Just keep reminding yourself that Compaq was an odd deal too.

Today Hewlett Packard palmed Palm for whopping $1.2B, or about 1/10^th of HP’s petty cash.  This was newsworthy for many reasons including the fact that Palm’s struggling handset line will now join HP’s struggling handset line (bet you forgot that HP makes cell phones — so did the rest of the market).  In a world where RIM owns the corporate market, Apple owns the consumer market, Microsoft hasn’t helped HP’s market, and Google/Android are changing the rules of the market, this marriage seems slightly more absurd than half of Hollywood hook-ups.

The deal is not without upside.  First, the market for mobile is not yet saturated.  Especially on the low end, there is plenty of green field. As unlocked handsets become more prevalent and popular, HP can use its retail savvy to shove cell phones into public ears.  I can almost here the cashier at Wal Mart saying “Would you like some printer cartridges with that?”

Interestingly, Todd Bradley is a top executive in HP’s Personal Systems Group and was also a former CEO of Palm.  In announcing the acquisition, Bradley noted that Palm had a lot of intellectual property, some 1,650 patents.  These alone might be worth the acquisition as it allows HP to license and monetize the investment, or choke the life out of competitors.  HP is not immune to litigating, though it is not their forte.

Otherwise the only item Palm brings to the table is a mobile OS, one so innovative and exciting that the market didn’t even bother to yawn.  In an industry where driving component cost down while improving the user experience is 90% of the battle, incorporating the Android OS makes much more sense, as recent mobile market share data shows.  Some speculate that HP wants a private OS to spread across handsets, slates and device types to be named later.  But buying Palm for this is like buying a deceased nag to run the triple crown.

Odds of winning are about the same.

All in all this appears to be an insider deal, were former Palm executives working in HP are overly optimistic about alleged synergies and product potentials.  But as far as technology companies go, HP has successfully merged other entities and made a buck or two.  The Compaq merger worked despite many misgivings (I had my doubts, but the dual brands and economies of scale in standardized PCs let HP take top honors away from Dell).  But HP has had its share of acquisition and partnership failures too (DEC via the Compaq deal is nothing, and outside of HP-UX nobody uses Itanium, much to Intel’s chagrin).

From an outside perspective, the market dynamics look oddly promising.  The smart phone market is growing at nearly a 40% CAGR clip and mobile data is almost the new norm.  But smart phones as a percent of all cell phones are still relative small –around 10% of all handsets according to some 2009 data and projections.  So perhaps HP is merely betting the long game — that by acquiring Palm and getting WebOS in shape, HP can catch the break of the new wave.

The problem is that HP needs to add something that the competition has not or cannot.  Palm has failed, and HP’s mobile bread is currently buttered by Microsoft, who is losing market share faster than Steve Ballmer is losing hair.  Assuming that HP cannot add magic (and, face it, they don’t do that very often), then they will have to compete on price.  Perhaps Palm’s IP combined with Compaq’s mass manufacturing prowess will shove deeply discounted smart phones into the market.  Given the bargains you can get on consumer edition HP and Compaq desktops and laptops at every office supply store on the planet, this might well be where HP is heading.

There is no marketing lesson today.  Just stunned wonder.

UPDATE: Perhaps I spoke too soon.  HTC announced that they are going to run and run hard with Android in an attempt to saturate the smart phone market.  They have a head start and will likely beat HP to the wave crest.  The marketing lesson is that if you see a hot mass market ready for exploiting, so do your competitors.  If they have a faster and cheaper approach than you, expect to lose.