Admitting Failure, Palm Seeks a Buyer

PDA and smartphone pioneer Palm is exploring a sale of the company a year after its much-hyped Pre phone and WebOS failed to take off in the marketplace. The company has hired investment bankers to help it find a suitor.

Palm, of course, ignited the global markets for both PDAs and smartphones, first with its hand-held Pilot device and then later with the Treo smartphone, the latter of which was initially created by former Palm employees at Handspring before being folded back into Palm. But despite its early successes, Palm has stumbled in recent years, offering only minor product updates and losing usage share to more aggressive competitors like Apple and RIM.

Last year, Palm tried to jumpstart its flagging fortunes by delivering the innovative WebOS-based Pre and, a bit later, the smaller Pixi. Despite positive reviews, neither smartphone was a success, in part because they were only offered through Sprint, a second-tier wireless carrier. And by the time updated versions of the devices showed up on the more desirable Verizon Wireless network earlier this year, it was, perhaps, too late.

Palm stock surged 17 percent to $6 on news of a possible acquisition. But that's still well below the $18 that Palm shares were selling at when WebOS was announced last year.

And while some may scoff at the notion of any competitor wanting Palm—Apple, Microsoft, RIM, and others all have major mobile platforms of their own—the company does own a compelling intellectual property portfolio that could come in handy in the future, especially in what is likely to be a damaging round of mobility-based patent court cases involving various major players in the industry. Some have suggested that companies like Dell and HTC, both of which make handsets but lack their own software platforms, could be ideal buyers.

A more likely scenario is that Palm's technology either disappears entirely or is blended into an existing platform. As smartphone platforms mature and start copying features from each other—witness Apple's me-too iPhone OS 4 plans—it's likely that consumers and businesses will rally around a small selection of core brands. In the United States, that currently looks to be Apple iPhone, Google Android, RIM Blackberry, and Microsoft Windows Phone. And in Europe, Nokia will remain a major player for some time as well.

This market maturation will lead to consolidation as well as commoditization, with prices dropping both for handsets and for the data plans that make them useful. And in such a market, fringe players like Palm—companies that have no cash and no way to market their products effectively—simply can't compete, no matter their pedigree.