HP/Palm Ecosystem Has One Chance for Success

by: Jason Schwarz

Being a one trick pony doesn’t cut it anymore. If you can’t provide my PC, my laptop, my tablet, my smartphone and my software solutions, then you’re just a commodity without any real pricing power.

HP (NYSE:HPQ) was sick of being just another commodity so they went out and bought Palm (PALM) with hopes of creating a valuable ecosystem of their own. Consumers demand the ability to utilize the same software on multiple devices. When I purchase a mobile app, it better be available on my phone and my tablet as well as on my next phone and my next tablet. It’s this software continuity that creates brand loyalty. Apps will soon be available for use on televisions and PC’s as well. This wirelessly distributed software is on a growth trajectory to one day overtake the popularity of websites. HP has been watching this evolution occur without being a major player in it. Now they are. Or at least they hope they are.

Palm offers just over 1000 apps for their lineup of smartphones compared to 40,000 apps for Android and 180,000 apps for the Apple App Store (NASDAQ:AAPL). HP gets the Palm smartphone brand, the OS, and the patents to add to their successful line of laptops and PCs.

The obstacle with the Palm brand is that it has already been beaten out by Android as the open source competitor to the iPhone. HP is going to have to put together an enticing package to get developers to expand the app offerings on this HP/Palm platform. If I were the CEO of HP I would rush to get these mobile apps compatible with laptops, PCs, and televisions before Apple, Google (NASDAQ:GOOG), or Microsoft (NASDAQ:MSFT). Merely playing catch up won’t get the job done. They have to catapult ahead of the competition if they want to secure a spot on the ecosystem leaderboard.

Can they do it? Should we buy HP stock? Not yet. Resurrecting the Palm brand in such a crowded market is not a sure thing but I do think the synergy of the two companies will make each of them stronger. The days of stand alone phone companies or stand alone computer companies are coming to an end. I expect we will see a lot of consolidation within the industry over the next two years.

Without an ecosystem there is no brand loyalty and without brand loyalty there is no sustainability.

Disclosure: Author holds a long position in AAPL