Hewlett-Packard's announcement on Thursday to stop making tablets and smartphones based on webOS surprised many analysts, who said the company buckled under the pressure of Apple's momentum and growing support for Android.
HP announced it would stop selling webOS devices, including the TouchPad tablets and smartphones, as it looks to transform its operations to focus on enterprises. The company plans to concentrate on its enterprise and printer businesses and sell or spin off its Personal Systems Group (PSG), which is responsible for sales of the PCs and webOS devices.
However, HP said it would look for ways to use and "optimize" the webOS platform, including licensing it to hardware makers. HP acquired webOS along with Palm last year for $1.2 billion, and at the time said it would use the OS across a range of devices including tablets and printers.
But sales of webOS smartphones and tablets have not been gaining traction in the fast-moving and complex consumer market, said Leo Apotheker, HP's CEO, on a conference call to discuss third-quarter financial results.
"Sales of the TouchPad are not meeting our expectations," Apotheker said.
HP hoped to establish webOS as a clear second OS platform for mobile devices, but the software ecosystem is poor and the TouchPad hardware was not received as anticipated, said HP's chief financial officer, Cathie Lesjak. The pricing of TouchPad tablets was cut by $100 shortly after launch in July, and the profit margins on those devices grew thinner, Lesjak said.
The TouchPad couldn't compete in a market dominated by Apple's iPad and the many available Android tablets, said David Daoud, research director at IDC.
Much like Apple's mobile device strategy, HP intended to wrap together hardware, software and services but lost patience and decided to cut its losses, said Ezra Gottheil, senior analyst at Technology Business Research.
"With their OS, building the market would've taken time. It's clearly an offering that required patience," Gottheil said.
Gottheil didn't expect HP to give up on webOS so quickly as it had the promise of being a high-margin product for HP, much like Apple's products.
With the decision to separate the hardware and software businesses, HP runs counter to the trend in the mobile market to vertically integrate development. With Google's planned acquisition of Motorola, Windows Phone became the only major OS whose creator doesn't also make hardware.
Now, however, HP joins Microsoft as developer of an OS that is licensed to hardware makers.
"Now that Google has acquired its own hardware vendor, webOS could be a good alternative for some of the Android-only vendors," said Chris Hazelton, an analyst with The 451 Group.
While phone makers like HTC and Samsung use other OSes, they rely heavily on Android. Many experts have said they expect those hardware vendors to be wary of Android after Google's Motorola acquisition, since it's likely that Google will favor Motorola.
While it looked like Windows Mobile might benefit as a result, Hazelton says that HP's announcement may put a damper on that potential boost.
"WebOS could be a cheaper alternative to Windows Phones" for hardware makers looking for non-Android options, Hazelton said.
In addition to the likely lower cost for webOS, handset makers would have more options with webOS to choose their own added services.
Google and Microsoft both like licensees of their phone software to use their search, map and other services. But with webOS, a handset maker could choose whatever services they wanted or even build their own, Hazelton said.
Still, even though many people have praised the webOS software, the announcement doesn't look good, since it's clear that HP was unable to successfully sell phones using the software. That means HP will face a significant challenge: convincing developers to continue working on the software.
Developers must have the confidence in the success of the platform to convince them to spend the money required to develop for it, said Will Stofega, an analyst with IDC.
"You can have the greatest OS in the world, but you also need applications to run on that platform," Stofega said.