By Tyler Kneisly
I've been following news regarding the
Palm Pre lately. For anyone who doesn't know yet, the Palm Pre is the first real contender to the
iPhone, and not just because everyone says so. Palm has taken great steps in building on what was successful about the iPhone and has developed a fresh and highly-anticipated new platform that should have mass appeal.
There have been, of late, murmurs from the Interwebs about Palm and their exclusivity agreement with Sprint. It shouldn't come as too much of a surprise that a lot of people with other carriers don't see themselves making the switch to Sprint. I'll get into that in a minute. What
is a surprise is that several bloggers have speculated what a terrible mistake Palm has made in making the Pre exclusive to Sprint.
One such blogger even went so far as to claim that Palm is "scared stiff", but never offered any real evidence as to why.
The reason very few people get excited about the idea of switching to Sprint is the company has a history of
notoriously poor customer support that has led to Sprint's current problems regarding the
exodus of their current customer base. CEO Dan Hesse has done a fair job of stemming the terrible money loss the company suffered from the acquisition of Nextel, as can be seen in their most recent
financial statement, but Dan Hesse's real mission has always been to turn the ship around on
customer retention.
Whether the author is right or not about Sprint’s “bleak” outlook (which it’s pretty clear he is - things aren’t looking good for them), he’s still making unforgivably wild assumptions about Palm. You can’t make up a title like “Palm is Scared Stiff” without offering up actual evidence. That’s just irresponsible.
Palm may not actually be all that scared. A year of exclusivity with faltering Sprint may do Palm some good and I think I can offer some evidence as to why.
First, it’s only a year. It’s not a five year exclusivity agreement like Apple has with AT&T. Apple has been able to count on people abandoning their carriers to join up with AT&T because AT&T has the marketing bucks and customer service chops to make the switch worthwhile for most people. Sprint, however, knows they can’t generate the same kind of draw as AT&T. They’re counting on the majority of the Palm Pre sales to come from their current customer base. The evidence for this? Their newly launched
Customer-Loyalty program for high-paying customers. It’s pretty clear that Sprint’s tactic is to get the Pre into the hands of current customers. Is the fact that most people aren’t willing to switch to Sprint for the Palm Pre enough to make Palm scared stiff? Unlikely. We know from
Palm’s presentation at CES that the Pre is only the first of a family of new devices that will be built on the WebOS and there’s a very good chance that those other devices will NOT have an exclusivity deal with Sprint.
Also, the Pre may be highly anticipated and everything, but Palm does not want to repeat the mistake Motorola made with the RAZR a few years back, which is to devalue the product through market saturation. There have been
reports lately in tech news about slowing mobile phone sales that aren’t necessarily due to the overall slowing of the economy (though it's absolutely a factor). In reality, the slowdown in mobile handset sales is because the mobile phone market is so absolutely saturated. In fact, in many countries, there are more mobile phones than there are people. This type of saturation doesn’t negatively affect carriers since it only benefits them when everyone owns a mobile phone because it means that everyone is on the network. It does, however, create a problem for companies like Palm and RIM and even Apple: The only way they can sell more devices in a saturated market is for you to ditch your current device and upgrade to theirs.
So why does this information translate into Palm not being “scared stiff”? Because they’ve spun
Apple’s exclusivity gimmick in such a way that it encourages in-carrier upgrades to their device rather than cross-carrier migration. It will more-than-likely work to Palm’s benefit since high-anticipation, initial scarcity, customers perceiving value, and a short-lived exclusivity agreement with a single carrier all translate into more consistent sales over a longer period of time, rather than a short and massive burst of sales and then a huge decline. And longer more consistent sales of WebOS devices means better adoption (and then subsequent saturation) within the market.
Think about it. If you’re with Verizon or AT&T and you hear that it’s only a year before you can get your hands on the Pre (or, in all likelihood, even sooner before another WebOS device becomes available on your network), you look at the year-long exclusivity agreement and shrug your shoulders and say to yourself, “Meh. I can wait.”
That’s even more true during a time when everyone is suffering financially; rather than deal with disconnect fees and pro-rated fees and new customer fees and setup fees and the hassle of porting your phone number to a new carrier, wouldn’t you rather just be rewarded for your loyalty to your carrier by being given a cheap and simple way to upgrade to a newer, more exciting device? And all in exchange for a longer term agreement with your carrier? Sure you would. Sprint gets that. In fact, as mentioned above, retaining customers has been Dan Hesse’s outspoken priority since he came on board with Sprint. Obviously getting new customers is nice, but not if you’re hemorrhaging the old ones, which is something ALL the carriers are going to start worrying about if times get so tough that customers start looking for ways to cut their personal budgets and begin eliminating their mobile phones.
Again, just to recap: Palm wants consistent sales over a longer period of time and the only way to achieve that in an already saturated market is to create scarcity and high levels of anticipation. Palm does NOT want to massively introduce a new mobile platform and an innovative new device to an already saturated market and risk “flash” saturation. And Sprint happens to be in enough trouble that they could really benefit from some customer loyalty and longer agreements with their customers. I honestly don’t think Palm is “scared stiff”.
I think, for Palm anyway, everything’s going according to plan.
