Microsoft should buy Palm to resurrect Windows Mobile

Microsoft is floundering in the mobile market while Palm has made bold strides but remains vulnerable. These two could make a love match.

——————————————————————————————————————————————————

Consolidation is coming to the smartphone market. It’s simply a matter of when and how.

There are six big platforms vying for mainstream acceptance, and the market is likely to start weeding that number down to three to four over the next several years as all mobile phones become smartphones and as smartphones start replacing PCs for some users.

The platforms in the strongest position are the Apple iPhone and RIM’s BlackBerry. The platforms that have some momentum but are still vulnerable are Google Android and Palm webOS. The platforms that are most at risk and are struggling the most technologically are Nokia’s Symbian and Microsoft’s Windows Mobile.

The first major consolidation move could involve Palm. The company has been rumored as a buyout target for years. However, after struggling to survive while rebuilding its platform under the leadership of former Apple executive Jon Rubinstein, Palm has had a big year in 2008 with the arrival of its new webOS and the launch of its first webOS device, the Palm Pre.

Despite the fact that the Pre and the webOS have been warmly received by users and the press, Palm still faces challenges. In June, the Pre was launched exclusively with Sprint, the weakest of the U.S. carriers and an acquisition target itself. While Palm aggressively marketed the Pre with its modest resources, Sprint has not been nearly as aggressive.

For more insights on smartphones and other tech topics, follow my Twitter stream: @jasonhiner

And while Pre sales have technically exceeded estimates with over 500,000 units sold, the sales have certainly underperformed the Pre’s potential, considering the Pre (right) is one of the few smartphones that can challenge the iPhone in terms of ease of use. Meanwhile the iPhone 3GS, which also launched in June, sold over 1 million units in its first week.

Palm is now betting its success on the arrival of the Palm Pre on Verizon in early 2010 and the launch of its second webOS device, the Pixi before the end of 2009. The company recently raised $313 million in additional funding, but of the big six smartphone platforms it is the one with the shallowest pockets. That makes it the first big target in the inevitable smartphone consolidation, although acquiring Palm would be very expensive.

Last week there were rumors that Nokia was in talks to buy Palm. That possibility appears to have passed, and that’s a good thing because it probably would have been a disaster. The platforms are very different and there would have been big corporate hurdles to overcome in integrating Silicon Valley high-flier Palm with the Finnish cell phone behemoth.

There is one suitor that would make a lot more sense: Microsoft.

Back in April, I mentioned Microsoft buying Palm as one of the “Seven tech industry acquisitions we would sanction” during 2009. I still think it would be a great idea, and others are catching on, too. On September 24, The Motley Fool declared that a Microsoft-Palm deal would be a good fit. In its article, The Motley Fool gave three reasons why. I’ll go one better and offer four reasons why I think this deal would be a slam dunk.

Four reasons it would make sense

1. Windows Mobile keeps falling behind - As I’ve written in several of the recent reviews I’ve done on Windows Mobile smartphones (such as the Samsung Jack): “Windows Mobile increasingly feels outdated compared to the latest smartphones on the market, like the Palm Pre, the iPhone, and even the latest BlackBerry phones. Using Windows Mobile after working from any of those smartphones almost feels like going back to Windows 95 after getting used to Windows XP.” The other problem is that Microsoft has a dis-unified, scattershot strategy in mobile. The company has pre-announced Windows Mobile 7.0 before it has even delivered Windows Mobile 6.5, it;s also working on its rumored “Pink smartphone” (incompatible with Windows Mobile and developed by the Danger team that built the SideKick), and its Zune team recently completed the Zune HD, which has excellent hardware and software but is also incompatible with Windows Mobile. Microsoft could use Palm’s webOS to unify its mobile efforts.
2. There’s already a relationship - Microsoft and Palm already know how to work together. During the last few years, Palm has released a number of Windows Mobile smartphones as part of its Treo line, such as the popular Treo 800w and the Treo Pro. Palm recently announced that it would no longer make Windows Mobile devices but instead focus all of its efforts on webOS devices. That was a blow to Microsoft, since Palm was one of its best-selling Windows Mobile hardware partners.
3. Palm could succeed within Microsoft - Palm joining Microsoft would not be a culture shock. They are both part of the west coast high-tech elite and Microsoft already has a variety of offices and operations in Silicon Valley, including the team of mobile developers that Microsoft inherited from its Danger acquisition in 2008. Microsoft could even keep Palm’s Rubinstein and make him the president of its new and improved mobile division.
4. Palm did what Microsoft should have done - When the popular Palm OS that powered the original Palm Pilots and Treo smartphones got so outdated that it tied Palm’s hands, the company made an audacious move. It essentially scrapped the whole thing and started over. This gutsy strategy nearly killed the company, but once it bore fruit with the webOS and the Pre, Palm had put itself in a far stronger competitive position against iPhone, BlackBerry, and the rest of its rivals. Microsoft needed to do the same thing with Windows Mobile, but it never did. Instead, it has continued to put lipstick on the Windows Mobile pig, and now it’s toying around with other devices such as the (codename) “Pink” smartphone and the Zune, both of which are incompatible with Windows Mobile. Ideally, if Microsoft bought Palm, it could unify all of its smartphones around the webOS and integrate the Zune software as its media player. The other kicker would be to add emulators for Palm OS and Windows Mobile apps. That would be a very powerful platform.