Understanding Palm: What Ed Colligan really said
About 50 people attended, and while Colligan said some interesting things, an informal breakfast talk is not the sort of place where you deliver major news. But two reporters from the San Jose Mercury News were there, and they had to write about something. So they picked on Colligan's answer to a question about competition from Apple and others entering the mobile phone market. He pointed out that it's hard to make a successful phone product.
Unfortunately, there's no effective way to answer one of those theoretical competitive question when reporters are in the room. If you say, "we're very worried about the new competitors," the headlines will scream, "Palm CEO says company is doomed." If you say you're not concerned, the story will be, "Palm CEO overconfident." I've been there. You can't win.
Sure enough, the Mercury-News headline read, "An Apple phone? Palm CEO says, 'What, me worry?'"
Then, of course, the culture of Internet outrage ran with the story. The high-visibility Mac weblog Daring Fireball (#345 on Technorati's worldwide list) headlined its commentary, "Palm CEO Ed Colligan’s Head Seems to be Stuck Somewhere." No need to read the article; you can tell what it's going to say just from the headline.
There were three ironic things about all of this:
1. The question didn't actually focus on Apple. Colligan was asked about all of the new competitors who might be entering the market: Apple, Google talking about free phones and hiring Andy Rubin of Danger, and so on. "The phone market could look intensely crowded."
Colligan's response: "It's also intensely big, we just have to get our fair share." "Let me tell you this, it's not as easy as it looks." He cited the Motorola Q as an example -- it was supposed to take over the world but didn't. "I just would caution people that think they're going to walk in here and do these.... I don't think it'll be so easy as everybody thinks. It's a tough space...I'm not trying to be cocky about it. It is a tough business. We've really struggled through that." "We struggled for years figuring out how to make a decent phone."
He said making world-class radios that work consistently on world networks with all the right applications is very hard.
I thought that was a pretty nuanced, honest answer to the question. He didn't sound dismissive to me; he was just pointing out that it's hard to make a phone. He's right that until you've lived through the process of producing a phone, you have no idea how many little decisions have to be made, how many things can go wrong, and how many tweaky little features the operators will make you add. Although you might think phone features are standardized, in reality they often require all sorts of small customizations for every operator. That's incredibly expensive to do, the process is hard to learn, and if you fail on even a couple of small things the operator may refuse to sell your phone. It's several times more complex than creating a PC, and I believe no company can easily ace all of that stuff on the first try.
2. Even if that had been the question, it was the wrong question. The Treo is an e-mail phone for people who want business productivity. If Apple's making an iPhone, it'll be a music phone for people who want entertainment. Those are completely different markets. If you think there's a huge competitive overlap between them then you've got your head stuck someplace. (Colligan didn't say that, but I wish he had.)
3. The competitive comment was not the most interesting part of the talk. Not even close, in my opinion.
If you want to hear the whole speech, you can listen to it here. Or if you want to save an hour of MP3 time, below is my summary of what I heard, with some color on what I think it means. (Most of what follows is paraphrased. The text in quotes is pretty close to what he said, but I probably missed a few words here and there. My comments are in italics.)
My nomination for Colligan's most important quote. "We're not in the handset business, we're in the mobile computing business....Voice is a killer app of the future of mobile computing. That's how we look at the world."
Think about that for a while. It's not as newsy as an imaginary cheap shot at Apple, but that quote says everything you really need to know about Palm: Mobile computing first, voice telephony second, and if you don't want that you should buy something else. I can tell you from personal experience that's how most of the folks at Palm really think.
Technologies and trends
Eric Schmidt of Google says that in the future cell phones will be free and ad-supported. Do you believe it? "Everything in the world looks like an ad" to Eric because he's in the business of selling ads. Google sees a phone as a great way to target ads, but the phone is one of the few private spaces left. People may resist intrusions there. The ads will have to be incredibly creative in order to be accepted.
Colligan then branched to a discussion of Google Maps on the Treo, which he says is a great application. He wants to use it to look up nearby pizza restaurants and then phone an order to one of them automatically. He was very enthusiastic about this sort of functionality.
On voice over IP. People don't want to give up the ability to use the phone anywhere. He's skeptical that there will be enough coverage to make WiFi phones a replacement for cellular anytime soon. "Maybe on college campuses." Mesh networks will take a long time to deploy.
What's the market for video on mobiles? Short clips, a la carte selection. I agree. I can picture people watching short YouTube-style content on a mobile a lot more readily than a half-hour TV show. It's bon-bons, not a full meal. Mobile games are the same way -- quick reward, nothing too involved. That's why Bejeweled has been so successful.
On 3G. He loves EVDO. It's very fast. Less enthusiastic about UMTS – it's more of an incremental bump in performance, but there are latency problems. You need HSDPA to get reasonable performance.
About the iPhone. The rumor mill says that Apple will produce an unlocked GSM/GPRS phone sold at retail, so users can buy phone service separately and slip their SIM card into the phone. Colligan said he thought that would be very difficult to sell, that the only approach in the US if you don't want to sell through the operators is to focus on WiFi only. Did he have some inside information on what Apple's doing? Was he trying to seed some skepticism about Apple's product? Was he talking about what a non-operator Palm product would be like? Or was he just trying to answer honestly? I don't know.
