5 Reasons Why Pre Won't Replace The iPhone For O2

O2 may well have managed to grab the Palm Pre smartphone but the mobile phone network probably knows that Pre is no replacement for the Apple iPhone.

Palm shares were up significantly today with the shares reaching $11.14, a 10 percent improvement over last week but as one analyst puts it, "Palm's current share price implies the company can walk on water".

Here are five reasons why we believe that the Pre, despite all the promises and/or hype, won't be a worthy replacement for the iPhone in O2's roster of exclusive smartphones.

(1) Marketing Clout of Apple

Whether you want it or not, Apple is a huge marketing giant. The company spent $486 million on advertising in 2008 on its three main products; the iPhone, the Mac and the iPod.

Given the number of iPhone ads that were broadcasted ad nauseam over the UK television channels over the Christmas period, it would not surprise us if a significant portion of the marketing budget was allocated, within the UK, to the iPhone.

Palm certainly doesn't have similar deep pockets and will have to depend on O2 instead to get the word out.

(2) App Store

The iPhone owes much of its current success to the Apps store which has clocked more than one billion apps up to April 2009.

This is certainly more than all the mobile downloads ever performed on all other platforms combined and that number is growing at an average rate of around 100 million per month.

Palm will have a similar store sometimes in the future but given the rate at which it is executing the launch of the Pre, I wouldn't bet on a Palm Application Market (PAM) until late 2010.

(3) Pre is not perfect

Even if the Palm has got a few unique features like wireless induction charging or a slide out keyboard, it still lacks some fundamental characteristics that make it vulnerable especially as experts agree that "The second half of 2009 will prove to be the most competitive smartphone market ever".

There is no HSPA version yet (should be out later this year), it has 8GB internal memory only and there are claims that you won't be able to answer to calls while surfing the web.

(4) Stocks

To make things worse, UK stocks are expected to be available sometimes before Christmas and this will be dependent on the production capacity of Palm as well as the actual US demand.

O2 has sold around 60,000 iPhones a month on average in the UK. That is a benchmark for the Palm Pre to match.

(5) Pricing

Our scenario is that Apple will end up the exclusivity contract with O2, allowing other mobile networks to join the foray. The iPhone is currently available as from £34.26 on a 24 month contract and could be the guide price for the Palm Pre.

The big problem here though is that the NEXT iPhone will be available that price and the Pre will positively look antiquated, having reached the UK, roughly nine months after its launch.