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Palm Strikes Curious Treo Deal

Palm Treo Pro
Source: palm.com
Palm Treo Pro

The Palm Treo Pro is easily one of the most anticipated product releases in the company's history. And riding the wave of the Centro smartphone, and the 2 million units the company has sold, Palm was in a position to capitalize nicely on its marketplace momentum with Treo Pro's release today.

And all looked good for the Treo Pro. Leaked photos of the device sent the blogosphere into a tizzy. The phone looked good, it had the pedigree of Microsoft's Windows Mobile 6.1, it had all the bells and whistles necessary to compete nicely with Research in Motion's Blackberry Bold and other high-end, enterprise oriented smartphones on the market or coming to market soon. And the early feedback has been glowing.

In fact, Palm CEO Ed Colligan told me as much when I sat down with him this week to talk about the Treo Pro's release. This is precisely what IT managers have been clamoring for, and with its Wi-Fi and GPS, a removable battery, a real world-phone, and all that comes with a Windows Mobile device, this was supposed to be a homerun. And it sounded like one, until our conversation turned to price.

The Centro, at $99 -- or far less depending on the deal you can strike, has killed Palm's margins and average selling prices, or ASPs. This company was in dire need of a higher end, higher margin device that could juice those categories. And Colligan felt the pressure to deliver. But companies always have to balance a higher price with what the customer is willing to pay, and what competitors are charging for their products.

Needless to say, when Colligan told me that the Treo Pro would retail in the US for $549, I gasped. What's the carrier subsidy, I asked? Who's the carrier? What's it really gonna cost? There isn't any. There isn't one. And yeah, it's really $549. We'll be selling the phone in the US unlocked, at least initially, he told me. The strategy: giving end users the "flexibility" to choose their own carrier without a new contract, and paying dearly for the privilege.

“I think a lot of the IT guys look at this and go, 'Look, when you look at the total cost of ownership, the price of the device is one piece of it. The real cost of ownership is the usage charges, and can we manage that more effectively if we have more control over what (SIM) cards go into it?'" Colligan told me.

It's a good question. And he brings up a good point. Buy a Verizon subsidized phone and head overseas and the roaming charges eat you alive. Buy an unlocked phone and you can get "local" service wherever you are. True enough.

But that initial price tag might turn off a lot of IT managers who may not want to give that kind of flexibility to their end-user employees. The fact is, carriers do subsidize phones, and most IT managers have exisiting contracts for handsets with them. And when various Blackberrys are $49, and the Apple iPhone is $199, you gotta wonder who's going to embrace the value of a $549 handset from Palm. Colligan tells me partners briefed on this instantly embraced the concept. I guess the proof will come with those initial sales figures. Either Colligan and team are geniuses; or they're deluded.

I just wonder whether Palm had difficulty getting the manufacturing cost of this thing low enough that a carrier could cost-effectively subsidize it. Or whether carriers saw how much this phone really cost to build, and got scared away, forcing Palm to come to market without a US carrier partner in place. I ask, because Palm announced partnerships today with Vodafone and O2 in Europe and Telstra in Australia, and all are offering subsidies that substantially reduce the Treo Pro's price. So why there and not here?

Again, the proof will come with U.S. sales figures, if Palm decides to break them out. The phone is pretty. It's a slick smartphone. But sticker shock may prevent this device from becoming the saving grace Palm execs and its shareholders were hoping for.

Questions? Comments? TechCheck@cnbc.com

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