The market reacted very positively to Palm Pre’s announcement yesterday, and investors continue you pour money into Palm’s stock today. Palm’s stock was up another 34% today, despite the wider market’s downward trend with NASDAQ dropping 2.81%.

This is obviously very good news to Palm, but several things may cause the Palm Pre to be not as successful as investors may expect:

1. Palm Pre may be late. Palm has set the expectations that its new device will be available in the first half of 2009. However, it is obvious that the device is not yet ready for prime time yet as of CES. Palm would only show the device by private invitation only, and even so, they were generally very reluctant to let others handle the device themselves (this was independently confirmed my multiple sources). Reluctance to let others handle the device generally mean concerns over the stability of the device if something unexpected was pressed during the demo. Can Palm really get its hardware and software up to snuff before the shipping time line?

2. iPhone is not standing still. We believe part of the reason why investors reacted so postiviely to the Pre is because of several popular blogs’ direct comparison with the iPhone. Engadget was quoted that the user interface of the Pre is superior to the iPhone. People then started thinking: “Wow, this thing is better than the iPhone! And the iPhone is such a phenomenal success, it must be a winner!”. Well, we are comparing a device that will ship in 6 months to a device that was shipped 2 years ago. Rest assured that iPhone will continue to innovate. There are already speculations that iPhone will incorporate a quad-core graphics processor into their next iPhone. If true, the iPhone will blow away any gaming device currently on the market. Oh ya, and we haven’t mentioned Android, Windows Mobile and BlackBerry devices yet.

3. Exclusive Distribution through Sprint. For the first 90 days, and may be up to 6 months, the Palm Pre will only be available through Sprint. Sprint’s probably the least favorite carrier in the United States, and we worry that their distribution will be limited. GSM versions are expected to be available only outside of the United States.

4. Lack of Developer Ecosystem. Previous generation of Palm OS apps will not be compatible with the Palm Pre. What that means is that Palm will need to recreate its ecosystem of applications from scratch. We have all seen the tremendous success of the Apple Apps Store. Palm will not be able to easily duplicate that overnight. Also, the initial Palm Pre SDK will be rather limited, and developers won’t be able to access low level APIs. We will see what Palm will do to entice developers in this space.

Competition is always good for the consumers! Let’s see how Palm will heat up the game.

- J.

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