JeffKirvin.net

Why doesn’t PalmOne make the device all the geeks want to see? Because they’d be stupid if they did.

I haven’t been myself lately. I’m usually a laid-back, jovial guy, but some folks on the net recently have gotten my blood up. The worst offender is a troll calling himself “Gekko” on Palm Infocenter and 1SRC, after the Michael Douglas character in “Wall Street.” This guy has been trashing the T5 mercilessly, which I could deal with. He also attacks anyone that dares disagree with him, and when I said I liked the T5 and detailed the reasons why, he called me a hack and a shill. Gekko and others of his ilk seem to feel betrayed that the T5 isn’t the �bergeek device they were hoping to follow the T3, something with bells and whistles to trump the Dell Axim x50v or the HP hx4700. They take it as a personal betrayal that the “ultimate” Palm hasn’t appeared.

There’s a reason for that. PalmOne would be drop dead stupid to make one. And I’ll tell you why.

PalmOne is a publicly traded corporation. They are in business to make money, or more specifically, to increase the value of the stocks their stockholders own. Every major business decision should be made with this in mind.

So what would it take for PalmOne to make a device that floors the enthusiasts? They’d need to build a device that has dual card slots, VGA screen, Bluetooth, WiFi (G, preferably), GPS, 256MB of memory minimum, Cobalt and all the other minor features like vibrating alarms, voice recorder, camera, etc.

I’m going to make up some numbers here. These are WAGs, or wild-ass-guesses. But I’m going to skew them in favor of the device to make my point. I repeat: these numbers are probably far more optimistic than they would be in the real world, and it’s still a dumb idea to make this device.

Let’s assume it costs $1,000,000 to design, build and test this device. I think that’s way conservative given all it can do. And we’re including the cost of FCC certification and all that in this as well. Add another million to market the device, buying ads in all the geek press, paying for TV product placement, internet banner ads and whatnot. So you’ve sunk two million in to this before selling a single unit.

A device with all those features is going to cost close to $800, but let’s be optimistic and say $700. Pricey for a handheld, but this is for the enthusiast market. The same kinds of people drop $3,000 for a PowerMac when they could have gotten a more powerful PC for half that, so price shouldn’t be an object. But this device isn’t going to cross-sell. The only people that buy one will come into the store looking for it, they won’t decide to step up from the T5 they were going to buy.

Out of that $700, the retailer is going to take at least $100. Out of the $600 that’s left, the wholesaler/distributor will take another $100. That leaves $500.

What do you think it costs to make a device with a VGA screen, removable battery, GPS, dual wireless, etc.? Even being wildly optimistic, I don’t think it can be made for less than $400, $300 without the GPS. But without the GPS it’s no better than the Dell x50v, and this has to be a world-beater. So $400.

That means PalmOne will make $100 profit on each device.

But they don’t get to keep all of that $100. Some of it goes into support costs for that device, some of it goes into paying for administrative overhead, paying the salaries of PalmOne employees, etc. Let’s be generous again and call $80 of that actual profit.

So how many devices do you have to sell to make back the two million in development costs?

25,000.

Do you really think there are more than 25,000 people out there willing to spend $700 on a high-end handheld? I don’t. I think 20,000 is generous. Most people with that kind of money to spend on portability already have a Sony VAIO U (of which only 500 were sold in the US) or an OQO.

So even with these generous numbers, PalmOne is looking at losing $400,000 on this device. If the winds are blowing just the right way, they might break even. Making any kind of profit on this is dubious at best.

I’ve seen people calling for Todd Bradley’s head, and now Ed Colligan’s, for not making this device. But a CEO works for the board of directors, and the board works for the stockholders. And if you were the CEO of company I owned stock in and you green-lighted a $400,000 loser, I’d be calling for your head. By ignoring the geek market and focusing on mid to low-range handhelds that regular people will buy, PalmOne is doing exactly what they’re supposed to be doing: making money. PalmOne is profitable. Anyone want to hazard a guess as to whether HP’s handheld division would be profitable if they had to do it on their own and didn’t have HP printer and ink profits to soften the blow?

This sense of entitlement in the enthusiast community is naive and stupid. Most of the rants against PalmOne boil down to “well they should make the device I want.” Why should PalmOne do that? “Because I want it.” Well want until you just can’t take it anymore, but don’t expect someone else, who has a family to feed and company to run, to make dumb business decisions for your benefit.

And as for Gekko, you make a big show of how much you pay in taxes and how smart you are, leading people to believe you work in finance or something. I sure hope not. I wouldn’t want you handling my money. Your insistence that PalmOne do something that would lose them money and hurt their own stockholders just because you think you’re entitled to a better toy shows that you don’t understand the first thing about business or money or what it takes to run a company. Be thankful you were too gutless to use your real name on the internet; it may have saved your career.