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Palm Sells A Quarter Slice To Elevation Partners

On Monday Palm announced that it had formed a strategic relationship with the private-equity firm Elevation Partners who has purchased a 25% equity stake of the company for $325 million – an investment that comes after months of rumours about a possible Palm sale and CEO Ed Colligan acknowledged that “"We were approached by larger parties over the last six months," and "the reality is that we thought this [Elevation] was the best outcome for our business and our investors." .

Interestingly, aside from a cash infusion the deal brings two former key senior Apple Computer executives to work their magic at Palm.  The first is Jon Rubinstein a technical guru who famously headed the iPod division at Apple and will now join the board as executive chairman and lead Palm’s hardware design and manufacturing alongside Jeff Hawkins.  The second is Elevation co-founder and Managing Director Fred Anderson – the former Apple CFO credited with completely revamping the company’s finances from 1996 to 2004 – who also joins Palm’s board.

Even more interesting for me is the fact that Elevation’s mission is to “help media and entertainment businesses develop and market great content, take advantage of new platforms and channels, and address demand in new geographies”.  I therefore have no doubt that this deal now signals an important change in direction for Palm and the future development of our Treo – one that will be more focused on the information and entertainment capabilities of our beloved smartphone and not only its productivity for work.

Although Palm has made significant inroads by being squarely focused on presenting the Treo as a great business tool in the corporate market it has dedicated few resources to make our Treo an equally leading player on the media and entertainment fronts that would appeal to a wider consumer market – an opportunity that Apple will now fully exploit with its forthcoming release of the iPhone and all its cool iPhone accessories at the end of June.

For many years I have promoted the view that our Treo should be considered the best “portable digital entertainment device” (see Treo Family is Great & they do Entertainment) and I don’t know what strategic reasoning Palm has had for not wanting to play more aggressively in this space (music, movies, photo, etc.) in the past (for example with a closer partnership with Yahoo! and Rhapsody among others). 

To my delight it appears that Elevation has a much clearer understanding of “Digital Convergence” (merging telecommunications, computing and entertainment) and the opportunities that it presents for a company like Palm.  In a NY Times interview, Roger McNamee, a veteran technology investor and Elevation Partners co-founder, explained that the rationale for his firm’s investment “is found in the rapid innovation that is changing cellphones into computers and entertainment devices”.  He added that “the hand-held computing world is still in its infancy and that designs and rapid innovation will continue to proliferate, making it impossible for several large players to dominate the market for software or hardware.”

Another rationale for the investment is the fact that Apple’s exclusive iPhone deal with AT&T may open the door for Palm to introduce a competing device to other carriers such as Sprint and Verizon in the US as well as Vodafone and Orange in Europe.  Specifically, IDC analyst Randy Giusto in Business Week stated that “Palm needs a round of product upgrades that will appeal to consumers targeted by Apple’s iPhone marketing blitz while also standing up against RIM amid enterprises.”

I have to admit that I had high hopes that such a “[Treo] product upgrade” might have been what Jeff Hawkins was going to present at the “D” conference last week but instead we received the rather uninspiring Foleo…  We will probably have to wait another 6 months to find out if Palm jumps on the entertainment wagon and finally releases a smartphone that can more directly compete with the iPhone. 

In the meantime, I’m thrilled to see that there is finally some fresh thinking coming to Palm’s board with people that have a clearer strategic vision about the many opportunities that lie ahead as well as the product development skills to deliver a new Treo smartphone that we can all truly get excited about again.

Palm Announces Strategic Recapitalization With Elevation Partners [Palm PR]
Elevation Partners website
Palm's New Dough—and New Blood [Business Week]
Palm Investor Sees Hand-Held Free-for-All  [NY Times]

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Posted by Andrew on June 6, 2007 at 10:10 AM

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Comments

1
by ehw | Jun 6, 2007 11:40:46 AM

This is very exciting news. I hope we see a real change at Palm.
But one thing concerns me. You foresee as a possible consequence of this purchase the introduction of "a competing device to other carriers such as Sprint and Verizon in the US as well as Vodafone and Orange in Europe". Would you think this would include a corresponding reduction of in GSM devices operating on AT&T?