On the Motorola Q. (The general tone of rumors around the mobile industry is that the Q is a failure, with low sell-through and lots of returns. Colligan did nothing to contradict those rumors.) Integrating a whole mobile computer and OS is difficult. Also, it's nice to make a thin product, but not if you make the battery so small that the device can't get through a day's use. It's hard to balance all the features and user experience and get them all right. "I think they got some of those things wrong."
Are we in another tech bubble? Things are exuberant, but not irrationally so. There's not too much excess yet. But there is too much money chasing too few ideas. "I look at the traffic patterns" on Bay Area freeways, and traffic has been getting worse. That means the economy is heating up.
About the operators
On mobile phone subsidies paid by the operators. He wishes subsidies would go away. He would prefer to sell through retail rather than through operators. "I love retail. We have a huge retail presence. We'd love to have the retailers have more power." He wants to compete head to head with other device companies without the operators saying what features to put on the device.
But on the other hand, he said, the operators spend a lot of money advertising your products, which is a good thing.
European vs. US operators. Coverage is better in Europe. "In Europe, nobody says, 'how many bars do you have?'" In Europe there's one mobile technology, and more operators. The US is split between two phone technologies, and has fewer operators.
Will the operators lose control over the market? "The sentry breaks down over time." I thought that was a nice zen-like way of saying "yes." He avoided a Mercury-News headline screaming "Palm says carriers are doomed," which would not have helped him sell Treos.
He went on to contrast the PC model (open gardens) vs. the videogame platform model (apps controlled by the vendor). Who's to say which one will do better in phones long term, he asked.
Working with Microsoft
About Microsoft. Windows Mobile is "becoming a bigger and bigger part of our business." They are very good launch partners. "They are great the day you come out...beyond my wildest dreams." (He implied that Microsoft is a lot less helpful after you've launched.) The relationship has been difficult to develop because Palm actually partners with Microsoft at an engineering level, which most Microsoft customers don't do.
Do you worry about Microsoft being a monopolist in phones? "No. Not in this space. There are so many countervailing forces that they'll never get to that position."
Is Palm OS easier to use than Windows Mobile? "I think David Pogue is right" that Palm OS is easier. But it's a matter of customer choice; some people like the Start button. He wants to create a situation where a Windows user chooses the OS platform he wants, looks for the best device on that platform, and finds that "Palm makes the best Windows product."
On Palm and its future
Future Treo products. Palm is working on products that will combine WiFi and cellular. "Stay tuned." I took that to mean a Treo with WiFi built in. I hope the operators will be willing to sell it.
Beyond smartphones. "Are there are other segments of the market that we could go after with new designs and new form factors and are we going to do that? Sure. Absolutely."
"We're a mobile computing company...so you can expect us to do more products...that leverage the fact that every one of you is going to have a broadband modem in your pocket which is instantly accessible to the Internet and the outside world. We think that's a pretty cool thing and we're working on products that take advantage of that."
"They (users) have a high-speed connection...to their pocket...Boy, is there things we can deliver to them, and is there compelling experiences that we can deliver to them, that are going to help us differentiate our products? I think there are, and we're working on things like that."
Same vague hints that Palm has been giving for a year: Broadband modem, lots of local storage, think what we could do for that. What I think I'm hearing is: A mobile product with WiFi, which Palm pairs with Web services that deliver content and do other things for the user. I wish I knew what those things are -- that'll be the interesting part.
Do Palm PDAs (no phone built in) have a future? It's been shrinking, because we've been cannibalizing it with the Treo. But it's still a $300 million business. My translation: We'll keep offering them as long as people buy. But we're not putting a lot of energy into them.
On the LifeDrive: "Too big, too late to the game" compared to iPod. Wow, if they expected that thing to compete with the iPod, they were even more naive than I thought. They didn't have the iTunes-like service, and they tried to be all things to all people. I hoped they learned the right lessons for their next generation products.
Is Linux in Palm's future? We look at Linux as being an interesting community to leverage. (He then branched to a discussion of Palm OS.) There are a lot of users who have loyalty to Palm OS and love it. "We want to take the Palm OS forward." That little quote makes a lot more sense now that we know he was in the process of buying rights to Palm OS Garnet. But what does he mean by leveraging the Linux community?
Is Palm for sale? Companies don't get sold, they get bought. We're trying to execute against a brand, to build a great brand. I think the implication was: 'we're not trying actively to sell ourselves, but we're publicly traded and would have to listen if somebody offered a bunch of money over the market price.' I have heard companies be a lot more vehement about "we're not for sale." So I'd call this a non-denial denial. Or maybe he was just trying to be polite.
Required reading for Palm executives. Colligan is having the Palm executive team read the book "From Good to Great" because it focuses on execution and is very practical. "What we need to do better is disciplined execution." (Shortly after his talk, Palm announced that it would have an earnings shortfall because a product was coming to market late. So you can understand why he's focused on execution.)
That's it. Nothing revolutionary, but I think it does help you understand the company. Like it or hate it, they really don't see themselves as a mobile phone company. They are a mobile computing company, and telephony is just a part of mobile computing. A lot of my phone-centric friends in Europe are going to throw up all over that idea, but I kind of respect it. I think Palm is not big enough to win as a mobile phone company, but as a mobile computing company it's a world leader.
The question is whether they can develop mobile computing into something distinct enough to stand as its own category. The jury's still out on that. I think a lot will depend on what they release in 2007. If they can establish a new product line beyond phones, they'll have a much better chance. If they can't...well, we'll find out how patient their investors are.
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