I must admit, I am quite taken with the Palm Pre. The hype, predictably, has been enormous. And the handset itself is very well put together. Online reviews rave about it. After playing with my friend’s new Pre, I have to agree with them: it is one cool handset.

But before the Pre could bask in the media spotlight for long, Apple whooshed in two days later to announce its newest iPhone, the 3G S, and that the 3G would sell for as little as $99.

So how has this move affected overall interest in the Pre?

This chart shows the percentage of people viewing the Palm Pre who also looked at the Apple iPhone 3G S online in the same week. Interest in the Pre is defined here as anyone who looked at a Pre-related webpage hosted by Palm or Sprint (or both). Similarly, interest in the iPhone 3G S includes anyone who viewed iPhone 3G S-related web pages at Apple or AT&T (or both). Before the announcement of the iPhone 3G S, interest traffic for the iPhone represents the iPhone 3G.

Here we see that:

• Before the iPhone 3G S was officially announced on June 6th, only about 2.5% of people who looked at the Palm Pre online also viewed the iPhone 3G
• However, once the iPhone 3G S announcement was made, traffic to the iPhone 3G S by Palm Pre shoppers jumped 104%, signaling that the Pre definitely had to share the limelight with the new iPhone 3G S
• By the time the iPhone 3G S was available, just a week after it was announced, consideration of the device by Palm Pre shoppers dropped by about 25%

While the decrease in cross shopping seems to suggest that the iPhone 3G S will not continue to distract Pre shoppers, handset interest data shines a different light on the situation. Interest in the Pre predictably shot up during the week of its launch and the week after as marketing efforts and press coverage reached a fever pitch. However in the second week after launch, Pre interest dropped sharply to levels it had prior to launch, as shown in the chart below.

This suggests that the Pre may indeed have lost its thunder online, though it is unclear at this point if interest has transferred to the iPhone 3G S or simply faded away. Certainly, consideration of both models decreased after the initial excitement of the Palm Pre’s launch and the iPhone 3G S announcement passed, which could indicate that distinct fan bases have emerged for each phone.

Still, much remains to be seen over the next few weeks, as each phone works to establish and sustain its fan base. There are also more opportunities to drive online interest in the Palm Pre to counter the iPhone. Selling the device online is one possibility. Encouraging development of more applications to rival the iTunes App Store by releasing the software development kit more broadly (which Palm says they will do “by the end of this summer”) could also entice consumers.

Challenging the iPhone’s dominance is no small task, but we’ll be watching over the next few months to see if the Palm Pre is the device that will rise to the occasion.

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