Does It Make Sense for Amazon to Buy Palm (webOS) from HP?

There is a new rumor in town, and it says that Amazon is currently in negotiations with HP to buy what’s let of Palm.

HP recently discontinued webOS development, after buying Palm for $1.2 billion last year. It sold off its remaining stock of Touchpads, and is now focusing only on enterprise software. Presumably, it is willing to sell off Palm’s assets for much less than $1 billion.

Amazon is now one of the biggest contenders in the tablet space. The Kindle Fire, its $200 tablet is one of the cheapest tablets with a complete ecosystem in place. It is expected to sell around 4-5 million units by the end of 2011.

If there is some manufacturer which could bring webOS back to life, it’s probably Amazon. Apparently, even Jon Rubinstein, the former CEO of Palm feels that Amazon would be a great partner for webOS.

Amazon Kindle Fire

But does it make sense for Amazon?

For the Kindle Fire, Amazon has already completely customized Android to create a tablet tightly integrated with its own services and content platform. One of the biggest reasons people will buy the Amazon tablet is because they can still use Android apps on them, via the Amazon App Store.

If the Kindle Fire 2 were to run on webOS, Amazon would have to lure developers to webOS first, which would defeat the entire purpose of its investment in the Amazon App Store.

Given that users would rather prefer an Android tablet than a webOS one, and the fact that Amazon has already invested heavily in Android, it makes no sense to switch platforms now.

However, there may be one reason for Amazon to switch to webOS. Microsoft has been forcing almost all Android device manufacturers to sign patent licensing agreements with it, and is demanding around $5-$10 for every Android device sold. Amazon may have to sign a licensing agreement with them soon, and given the razor thin margins on the Kindle Fire, it may rather prefer to pick up webOS from HP for a few hundred million dollars, instead of paying Microsoft much more per year as licensing fees.

It’s going to be interesting.

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