Francisco Kattan

Rumors about who will buy webOS from HP have been floating around for a couple of months now, including a recent surge in buzz as HP’s new CEO Meg Whitman ponders how to deal the whole Palm mess she inherited.   One of the potential buyers that has gotten lots of attention is Amazon (main story here).   Why not? After all Amazon has now emerged as one of the most significant threats to Apple and its ecosystem.  Although this threat has been brewing for some time, it only became obvious after Amazon’s recent launch of the Kindle Fire, a Tablet that is expected to split the market with the iPad and relegate all other contenders to “also rans.”

The Kindle Fire relies on Google’s Android operating system and the prevailing argument in the blogosphere is that Amazon needs webOS to differentiate:

“By purchasing the remnants of Palm, Amazon would have free rein to redesign webOS to its own liking, and it would be able to further differentiate its Kindle devices from the slew of Android tablets in the market” (from the story referenced above).

A cursory analysis of both companies (see table below) seems to support this argument.  Amazon has all the pieces in place to pose a credible threat to Apple, except for the ability to differentiate at the OS level.

What makes the Amazon rumor most credible is the fact that  Palm’s former CEO, Jon Rubinstein, is now on the board of Amazon and he would love to get his baby back.  In fact, Rubinstein had gone on record to say that “Amazon would certainly make a great partner” for webOS.

It all makes sense, right? Amazon should buy webOS…       NOT.

The problem with this argument is that it fails to recognize that Amazon is in the business content distribution, not devices.  Amazon wants to optimize around maximizing the availability of content it can distribute across as many platforms as possible.   This is Amazon’s business.   Amazon’s strategy is not about profiting from selling devices.   In fact, at $199 for the Kindle Fire, Amazon is subsidizing its devices so it can maximize its market potential for content distribution.  It’s a very different strategy from that of Apple which differentiates its devices with iOS and enjoys a nice margin as a result.

If Amazon were to buy webOS to replace Android on its devices, it would have to invest dearly to 1) maintain the competitiveness of the operating system, and worse 2) build an ecosystem to create webOS content so it can be distributed to consumers.   Amazon would have to virtually start from scratch rather than leverage the existing (and abundant) base of Android developers and apps.

Amazon’s strategy is just the opposite: distribute as much content as possible across as many platforms as possible.  Note that Amazon has already deployed its Kindle reading app across competing Android and iOS devices.   It has also deployed its Android app store on competing devices, and I’m sure it would love to deploy its app store on iOS devices as well, should Apple ever allow it.

Borrowing Geoffrey Moore’s terminology, for Amazon the OS is “context” not “core.”   The OS is something that Amazon needs, but it does not need to differentiate.   Fortunately for Amazon, Google has made Android available as open source.    This enables Amazon to license Android at no cost and invest minimally to have its own branded user experience.   Amazon is not even required to use the Android or Google brands with consumers.   This is the best deal in town and I’m sure Google is not too happy about it.  But if you are Amazon, why mess with a good deal?  It’s like having your cake and eating it too.

What about the Palm Patent Porfolio?

The only reason I see Amazon making a play for webOS is to acquire Palm’s patent portfolio.  If HP cannot find a buyer who needs webOS for its devices, it will have to settle for a much lower valuation and find a buyer that needs the portfolio as arsenal for the patent warfare that is currently plaguing the mobile industry.  Amazon could make a play if it thought it was vulnerable to a patent attack.  According to the latest set of rumors, HP may be reaching the stage of considering lower offers for Palm’s patent portfolio with Oracle listed as the potential buyer.   In this scenario, the buyer would buy webOS, shut it down, and keep the patents to play either offense or defense with the likes of Apple, Microsoft, and Google, all of which have recently beefed up their own patent portfolios for this purpose.

What do you think?  Who do you think will buy webOS and why?  Should Amazon make a play?