Palm must build great accessories to survive

Palm is in a tough situation. As reported widely, Palm's operating results are beginning to cast doubt about the viability of the company. There is no easy solution for the company, but a series of tough measures and creative development efforts can turn things around.

Palm makes a number of smart phones, notably the Palm Pre Plus and the Palm Pixie Plus [Disclaimer: I am a very happy owner of a Motorola Droid, but have owned Palm devices since the original Palm Pilot]. The Palm phones incorporated a large number of innovations, from wireless charging to sleek styling, but the market for smart phones is very competitive these days. Palm made a number of missteps in entering the market, from bad timing to baffling advertisements. Now, Palm finds itself in a crisis that may leave it unable to survive: the channel is full of aging stock, losses are mounting, and the economy shows no signs of rescuing the company.

How Can Palm Survive?

How can Palm survive, with all these issues in front of it? And why do I think I have any answers for them? I've been following Palm since the US Robotics days of the Palm Pilot, and owned many Palm devices, from the awful Treo 300 to the wonderful Tungsten TX. I was also CEO of OQO, the mobile gadget company that made sleek, stylish, powerful handheld computers. We faced, and failed to overcome, some of the same issues Palm now faces and must overcome if it is to survive. Other companies, such as Apple Computer, have faced similar problems, and gone on to greatness, and so can Palm.

Cash

First off, Palm has to survive, and that means it has to have enough cash to continue operations. The company must cut expenses ruthlessly. The company must also ensure that it has access to capital if necessary, even if it dilutes the current owners. Also, the company should aggressively focus on identifying and eliminating every source of warranty repair claims - this will help it improve current operating margins, as well as help it build a reputation for quality, and create some IP around design for quality that will help it with future products.

Second, Palm has to find a way through its problems - chief among them is getting through the inventory on hand, finding a growth segment (or a collection of growth segments) it can better serve than other smartphone options, and creating a product pipeline that will not suffer the same problems as the current lineup.

Accessories

There is very little difference from one leading edge smartphone to the next - touch screens, video, camera, applications. iPhone phanboyz will tell you that there are more apps for the iPhone, but realistically any good app is available for all platforms (except the Google apps, which are pretty much only available on the Droid now). Smartphones are not really distinguished by functionality or cost any longer. Now, they are pretty much distinguished by the markets they target. iPhones are for those who view themselves as hip, urban, and elite. Blackberry's are for wonks and businessmen (and heavy text messagers). Droids are for supergeeks. Who are Palms for?

All this is to say that phones are now accessories, like handbags or shoes. They say something about you. Palm needs to find a target market segment that is underserved with the current competitors, and do a great job of meeting their needs. Looking at its assets, we see a stylish phone with a few interesting accessories, with a built-in keyboard, and with a relatively powerful operating system. To whom could this phone appeal? We can speculate:

• Corporate executives
• Bloggers and other social media aficionados
  
• IT workers
• Customer-facing mobile workers
• Students and mobile gamers who don't want to live with the restrictions
  Apple forces on them

Regardless of what we can speculate, Palm needs to do hard research, and then follow through with the programs that appeal to these users.

Also, as this is a relatively short-range problem Palm must solve, it must do so without large new product R&D investments and without a new line-up of smartphones. Palm's options are pretty much limited to adding new channels (e.g., new countries and carriers) and introducing new accessories.

Accessories are an option Palm should explore. First off, accessories can be sold directly or through the channel, at very high margins compared to phones. Second, accessories can be brought to market more quickly than new phones, at very low R&D effort. Third, accessories can be exactly the customization Palm needs to appeal to chosen market segments - rugged cases, attached printers and scanners, executive cases, waterproof cases, customized cases showing the owner's twitter name, etc. Finally, if designed properly, accessories can be made to create a "system effect," if they are upwardly compatible with new Palm phones. This can encourage buyers to upgrade to new phones when available.

Summary

Palm needs to get serious about its future - reduce burn, reduce channel glut, create a defensible "core" market segment it can own and grow, and develop products that serve that core segment better than others in the future (accessories and new phones as well). Palm has always had a special kind of magic - Apple's cool with Google's geek chic. If Palm can make it through its current tough times, we can hope for a return to the kind of creativity and innovation that made it special in the good old days.