The Hot Product Hail-Mary

The WSJ has a piece this morning on how palmOne had its bacon saved by a hot product, the Treo. And more specifically, the story talks about how the new Treo 650 is going to cause a major shift in palmOne’s revenues:

“The Treo has become a much bigger piece of our business much faster than we thought,” says Todd Bradley, palmOne’s chief executive. In its first quarter ended Aug. 27, palmOne derived about half of its revenue from the Treo. For the fiscal year ending in May, the company expects the Treo to provide a majority of its revenue.

As a result, palmOne is shifting two-thirds of its annual $70 million product-development budget, spent mostly on engineers, to support the Treo. The company’s stock has nearly doubled to $30 a share since the company completed the Handspring acquisition in October 2003.

There are many ways to read this, including that were it not for Treo palmOne would be in desperately difficult shape. After all, a new product is about to account for most of its sales — the corollary is that sales from the company’s other products are in free-fall.

Nevertheless, good for palmOne, but there is a cautionary note in here. And that is that fixating on a Hail Mary pass from a new product is appealing, but seductively dangerous. Many companies will look at this story and at palmOne’s success with Treo and say “That is precisely what we are trying to do with our New Product Whiz-bang.”

The trouble is, for every company that succeeds in betting the company on New Product Whiz-bang there are hundreds (thousands?) that don’t — most of which would have been better off pursuing iterative improvements on existing products.