Palm Pre: Can it trump the iPhone? Will it matter?

To the surprise of virtually everyone in the tech industry, Palm stole the show at CES 2009 with the announcement of its Palm Pre smartphone and the new Palm webOS that runs it.

Although Palm was originally one of the pioneers of the smartphone with its Treo a half-decade ago, it had recently been floundering as Research in Motion and Apple have overrun the smartphone market with BlackBerries and iPhones, respectively, and Nokia quietly established smartphone domination in Europe.

Palm's biggest problem has been an outdated operating system, the Palm OS-the same OS that was running its PDAs in the 1990s. While Palm OS supported lots of legacy applications, it was slow, buggy, and simply not well suited for the types of applications needed in today's mobile environment.

So Palm did the smartest thing it could: It blew up the whole thing and started from scratch. While a drastically-revamped Palm OS has been rumored for years, most tech industry observers expected a similar-looking platform that was powered by something new (like Linux) under the hood.

Instead, what Palm announced at CES was a fresh start based on the Palm webOS, a new platform architected on Web standards HTML, CSS, and JavaScript. The great thing that Palm did with webOS was not try to compete with iPhone, BlackBerry, Windows Mobile, or Symbian. Instead, Palm thought about the way people currently use their smartphones and then tried to solve some of the nagging problems that no one else has fixed yet.

The result was surprisingly stunning. While the iPhone raised the user interface bar for smartphones so high that no one has previously even come close to nudging it, Palm's new UI does virtually everything the iPhone can do and drops in several important new innovations of its own.

Palm chairman Jon Rubinstein, who helped develop the iMac and the iPod at Apple before leaving in 2006, clearly has his fingerprints all over the product development of Palm's new webOS and especially the new Palm Pre, the first smartphone running the webOS. In fact, the Palm Pre demo at CES was so compelling that Palm's stock shot up 35% as pundits proclaimed Palm's resurrection and wondered aloud whether this was the iPhone's first real competitor.

Let's take a look at closer look at the Palm Pre and then consider whether it could potentially trump the iPhone. And even if Palm does have a hit in the making, is the company positioned to be able to challenge Apple, RIM, Google, and Nokia? That's the final question we'll consider.

Jon Rubinstein holds up the new Palm Pre during a press conference unveiled the Pre at CES 2009.  Photo by Andew Nusca. See full Palm Pre gallery.

Full specifications for Palm Pre

• Exclusive carrier at launch: Sprint
• Availability: First half of 2009
• Weighs 4.8 ounces
• Width: 2.3" Height: 3.9" Thickness: 0.67"
• Texas Instruments OMAP3430 processor
• 8 GB built-in storage (no SD expansion slot)
• 3.1-inch half-VGA touch screen with 320x480 resolution and 24-bit color
• Full slide-down QWERTY keyboard
• EVDO Rev. A
• 802.11b/g Wi-Fi
• GPS with turn-by-turn navigation
• 3.0 megapixel camera with LED flash
• Bluetooth 2.1 + EDR and A2DP stereo support
• Laptop tethering via Bluetooth
• 3.5mm headphone jack
• Sensors for ambient light, proximity, and accelerometer
• Replaceable battery
• MicroUSB, USB 2.0, and USB mass storage support (looks like a drive when connected to a computer)
• Microsoft Outlook e-mail via Microsoft Direct Push Technology
• Support for POP3, IMAP, Gmail, Yahoo e-mail, AOL e-mail
• Support for IM, SMS, and MMS
• Media player with support for MP3, AAC, AAC+, AMR, QCELP, WAV, MPEG-4, H.263, H.264

Photo of the Palm Pre with the keyboard closed (see full Palm Pre gallery). Photo credit: Palm

Can it trump the iPhone?

Based on the public and private demos of the Palm Pre that I've seen, it will match the iPhone in its two strongest areas: a user-friendly touch interface and highly-functional Web browsing on a smartphone. However, there are three areas where the Palm Pre could potentially have important advantages over the iPhone:

1. Multi-tasking: The Palm Pre offers what I consider to be the first fully functional multi-tasking in a smartphone. On most smartphones you can only effectively work in one application or window at a time and switching between apps is clunky. The Palm webOS introduces the "Cards" interface for quickly shuffling between apps. It's made to look like you're shuffling through a deck of cards. You push the center button on the Pre and your current app shrinks down to a card on the screen and the other open apps look like cards, too. You then swipe your finger to the left or the right to browse through the apps and tap on the one you want to open. So, for example, you can easily have one e-mail message open to read while writing a separate e-mail in which you want to quote from the first e-mail. Palm has also integrated IM and e-mail alerts along the bottom of the screen, so that you can get a quick preview of a message and click into it if it's time-sensitive.

