What Palm Needs to Do Next

To succeed, a vendor has to find a niche where it leads in some feature/size/performance category. And that is a nightmare for Palm, a hothouse flower that has never shown an ability to integrate new features rapidly and push prices down at the same time.

Hardware Horror

Palm's hardware trouble is succinctly summarized by the Treo 750, a spectacularly uncompetitive 3G device that started selling widely in Europe last February. This is probably the best Palm is offering this summer, and the performance gap between it and the rest of the field is turning into a yawning abyss right around the third quarter. Palm may launch a more advanced model for the third quarter, but this is unlikely. It simply has to do something drastic by the fourth quarter.

How much improvement is needed is spelled out in the atrocious Treo 750 specs:

• Display: 240x240 pixels and 65,000 colors. The benchmark is 240x320 pixels and either 256,000 (Sony Ericsson) or 16 million (Nokia, Apple) colors.
• Weight and thickness: 154 grams and 22 mm. The benchmark is 105-115 grams and 12 mm (Motorola and Samsung).
• Camera: 1.3 megapixels. The benchmark is 2-3 megapixels (Samsung, Sony Ericsson, Apple, Motorola) to 5 megapixels (Nokia).
• Extras: 3G plus HSDPA support (a boost for 3G data transmission speeds). The benchmark is 3G and WiFi (Samsung, Sony Ericsson) to 3G, HSDPA, WiFi, GPS, 1 GB or more of internal memory (Nokia).

No device needs to hit all the benchmarks in order to be successful. Motorola and Samsung have just 65,000 color displays, but they offset that by offering spectacularly thin devices. Some of Nokia's key smartphones for 2007 weigh 120-140 grams but pack in everything from cutting-edge displays to WiFi. And so forth.

Palm is missing every single benchmark by a generation or so. It can't compete on size or display quality or camera quality or WiFi/GPS. The company needs to improve display, camera, processing power, WiFi and GPS functionality while shaving device weight and thickness by 20% to 40%.

It needs to accomplish this while even smaller rival vendors from Sony Ericsson to Samsung race to ramp up their flagship smartphone volumes to the multi-million unit range by end of the year. Nokia's lead models will hit targets between 3 million and 5 million unit by then, and associated price cuts may be substantial by the fourth quarter.