasdaq: AAPL  ) , Research In Motion's (Nasdaq: RIMM  ) , and Google's (Nasdaq: GOOG  ) smartphone platforms in terms of features and usability. Palm's webOS operating system won high marks from reviewers for features such as its application previews and cascading notifications, while its flagship Pre smartphone won favorable comparisons to Palm's once-dominant Treo line in terms of hardware/software integration.

And you can't say that Palm blew it because of a lack of buzz: The Pre was one of the biggest headline-grabbers at the 2009 Consumer Electronics Show, and the hype surrounding it sent Palm's shares into the stratosphere. For a few months, anyway.

In the end, Palm came up short because Apple, RIM, and Google had beaten it to the punch in creating advanced smartphone platforms with widespread consumer appeal. Their brand power, mindshare, app stores, and, in RIM's case, enterprise support were just too much for Palm to handle. If Palm had released the Pre a couple of years earlier, things might have turned out differently; by mid-2009, there was just too much ground for the company to make up.

Can Microsoft and Nokia do better?
Now, more than a year after the Pre stole the show at CES, Microsoft is trying to succeed where Palm failed with its oddly named Windows Phone 7 Series operating system. Like Palm with webOS, Microsoft is basically starting from scratch with its new platform: No apps written for its outdated Windows Mobile OS will run on Windows Phone 7. And like Palm, Microsoft has tried hard not to make a me-too product, having given Windows Phone 7 a unique tile-based interface that can show information such as the number of unread emails a user has, rather than just an app icon.

Nokia is trying to do something similar with its upcoming Symbian operating systems. To be fair, Nokia is in much better shape than Microsoft. Market researcher IDC estimated that the company still accounted for 38.2% of global smartphone shipments in the fourth quarter of 2009. But the company's revenue share is undoubtedly much lower, thanks to a relatively low average selling price. And IDC's rosy number sidesteps how Nokia has become a marginal player in North America, and has lost considerable share in Western Europe, where Apple and RIM have made strong inroads. In these well-to-do markets, Nokia is trying to regain lost ground, and it's hoping that the unique features of its new Symbian solutions, such as a customizable interface that can display information such as Facebook status updates, will help it succeed.

Microsoft and Nokia deserve credit for not resigning themselves to further market share losses at the hands of Apple, RIM, and Google, and for showing a willingness to innovate with their latest smartphone platforms. But if Palm's stumbles are any sign, that might not be enough.

Fool contributor Eric Jhonsa has no position in any of the companies mentioned. Microsoft and Nokia are Motley Fool Inside Value picks. Google is a Motley Fool Rule Breakers recommendation. Apple is a Motley Fool Stock Advisor pick. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.


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  • Report this Comment On March 23, 2010, at 3:55 PM, Vercingtorax wrote:

    You should remember that Microsoft knows that the future of computing is in the mobile space and will be willing to spend tons of cash to ensure they end up with a piece of the pie. Just think about how much cash they spent trying to get the Xbox into consumers homes...

  • Report this Comment On March 23, 2010, at 6:12 PM, dirtydroog wrote:

    I think Nokia have a few tricks up their sleeve yet. It is redesigning its business model to concentrate on services rather than just shipping *billions* of devices.

    It is the only player in emerging markets, apart from maybe Chinese counterfeiting operations (people won't put up with exploding batteries for long).

    They also have North America in their sights. The iPhone is a great seller but I can see some consumer fatigue on the horizon.

  • Report this Comment On March 23, 2010, at 8:38 PM, Milligram46 wrote:

    I wouldn't write off Microsoft, and certainly not Nokia yet.

    I also wouldn't put Google in the huge success column, the Nexus One has been a disaster, and that is probably being kind. That isn't to say the whole Android platform is bad or a wreck, they've gained great marketshare; but it is no where near the money making press that AAPL is.

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