Now that I’ve had time to digest the news of Hewlett-Packard’s $1.2 billion acquistion of Palm, I’ve been thinking more about the man who sits at the heart of this deal:
He’s hardly a household name in Silicon Valley. But in many ways, he’s got more on the line here than anyone else in the deal on a personal level. Yet for the most part, he’s been oddly silent since the deal was announced, except for a short interview with All Things D’s Kara Swisher.
But it’s worth remembering that the entire plan to reinvent palm revolved around Rubinstein. In my column over the weekend, I gave Palm credit for taking the risky path of trying to reboot itself. As I was researching that column, I was reminded of something that I had forgotten: The deal to get Elevation Partners to invest $325 million in Palm was all contingent on Rubinstein joining Palm.
No Rubinstein, no deal. That’ pretty extraordinary. I can’t think of another deal in Silicon Valley that was so dependent on the participation of a single individual. And it shows just how deeply the folks at Elevation believed in Rubinstein, who while at Apple was credited with developing the iPod before leaving in 2006.
So how did their $325 million man do? And did his stock go up or down after three years at Palm?
Going back to the summer of 2007, Palm hired Rubinstein to be its part-time executive chairman with the stipulation that he spend at least 50 percent of his time working at the company. For that he’d get a $600,000 annual salary, though not be eligible for bonuses.
Despite the part-time label, there seemed little doubt Rubinstein was going full guns at Palm. He was directly responsible for operations (which included fixing problems with the Treo line) and new product development (which led to the creation of WebOS and the Palm Pre). Just last summer, he became full-time CEO, a gig that lasted less than a year so far.
By all accounts, the Palm Pre and WebOS were solid stuff. And at first, things seemed to get off to a good start with the launch last summer with Sprint selling the phones. Other carriers were lining up to eventually sell the phone, with Verizon Wireless next in line.
But things seemed to go off the rails in January when Verizon started selling the Pre. It’s hard to know exactly what went wrong, or who shoulders the blame. In a February memo to Palm employees which was bound to be made public, Rubinstein blamed Verizon, which was probably not the best way to fix that relationship. He wrote:
“Dave Whalen and I just returned from a very successful meeting with Verizon Wireless, where they acknowledged that their execution of our launch was below expectations and recommitted to working with us to improve sales. To accelerate sales, we initiated Project JumpStart nearly three weeks ago. Since then, nearly two hundred Palm Brand Ambassadors, supplemented by Palm employees from Sunnyvale, have been training Verizon sales reps across the U.S. on our products.”
You might ask why that effort wasn’t in place from the start, however. But in reality, the damage was done. The stock continued to slide. Palm seemed to be burning through cash. And word emerged that Palm had hired Goldman Sachs and Qatalyst Partners to explore options (which more often than not means the company is for sale).
Despite these rumors, Rubinstein still seemed to gamely be making the case in public that Palm could survive on its own in this interview with Fortune and then with the Financial Times. This might have just been a negotiating tactic, or a strategic move to keep Palm phones selling. But if he really believed it, he might have been just about the only one at this point.
At the same time, in the days before the HP deal was announced, there were rumors (never confirmed) that Rubinstein was going to be pushed out in a management shakeout. A few days before the HP deal was announced, TechCrunch reported:
“Industry sources tell us that a major restructuring and management shakeup is imminent and CEO Jon Rubinstein may be replaced.
This is still a rumor at this point, but it makes sense. Palm is suffering from a ton of unsold inventory, and it cannot keep up with Apple, Android, or Blackberry in the smartphone wars. Palm clearly needs to be bought at this point if it is going to survive, and Rubinstein may not be the right person to make that sale.”
Of course, the next week, the HP deal was announced. And Rubinstein was not on the conference call announcing the deal. That struck me as odd. Though he did give that interview to Swisher:
“This industry became much more competitive very quickly than we had hoped or could have predicted,” he said, referring to the giant investments in the space by Google (GOOG) with Android, Apple (AAPL) with the iPhone and even Microsoft (MSFT) with its new Windows Phone 7. “We did predict the right marketplace and thought the smartphone market was going to explode, so it was the right direction.”
There’s some truth to that. At the time Elevation made its investment and Palm hired Rubinstein, Apple started selling the iPhone. That changed everything. It would take Palm two more years to get the Pre on the market, which might have been two years too late.
Still, Rubsinstein apparently told her he expected to move over to HP. Swisher wrote:
“Now it will be up to HP to drive Web OS, although Rubinstein said he expects most of the team at Palm–including himself–to move over intact.”
It will take several months for the deal to actually close, so for now, Rubinstein has a ton of work to do keeping Palm on life support and continuing to keep carrier partners on board. This is a dangerous time. Palm said last week that sales were already slowing, and the limbo created by the deal won’t help. Would you buy a Palm Pre right now? Or develop an app for it? And Rubinstein will have to work hard to keep key employees on board.
But on a larger level, he’s likely got to decide whether he can stomach being the number three guy in the mobile division of the world’s largest technology company (under CEO Mark Hurd and VP Todd Bradley). Or, perhaps the more awkward question is whether HP really wants Rubinstein.
Whether HP keeps him or dumps him may go a long way to telling us whether Rubinstein is still worth the $325 million the partners at Elevation were willing to bet on him three years ago.