Palm Pre-view: A product worth the hype?

This weekend will see the launch of the Palm (NASDAQ:PAL:M) Pre, Sprint’s (NYSE:S) exclusive new smartphone on which both Sprint and Palm are counting to reverse the carrier’s subscriber losses and restore the struggling handset maker’s market share. The phone has received as much – if not more – hype than Apple’s (NASDAQ:APPL) iPhone, raising the question of whether it can live up to the hype. Yet with dozens of initial reviews in, the consensus is that the device coupled with Palm’s new operating system, webOS, are more than up for the challenge.

“Generally speaking, I think they’ve done it,” said John Jackson, research vice president for CCS Insight. “Hype is a tough thing to match with product, and this thing has been as hyped as anything comparable in recent memory. We’ve known its coming for awhile. There’s been ample opportunity for it to get ahead of itself, but they’ve done a great job meeting and exceeding the market’s expectations and even the technocrati for whom the bar has been set high.”

Palm is coming off a rough first quarter as its old OS nears obsolescence and consumers waited for the launch of its new Linux-based OS, webOS. Rebuilt from scratch, it draws on Palm’s roots in personal information management and synchronization, but with a focus on the Web. It includes media-synching features that connect users with iTunes, letting users transfer their DRM-free music, video and photos to the Pre as if it were an iPod, as well as store other side-loaded content. Its universal search feature, which also integrates Twitter, lets consumers search for a contact, location or keyword across any number of Web-based applications and services.

The user interface is on par with the iPhone with respect to its swiping, pinching and zooming capabilities, but where it exceeds it is in the ability multitask, said the NPD Group's wireless analyst Ross Rubin. “While a lot of operating systems have had multitasking for years, none has presented it in as visual a way and in as discoverable a way as WebOS does,” he added. More than anything, it is this ability to aggregate content from multiple social networks, Web sites and address books on a single, modern UI that will set the handset apart.

“If you think about Palm, the first thing you think about is PDAs, personal-information management,” said Current Analysis research director Avi Greengart in an interview at the Pre’s unveiling. “What they are doing now is personal-information management in an era where that information may reside in multiple places. It really fits well with their brand and yet it is something no one else is doing in quite the same way.”

At launch, the Palm app store is not fully stocked, but the Beta version includes apps from developers including AP News, Citysearch, Fandango, Pandora and uLocate. ABI Research director Kevin Burden said he’s confident the app store will ramp up quickly, and Jackson added that even if it doesn’t match Apple’s nearly 50,000 apps, there won’t be a utility gap as it covers the front-end of the long-tail of apps that consumers want.
“It’s no secret that a lot of Palm’s future is predicated on the success of this phone,” Burden said. “A lot of people have been waiting for this phone, and developers want to build applications for phones that people are excited about.”
THE SPRINT FACTOR

Palm, and more acutely, Sprint do have factors working against them. Apple’s Worldwide Developers Conference will commence in San Francisco on Monday with a new version of the iPhone potentially in the works that might give consumers cause to wait. More significantly, however, is that Verizon has said it will carry the Pre once Sprint’ exclusive partnership is over, and AT&T has indicated interest in doing the same. Palm hasn’t said much about its plans to go beyond Sprint, but the webOS and Pre have nothing tying it to Sprint’s network, Burden said.

“Of course, because Palm only sells handsets, it can’t draw on revenue from other types of product categories like Apple can,” he added. “It really needs a lot of volume out of the Pre. It has to go to multiple carriers.”

Sprint does, however, have a much larger 3G footprint than AT&T and especially T-Mobile, Greengart noted. If the Pre does well on Sprint, it could illustrate the relative strength of Sprint’s EV-DO. Sprint also won’t likely experience the same activation problems that AT&T did as the Pre self-activates. The carrier has, however, indicated that a shortage of devices is imminent. Sprint CEO Dan Hesse at one point said he expected a waiting list, although Sprint later backtracked saying they don’t anticipate – nor want – long lines for the phone. Best Buy, on the other hand, is counting on them, according to Scott Moore, director of marketing at Best Buy Mobile.
The retailer is offering the handset at $199 without requiring a mail-in rebate, making it the destination of choice for many consumers. Moore wouldn’t say how many Pres each store would get, but Burden predicted only between two and 20. The reason for the low number could be that Sprint and Palm are trying to create a ‘forbidden fruit’ scenario, but it could also have the opposite effect of causing Wall Street to doubt Palm’s readiness, Burden said.

“With so much importance on a successful launch, if Palm’s not ready for the inventory, what does it say for Palm’s longevity and ability to keep up?” Burden asked. “It could go two ways. It could fall on Palm’s side or be a black mark on them. For as long as it’s taken to get it out, if they weren’t ready, it’s a sign of poor supply chain management and so forth. The other side is you really want this demand for a phone that is so hard to get.”

While Palm as a brand has been struggling in recent quarters, the Palm name has proven to be a huge selling point of the Pre. Rather than write the brand off, the industry has been waiting for a new Palm device that could recapture their heritage it seems to have lost, Burden said. This heritage is rooted in elegant simplicity and that is what Palm has done exceedingly well with the Pre, he said. Jackson added that as proves true with most handsets, the warts will come out, but for a version-one phone, it already has the potential to be a landmark device.

“It tastefully and unobtrusively presents things to you from your connected life that enhances your utility,” Jackson said. “I have to say the product is just extremely elegant. For a version one, it’s very well done.”