Analysis: The possible Palm Pre comeback

It is probably the story of this year's CES: A team that's down by several points, with time ticking away, coming back to within striking distance of winning the whole ball game.

That's Palm's circumstances this year at CES, as its Pre smartphone has clearly stolen the buzz in every topic of conversation. It's an important score, especially since Apple was perceived as not having a strong follow-up at Macworld this week, and since the other smartphone-related news from this year's show has not been major.

So all eyes were on Palm as it made its critical play. To discuss the possible ramifications, we talked to our frequent contributing analyst and AR Communications Senior Vice President, Carmi Levy.

Carmi, I'm thinking Palm had to throw the 120-yard hail-Mary pass (that the Sooners didn't throw last night) to the end zone for the game-winning touchdown in order to survive as a company...and I have this feeling that's exactly what they did with the Pre. You agree?

Palm absolutely needed a Hail Mary pass into the endzone for the game-winning touchdown. At first glance, that's exactly what they managed to pull off. Although you never want to pass final judgment until you've had a chance to spend some quality time with the hardware, the Pre, as demonstrated at CES, looks like a slam dunk winner. Perhaps better than any supposed iPhone-killer that came before it, it seems to address the major shortcomings of smartphones in general and the iPhone in particular with the kind of understated design elegance that helped Palm define the PDA space over a decade ago. One look at the Pre and it's easy to see that Palm's got its mojo back.

Although the hardware seems to have gotten most of the headlines, the Palm Web OS is the more compelling story here, for it is on this platform that the very future of the company hangs. As with the hardware, Palm's new OS manages to support a user-focused simplicity that addresses many of the frustrations most of us have with current-generation smartphones. From a usability standpoint, a Palm Pre running Palm Web OS is an absolute winner.

But as we've seen so often in the mobile space, just because you have a great device or OS doesn't necessarily mean you're going to prevail in the marketplace. Ten -- or even five -- years ago, hardware may have been enough to save the day. Today, it's all about the application development ecosystem. As Apple has shown, you need a large community of developers actively working -- both together and alone -- to create compelling software that extends the platform beyond that originally envisioned. This truth, of course, isn't just limited to the mobile market. Look no further than Microsoft's Windows franchise for a perfect example of an entire economy built around a given platform.

To build that community, you need a business model that allows developers to make adequate -- or better-than-adequate -- returns on their investment in development time. You need a distribution mechanism (think Apple's App Store) that minimizes administrative overhead for developers and end users alike and seamlessly ties the process of installing and using third party applications into the hardware's basic UI. Make it easy for everyone involved. Make it profitable. Make it compelling. Palm's announcement contained very little detail on that end of things, so I'll have to reserve final judgment on the new hardware's and OS's long-term viability until all the requisite pieces are in place.

Timing is also critical for Palm. They've risked cannibalizing sales of existing hardware by announcing the Pre this early. A generation ago, sales of the Osborne portable computer collapsed when the company prematurely announced its next-generation offering, then failed to deliver it on time. Palm is in similarly dangerous territory in this regard, and needs to deliver working product as soon as it possibly can to maximize the bump from the CES announcement. While it risks quality glitches if it rushes things, the world is moving on, and the longer it takes to complete the play, so to speak, the harder it will be for Palm to capture enough enterprise and consumer attention to remain in the game.

Palm is also taking an unnecessary risk by exclusively distributing the Pre through Sprint. It risks minimizing market growth precisely at a time when it needs to ramp production and fill as many channels as it possibly can. In fairness, today's Palm is a smaller, leaner company than the Palm that launched the Treo earlier this decade, and may simply be following a deliberately smaller-scale rollout strategy to maximize its ability to gradually scale production and distribution and minimize the potential for large-scale hiccups. Longer term, however, Palm will need to follow up the initial Pre hardware announcement with follow-on Palm Web OS-compatible devices available through competing carriers. It's a similar challenge currently faced by Apple as it considers next steps for growing its own market share. You don't dominate the smartphone market by distributing exclusively through one carrier in any major market.