2. Multi-threaded messaging: Palm recognized that a lot people use their smartphones for both business and personal use, and wanted to find ways to allow people to both segment business and work data while also providing opportunities to view some of that information in a more cohesive way. Thus, it created the unified inbox where you can see all of the e-mail accounts you have and drill down into a particular one. But you can also click the "All inboxes" view to see all of your messages from all of your accounts in chronological order. The same thing can be done for your calendars as well. It can also tie together your buddy lists and conversations from multiple IM clients. And for your contacts, it can pull information together on your contacts from multiple sources, including Exchange, Facebook, and other social media sites.

3. Hardware keyboard: I have previously admitted that the number one reason I don't use an iPhone as my primary smartphone is because I can't stand the on-screen keyboard.  For any kind of regular intensive typing, most people find that the iPhone simply isn't very usable. As a result, the fact that Palm has included a slide-down hardware keyboard in the Pre is quite significant. My only concern is that the Pre is a fairly slender device and so the QWERTY keyboard has small keys that look pretty cramped. It wasn't a problem for me to type on, but my fingers are thinner than most.

There are also several small items in which the Palm Pre has an advantage over the iPhone: replaceable battery, copy-and-paste, laptop tethering, and a camera flash.

So where will the Palm Pre come up in short in comparison to the iPhone? Well, the iPhone is on AT&T's GSM network and so it has much better international roaming capabilities than Sprint's EVDO network, where the Pre will debut. So the iPhone will still be more attractive to international business travelers. The iPhone also has an established base of developers along with its App Store for successfully distributing third party applications. Because Palm is starting over with a new platform, it will also need to start over in building a new developer community. Although the fact that webOS apps use open Internet standards will help, it will still take time to mobilize a new developer ecosystem.

The other X factor is price. Palm did not announce how much the Pre will cost, but since this is a premium device the expectation is that it will fall within the $199-$399 range (with a two-year contract from Sprint). The challenge is that Palm needs to make money on the Pre, so it can't price it too low. However, the 8 GB iPhone 3G costs $199 (the 16 GB costs $299) and the BlackBerry Bold costs $299. Those are the devices that the Pre will be competing directly against, so the price needs to be $299 or less and preferably $199 in order to compete head-to-head with the iPhone.

Will it matter?

Prior to CES, most of us in the press were simply waiting to hear the official death announcement for Palm. The company was losing market share in the burgeoning smartphone market, it had made a series of mistakes in recent years that had deteriorated its business and balance sheet, and it hadn't had a hit product in years.

Of course, the Palm Pre and the webOS changed those perceptions overnight. Now, the big question is ... if Palm really does have a breakthrough product on its hands, does it have the resources and the wherewithal to take on Apple, RIM, and Google (which joined the market in 2008)? Is it in the smartphone business for the long haul or is it looking for a buyer to quickly take advantage of its new hot commodity status?

At CES, Rubinstein talked like an executive with ambitious plans for the future. He said, "We've built our next generation platform which we're going to evolve for the next 10 years. Pre is the first product that that platform is shipping on, but there are other products in the pipeline... The key is not to build just one great product. The key is to build a team that can make great products time and time again, and then put a roadmap in place that brings out a steady stream of great products... The team is extremely excited about the response we got this morning but we've got to go deliver the products and work on the next one."

Rubinstein also mentioned plans to take the Pre to other carriers and continents. "This one is CDMA," he said. "We do want to go around the rest of the world so there will be a 3G version that works in Europe and other places." The good news for Palm is that on December 22-just before CES-it got a $100 million cash infusion from Elevation Partners. That will give it the capital it needs to pursue its strategy with the webOS and the Palm Pre. But the company's margin of error is very small. It can't afford any more business mistakes like the Centro (which makes no money) or product mistakes like the Foleo (which never even made it to market).

And with the Pre, Palm has to deliver all of the features it has promised in a smartphone that has snappy performance, good battery life, and relatively few bugs. Oh, and the price needs to be competitive with the iPhone. But if Palm can pull off all of that, then look out, because at that point the Pre really would give the iPhone a run for its money.