2
by matt | Jun 6, 2007 11:53:47 AM

I am an avid fan of the Treo 750. I recently upgraded from the Treo 650P. I use my Treo a great deal for business aps and find it invaluable. I wanted to give you a bit of feedback (not criticism) on your daily blogs that I always look forward to reading. I've noticed that they have been a bit redundant lately, mostly pushing products that have been around a while. I wanted to encourage you to provide more "how to" articles for us less savey tech people. I'm surprised with the lack of instruction on how to do things like: use the phone as a modem, voice command ? I see it, but I don't know what it is, and any other useful everyday tips that a lot of you take for granted, but my guess is that many of us would find useful. Thanks for all the great articles. Also, how do I change my preference on the info I receive. I think I still get Treo 650 promos instead of 750. Thanks!

3
by Scott | Jun 6, 2007 6:17:09 PM

Like the Republicans gone wild with spending and forgetting their roots, Palm could get in more trouble trying to be the all-everything to everyone.

You want to sell a truckload of Treos to the business masses who will remain loyal to a good product?

- Give us 6 hour battery life minimum
- Give us decent memory 128 or 256 usable
- Give us a quality phone experience, meaning:
* easy to hear and be heard
* a solid speakerphone
* bluetooth earpiece voice dialing done right

- Get fast download speed with major carriers

- Don't change the connections every model or two
so we don't have to buy new peripherals with every
blasted upgrade. Reward brand loyalty.

- If you must change connections, at least offer a
competitive reduction in size.

- If you want to reach the more customers, consider
offering a version without the keyboard, with a
larger screen in its place.

Mobile TV is nice, but it doesn't help with productivity, which is the first job of a Palm. Who really want's to watch TV on a Palm Screen anyway? Better to have the Palm help us get the job done so we can enjoy the widescreen at home, right?


4
by Kevin McCormick | Jun 6, 2007 8:31:52 PM

I am also excited about the new talent that will be brought to Palm. Thank God there is more news this week than that stupid Folio. What were they thinking?

I think that the article Andrew wrote, and the approach that a lot of Treo fans are expressing are are missing the point. The improvements Apple will be making with the iPhone are much more substantial than just creating an "entertainment device."

My frustration with the Treo is not that it lacks multi-media capabilities. It is the fact that the Palm operating system lags so far behind the modern OS that I expect Apple will be delivering.

It is absurd that I can only run one application at a time on an electronic "computer." If I am entering a meeting into Agendus and the phone rings (or for that matter I need to switch to any other program) I have to begin again from scratch. Apple had multitasking ability in their System 6 operating system dating back to 1986.

With the iPhone we will see for the first time on a cellphone the ability to run a true computer operating system. The interface, with its multi-touch screen will be truly revolutionary. The advances are too numerous for me to mention in the time I have to write this.

I hope Palm will not take the approach of trying to just create a device that will match the music functions of the iPhone. It is important that they change the operating system completely. It has to happen now - or there will no Palm in the future.

5
by John Johnson | Jun 7, 2007 10:08:41 AM

Andrew, there's something here you (and the rest of the analysts) seem to have missed: the Foleo runs on Linux. It is the first step in Palm's gradual migration to a Linux-based OS, which will solve many of its current problems and open up a wide range of possibilities. Don't count them out just yet !!!

6
by Josh | Jun 9, 2007 2:58:44 PM

John Johnson - You have got to be kidding right? Palm is WAY behind. They have had plenty of time to shift the OS over to Linux and develop some products that could compete (or even, god forbid, lead) with the likes of the iPhone, but they have instead sat on their hands for two years releasing barely upgraded versions of the 650. The R and D money they have been spending seems to have gone to something that no one really asked for (the Foleo). I could not be more disapointed with Palm. They have proven themselves to be too slow and un-creative to earn my smartphone dollar. When my Sprint contract runs out in December I am all over the iPhone.

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