Endeavour Partners - Blog

We’ve already noted that despite the excellence of WebOS, Palm needs strong support to become a credible platform player, competing with the likes of Apple, RIM, Android, Nokia/Symbian/Ovi and even (because it might do something radical) Microsoft with WinMo.

The point is now not lost on even the analyst community (Kaufman Sets Hold Rating; Many Possible Suitors), who’ve identified several options:

“…potential suitors include Nokia, Samsung, LG, Motorola, Hewlett-Packard, Cisco, Microsoft and Dell.”

Let’s leave aside the question of why buy now, when in December Palm was trading at less than one-tenth of its current value with a market cap below $200 million, the value of Palm is in WebOS and its US presence, not the Pre, so let’s take a look:

Nokia – already bought and paid for Trolltech, and has Maemo – not likely, unless its struggles in the US make Palm worthwhile for that alone

Samsung or LG – {neutral | non-aligned | independent} device players – very hardware-focused – do they want to transform their business model become a platform player with WebOS, competing against Android and Microsoft rather than collaborating with them, or trying to co-exist?

Motorola – too many of its own issues, also already stronger in US than elsewhere

HP or Dell – clearly want to build positions in smartphones from their personal computer position, could they re-focus WebOS development in the right direction?

Microsoft – not unless or until it admits (to itself, most of all) that WinMo’s not going to get it there…

Cisco – the wildcard, perhaps as the basis for entry into smartphones as they become a key element of the the interwebs

So, one of the most interesting questions about the smartphone marketplace is what will Microsoft do? WinMo is weak and late. OK, some the hardware is sexy, such as Sony Ericsson’s X1, but this won’t be enough to enable it to remain relevant in the face of the onslaught from Apple and RIM and Android. Possibilities abound:

• launch its own device?
• overhaul WinMo completely?
• buy a device company (HTC or Microsoft or Palm)?
• buy a platform players (Palm or RIM)?

Recent rumors suggest it may do its own device; and that this is what the Danger, Inc. team have been up to Microsoft Moves Office to JWT From McCann

There’s a lot of buzz about apps for smartphones. Not all apps are created equal, however, particularly when it comes to making money from them as a developer.

And that matters to platform players (Apple, RIM, Android, Nokia/Symbian/Ovi, MSFT/WinMo and Palm/WebOS) and device vendors (Apple, RIM, Nokia, Samsung, Sony Ericsson, LG, HTC and Motorola) because apps matter to consumers, and the choices that developers make will play a big part in which platforms win.

For the core apps like mail, messaging and browsing, their importance and economics means that platform players or device vendors have to deliver a great experience, they’ll be prepared to spend $/€ millions to do so, and they’ll give them away for free. That’ll make it difficult or impossible to compete against them. The world does not need another mobile browser company.

There’s a related category where other big businesses will also seek a presence on a platform, such as the iPhone, because of the payoff to their wider online or offline business, through for example increased brand awareness or reach. Think Amazon, Barnes & Noble or BA Flights (Yes, I’m a transatlantic bibliophile).

At the other end of the scale there will be a gazillion applets or widgets. It’ll be really hard to make money from these, because customers expect them to be free, and they’re often the fruit of individual developers scratching their own (sometimes idiosyncratic or even idiotic) itch. Maybe a little advertising money, but on a small screen, even a smartphone’s high resolution version, there’s a limited window for this. Perhaps if contextual information about who and where and what can be used, the value of a click-through can be raised, if privacy concerns can be addressed effectively.

In the middle, there seem to be two possibilities:

1. focused apps targeting a well-defined and stable job that people want to get done, and whose utility and usability is high enough that people will pay a few $/€ for them, but which are not so universal that they get bundled into the core and given away for free
2. infotainment apps, that can be renewed and replaced, fueling our insatiable appetite for amusement, such as games

There’s some really interesting analysis by ChubbyBrain (The iPhone Inspired 2nd Economy: Over $100 Million Goes from VCs to iPhone Startups) which estimates that $100 million in venture funding has already gone to iPhone apps insurgents in the middle of the spectrum. These are business for whom the apps are the core of their business rather than a complement to it, between established businesses that can fund iPhone app development themselves, and individual developers.

The three biggest categories, both by numbers of companies, and by amount invested:

• gaming and entertainment
• information provider
• social networking

Yup, it’s all about amusing ourselves.

Interestingly, this is also why the economics of video are so different from the economics of music.

With the dawn of the superphone, where is Microsoft? – FierceWireless

In a post on FierceWireless about smartphones (which he tags superphones), Stephen Drake poses the question that many of us are wondering about – what is Microsoft going to do?

It seems to me, however, that although it’s the right question, he’s missing the point, focusing on aesthetics and hardware, rather than on ease of use and software.

He characterizes these smartphones (or ’superphones’) as a:

“…high-end device class characterized by its ‘wow factor,’ a real or perceived buying frenzy, or an otherwise stylish, functional and pretty-to-look-at device…”.

While aesthetics matter, as hardware features, functions and form factor continue to be difficult but do not any longer differentiate, he completely misses the single most important factor: the user experience.

Talking about the Pre, he focuses on its: “…multi-touch capabilities and beautiful interface…”, hardware and aesthetics, when what matters about the Pre is WebOS. And the apps. Or lack of them.

When he comes to Microsoft, he asks where is “… the iconic, shiny device that users have coveted….” There are iconic, shiny devices: Sony Ericsson’s Xperia X1 for example, but WinMo just isn’t there.

Yes, aesthetics matter, but much less so than first ease of use, then the ecosystem (apps and content), both of which outweigh elegance.

Unless and until Microsoft can deliver the usability that customers are coming to expect from Apple, Android and Palm, it will remain uncompetitive.

Tragically, although this should have been apparent since before the launch of the iPhone, as Andy Lees put it at the announcement in Barcelona in February of the forthcoming 6.5 release:

“…[the user interface] seemed less important…”