News that HP is to buy Palm for $1.2 billion led analysts to tout the company’s threat to Apple in the smartphone market. True, the firm will have strong retailer relationships via HP’s PC franchise, and Palm’s WebOS is a worthy iPhone competitor.
Yet there could be a far more lucrative — if less sexy — alternative. HP should be creating a new market for enterprise smartphone deployment.
HP is a titan in the enterprise computing market. It has a full line of products for the datacenter, is the world’s largest PC maker, recently bought 3Com for its leadership in networking equipment, and has a massive IT services business. Very few other firms have this collection of assets. As enterprises increasingly eye mobile platforms (including Apple’s iPad) for tailored applications, these assets could become very useful. For instance, independent application developers cannot easily integrate their apps with enterprise databases, nor are they set up to create custom deployments of sophisticated apps requiring both mobile device and backend work. Think of a hospital seeking to give physicians immediate, searchable access to radiology images as they do their rounds — this can be technically challenging.
As enterprises begin to think of ways to leverage mobile devices far beyond the apps that exist today, HP can help them imagine what is possible and implement the full solution. This can be a highly lucrative market that would entrench HP in the enterprise much like SAP is in some corporate environments today. Total device volumes may be small at first, but would grow as companies see how much these systems can do. Moreover, it is a new market that HP could own.
An alternative is to challenge Apple through leveraging HP’s strong retailer relationships and Palm’s competencies in creating solid consumer-oriented devices. It will be tempting to compete in the existing, and fast-growing, $100 billion smartphone market. But this will be a costly endeavor, requiring heavy investment in platforms, building of a stronger consumer brand for mobile devices, and generous incentives to channel partners. Moreover, it is an increasingly crowded space that giants like Samsung and Google have little intention of ceding to Steve Jobs. The market’s currently high margins will likely trend downwards. Success may partly rely on scoring fashion hits (as Motorola once did with the RAZR phone) — a fickle business.
The challenge HP will have is weighing the “certain” numbers in the consumer smartphone business vs. the inherent fuzziness of creating a new market. New markets struggle in corporate boardrooms where management wants to grasp onto data-packed slides, vs. envision what does not yet exist. Yet Steve Jobs himself had the courage to go about creating a new market when he launched the iPhone (and the iPod, and the iPad, and the Mac, but that’s another story). Creating a new market is a challenging but potentially highly rewarding decision.
Story by Steve Wunker.