Endeavour Partners

As executives, analysts, and advisors we spend a lot of time arguing about metrics and data, and where we need to be to survive and thrive in the market place.  An old joke reminds us that relative performance is all that really matters:

Two hikers are cornered by a bear and climb a tree.  One of the hikers reaches into his backpack, pulls out a pair of running sneakers and starts lacing up.  The other says, “What are you doing?”

“I figure we will have to jump down from here eventually.” says the first.

“But you will never be able to outrun the bear,” says the second.

“True.  But I figure all I really have to do is out run you.”

We are bombarded with random statistics on companies and products and financial performance, but it is important to realize that context matters:

• who are the key competitors?
• what is the real playing field on which we are competing?

Getting the right basis for comparison is critical to both understanding current performance, and to deciding what to do to improve future performance.

There is currently a great deal of interest in Apple’s iPhone and the Palm Pre and comparisons abound regarding sales and usage figures.  Most of these comparisons are confusing and not terribly helpful.

For instance, the Palm Pre sold around 370,000 units in its first month of sales while the new iPhone 3GS sold roughly 1 million units in its first weekend.  iPhone users have downloaded over 1 billion applications while Palm Pre users have only downloaded about 1 million.  Clearly the iPhone 3GS is outperforming the Palm Pre on an absolute basis, but does this make the Palm Pre a failure?  What are the right measures to make an ‘apples-to-apples’ comparison?

Some additional information and framing can help us decide:

• the Palm Pre is supported by Sprint (49M subscribers) in the US while the iPhone is supported by AT&T (62M subscribers) – and Sprint has been losing subscribers while AT&T has been growing them
• the iPhone is available in 88 countries while the Palm Pre is available in only one (although it will soon launch in several others)
• the iPhone 3GS is a third generation product while the Palm Pre is a first generation product

While looking at raw recent sales statistics the iPhone 3GS has nearly a 30x advantage over the Palm Pre, but comparing the Pre against the first generation iPhone and viewing these statistics on a cumulative basis since launch, the Pre looks much better:

Palm Pre on track for strong growth

Even more compelling, however, is a comparison of one quarter of projected Palm Pre sales vs. Sprint’s prior quarter subscriber net losses.  The Palm Pre represents a radical change in outlook for Sprint, perhaps singlehandedly moving them back into subscriber growth:

The Palm Pre has the chance to singlehandedly move Sprint back into positive growth

Roughly 34% of Palm Pre buyers have been new customers to Sprint, similar to the iPhone’s 30-40% new to AT&T numbers reported at this stage.  But much more importantly, the other 66% of Pre buyers stayed with Sprint while upgrading devices rather than switching away from Sprint to other networks for an iPhone (AT&T), Blackberry Storm or Tour (Verizon), or Android G1 (T-Mobile).

It’s early days, but at least so far the Pre is doing better for Sprint than the iPhone was for AT&T at the same time. Longer term, Palm faces significant strategic challenges in building its ecosystem and attracting application developers.