Read My Lips: We Are Not Walking Away from WebOS

Today comes news leaked from an internal HP all hands meeting that the company is not abandoning WebOS, 15 months after acquiring it for $1.2 billion. This is how we get all our news about HP these days, leaked memos and meeting soundbites.

Watch for two main arguments being presented, the first by the tech pundit community and the second by HP itself in an effort to salvage whatever dignity remains after spending a lot of money on an acquisition that many people, including myself, said makes sense but then completely failing on the follow through.

First the tech pundits, who are centering on the IP is the main asset argument. In light of Googola that’s all we have been talking about for 2 weeks, right? So this simply has to be a no brainer for why WebOS is worth buckets of money… well maybe buckets of loose change.

It may well be that the remnants of Palm are sold off as a patent library but I have an impossibly hard time believing they will salvage even a symbolic victory from this. Estimates put HP’s acquired patent library at about 1,700 and for the sake of argument we can assume that they are predominately in the smartphone arena given Palm’s history.

Let’s say that 25% of those patents are coming up on end of life and another 25% are highly specific to Palm’s early devices and no longer relevant. So we’ll discount it by half and using Google per-per-patent benchmark of $550k per patent we arrive at a valuation of $467m, which is really dependent upon there being some competitive bidding for the assets otherwise it’s a complete fire sale. Not chump change but certainly a black eye for HP considering how much they paid for Palm last year, and then supported it through where we are today.

We also hear talk of licensing the WebOS… really? HP expects us to believe that HTC and Samsung are going to license an OS for which there is little app support, runs on hardware they don’t use (Qualcomm), is directly competitive with their other partners, predominately Android and Microsoft, and for which no hardware market success has been demonstrated? That’s the strategy?

I’m going to go out on the limb and just say right now that we have seen the last of WebOS (and when they go on clearance at Best Buy I am going to be in line to get one!).

HP and Palm, Beyond Smart Phones

Enough has been written about HP acquiring Palm that I don’t think it’s that newsworthy today… however something has been bouncing around my hamster cage since reading the coverage yesterday that I’m not ready to let it go.

Maybe this isn’t about smart phones at all? Put another way, of course this is about smart phones but maybe the value of Palm to HP goes way beyond smart phones. Arguably the two assets that Palm has which are worth something are the credibility of the Palm brand and the critically acclaimed (by geeks that is) WebOS. As Apple and Google have proved with the iPhone OS and Android respectively, there is nothing about these platform operating systems that requires a voice communication capability be attached to them… in other words a smart phone doesn’t have to be a phone.

HP already has a tablet and netbook business, one that depends on Microsoft, and I can imagine the frustration that HP executives must feel to have invested so much into that line of business yet have it muddle around in the back of the pack with regard to mindshare. Similarly with smart phone handsets, HP has respectable entries and while it’s long odds that HP would walk away from Windows Mobile, especially on the verge of Windows 7 Mobile, I can believe that HP wants more control over their OS platform for these devices.

Furthermore, the market has declared that they are welcoming of competition at the platform OS level, using Windows Mobile is no longer a safe choice for handset makers and arguably it is a liability as consumers, business and mass market alike, view this as the regressive choice.

There are risks, of course, and if building out the required app marketplace around WebOS were easy then Palm would have done it, but the core risk is that the market consolidates around Android and iPhone OS for tablets and other types of mobile web devices and being 3rd or 4th in that market means you aren’t in that market. In such a scenario HP is in big trouble because they own the mobile OS, which means hitching their wagon to Android becomes problematic (HP already has an Android netbook but is a minor entry in their offering so I expect it will go away now).

All things considered, the risks are significant but the market is still in the formative stages and I doubt it will be winner take all like desktop computing was. The value of the acquisition is roughly 1% of HP’s market capitalization so from a financial standpoint they are not exposed like they were with Compaq,in other words investors will give them a lot of latitude as they make this work and investors will clearly appreciate that HP has elevated themselves into a new peer group with Google and Apple for the mobile marketplace.

On balance, I like this deal a lot in spite of significant forward risk for making it all work.