170-The Pre Looks to Go Post

Nine months ago, Palm introduced its new Pre smart-phone. On the occasion of that introduction, we wrote a blog (See Blog Here) predicting that the Pre would have a difficult time competing in this fast-growing market. It’s problem? Lack of apps. At the time, Apple had 35,000 apps. That number has now grown to well over 100,000. Other competitors today have as many as 20,000 or more apps available. The Pre has relatively few. Its shortage of apps has shown up in its market share. Recently it had 5% of the smart-phone market, a long way behind Apple’s 18% and Blackberry’s 43%.

In response to its failure to generate excitement in the market, the Palm plans to increase its advertising and add 200 company trainers to help Verizon’s sales representatives sell the phones. This won’t work either.

Returning again to the Customer Buying Hierarchy that we use to analyze a market, we recall that customers buy Function, Reliability, Convenience and Price. They buy in that order as well. Customers keep moving through the Hierarchy until they have found a single competitor who can offer them something important to them and that no other competitor can offer. (See “Audio Tip #70: Several Rounds in Evaluation Failures” on StrategyStreet.com.)

Function innovations dominate very fast-growing markets. The smart-phone market has been a very fast-growing market. Function innovations in the form of applications are today’s name of the Function game. If you don’t have apps, you can forget about the other Function innovations in your phone. Today’s competition can copy virtually any Function innovation that resides in the phone itself. Apps are something else again. (See “Audio Tip #97: How Do We Know if an Innovation will Remain Unique?” on StrategyStreet.com.) They require a large installed base, strengths of Research In Motion’s Blackberry and Apple’s iPhone. Application developers have little incentive to design new applications for the Palm operating system when at least three other phone providers, Research In Motion, Apple and Google, stand in front of the Pre and its smaller sibling, the Pixi.

Unless all three of these companies, with far more apps than the Palm phones, fail, the Palm phones don’t have much of a future. No amount of advertising, nor increased sales training, can make up today for a lack of applications. If it is determined to spend its money in what looks like a losing cause, Palm would be far better off buying applications rather than spending money on marketing and sales. Today’s smart-phone is sold by one user showing another all the cool things that the smart-phone can do. That is a much bigger sales force than Palm or even Verizon can afford.

Posted 3/11/10

THE SOURCES FOR STRATEGYSTREET.COM: For over 30 years we observed the evolution of more than 100 industries, many hostile.  We put their facts into frameworks applicable to all industries and found patterns.  Strategystreet.com describes the inductive results of these thousands of observations and their patterns.