I can't let my friend Rick Munarriz's defense of Hewlett-Packard's (NYSE: HPQ) $1.2 billion purchase of Palm (Nasdaq: PALM) and its WebOS technology go unanswered. This was and still is a bad deal, because money alone won't fix the one-time head of the handheld computing market.

Developers are Palm's real problem. They won't abandon Apple's (Nasdaq: AAPL) iPhone OS -- or, for that matter, BlackBerry or Symbian, which collectively power most of the world's smartphones -- for webOS. The meager installed base of Palm handsets means the opportunity to make money with WebOS is far too small.

Apple, meanwhile, is contributing to the problem, by making it difficult for developers to spend time writing for anything other than its iPhone OS. To attract coders to WebOS, HP would have to either:

  • Geometrically increase the number of smartphones Palm sells, creating an acceptably large installed base.
  • Put WebOS in a new device where competition is still emerging, such as a tablet.
  • Adopt WebOS for products where HP already has a massive installed base, such as PCs and printers.

All three are options, but the second and third are more likely than the first. Were HP to redefine what WebOS is for, it could work to the company's advantage and to investors' delight. But I'm still skeptical. Here's why.

Cry havoc and let slip the tablets of war
HP will find it difficult to compete for tablet customers. Apple has already sold 1 million iPads, including 300,000 3G tablets during its first weekend of release. The message? Consumers want to take the device with them wherever they are, if not as a laptop replacement, then as a gaming platform and library. AT&T (NYSE: T) should collect millions in monthly fees from these on-the-go content consumers.

There's also Amazon.com. Say what you will about the Kindle, but it's still one of the market's most popular e-readers. Today's tablets -- even the iPad -- are readers first, platforms second. HP won't convert Kindle purists any more than the iPad did.

Yet over time, developers will become the kingmakers of the tablet market, as they have in the smartphone market. They'll go where the sales are, and that's a huge problem. Apple's iPhone app ecosystem is already feeding the iPad. And Google (Nasdaq: GOOG), if it makes good on rumors to introduce its own Android tablet in concert with Verizon (NYSE: VZ), would also have thousands of apps available to buyers.

HP has a chicken-egg problem in smartphones and tablets. Only a large installed base can attract developers, but only great apps (or a gimmick) can build a substantial installed base.

Bye bye, Mr. Softy?
Hewlett-Packard CEO Mark Hurd said during his last earnings call with analysts that his company has no plans to abandon Windows in its products. But he also said that analysts should watch for unique ways for WebOS to add value to HP's offerings -- even printers, believe it or not.

But the bigger opportunity here lies in PCs and netbooks. Just as Google plans for its forthcoming Chrome OS to power netbooks, HP could create its own line of WebOS-powered models to go along with the Windows versions it already sells.

Even crazier, HP could build WebOS into a full computer operating system. Any such plans would make Microsoft (Nasdaq: MSFT) crazy, of course. But HP is the PC market leader. Developers would have no choice but to pay attention. They'd write code for WebOS, if only because failing to do so could mean missing out on selling software to millions of consumers.

But in the end, even HP is limited in the installed-base stimulus it could give WebOS. Windows has such a long history, and is so deeply entrenched as the Operating System of Record for Corporate America, that HP would have to spend most of its time and resources building and selling Windows PCs. And that brings us back to HP smartphones and tablets as the most natural targets for WebOS.

Now for the good news
To be fair. HP has a good history with shepherding operating systems. HP-UX is widely considered one of the better implementations of the Unix operating system, and it persists to this day. What HP does with HP-UX, it can do with WebOS.

But the company will have to be more aggressive than it was when it birthed HP-UX, if only because the computing industry moves faster today than it did when that OS was first released. HP needs to do something dramatic to create a massive installed base of WebOS smartphones and tablets, and soon.

My advice: Give away the Pre. Sign a deal with Verizon in which users, in exchange for a modest activation fee and a two-year contract, would get a free Palm Pre. HP would supply the hardware, which already isn't selling, and developers would get millions of new reasons to write code for WebOS. Better still, HP's own coders would get two years to upgrade the software they'll inherit from Palm.

It's a crazy idea, I know. But in spending $1.2 billion, HP has made what amounts to a crazy all-in bet on WebOS. Dramatic action is the only plan that makes sense.

How would you increase adoption of WebOS if you were Mark Hurd, CEO of Hewlett-Packard? Discuss in the comments box below.