What a roller coaster ride! The year 2001 seems to have been a turbulent
year for Palm, filled with organizational and management changes, the death
of the dot-com economy, lackluster product releases, and the onslaught of
the Microsoft marketing juggernaut. Many people have started asking, "Hey,
what is Palm doing anyway?" and wondering how strong Palm's grip is on the
handheld market. Even the PalmSource developer's conference seemed to lack
the big announcements and excitement of prior years. And yet, in the
background amongst the chaos, Palm has been quietly been laying the
groundwork both technologically and structurally for a major assault in the
handheld commerce battlefield.
Palm's Product Line
In the last twelve months or so, Palm has brought some new members to the
PalmOS family, including the m500, m505, m125, and i705 handhelds. While
generally healthy, well-received additions sporting new expansion
capabilities, always-on wireless access, and color in the smallest form
factor yet, the new units were sometimes eclipsed by their flashy cousins
brought to the party by other PalmOS licensees Handspring, Handera and
While it's only natural for our excitement about a company to be tied to
its hardware releases, it's important to remember that the Palm name also
represents software--the PalmOS operating system--the digital backbone
behind all PalmOS-Powered handhelds.
A Better Business Model
The hardware business is tough--a business plagued with razor-thin margins,
inventory headaches, supply shortages, and product obsolescence. Most
analysts would agree that making software is often a much better business.
There are often no cost-of-goods, warehouses, or raw materials to worry
about. And yet, the futures of software and hardware developers are
inseparably tied together. Software programs are useless without the
devices to run them, and most hardware platforms owe their success to one
or more "killer apps" which made their purchase worthwhile. How would the
Apple-II have sold without Visicalc... the IBM/PC without Lotus 1-2-3...
the Nintendo without Mario?
The software developers who make those killer apps want to be successful
too. After all, someone has to afford all those new-fangled gadgets and
devices that keep the whole ball rolling. So developers tend to write
programs for platforms that can offer the biggest crowd of program-using,
registration fee-paying customers. And "lots of customers" requires "lots
of devices;" typically more devices than a single company can create and
market on its own.
Palm, in all their wisdom, has realized that their ultimate fate depends
not just on the sales of individual devices, but on the success of the
platform as a whole and the widespread adoption of PalmOS as a defacto
standard. In July 2001, Palm announced that it would separate the hardware
and software components of its business into separate companies, a process
that has recently completed. The hardware company kept the "Palm" name,
while the software group responsible for the operating system is now called
More than just a move to clarify the operations of the two groups, the
division was meant to help attract experienced electronics and cell phone
manufacturers. Otherwise, they might feel they would be competing directly
against one half of Palm while supporting the other half. Indeed, the
success of new devices from Handspring, Sony and Samsung testify not to
shortcomings in Palm's ability to innovate, but in their success at
expanding PalmOS beyond a one-company standard.
Another large change will be coming this summer in a new update to PalmOS.
Version 5.0 expands beyond the classic Motorola Dragonball processor used
in current handhelds to support faster ARM chips. Often seen simply as a
way to boost high-end performance to compete against PocketPC devices, the
significance of the change is often overlooked. After all, do we really
need our Datebook apps to run any faster than they already do? More
importantly, the new operating system makes PalmOS a multi-platform
operating system, helping to welcome more manufacturers into the PalmOS
fold. After all, it gives them more choice, and many cell phone
manufacturers already have a sizeable investment in ARM technology.
Perhaps more significantly, it doesn't lock them into buying a key
component from Motorola, a big do-everything company which makes amongst
lots of other products... a line of cell phones of their own.
Widening the Market
Microsoft, which is now aggressively pushing their alternative PocketPC
platform, is no doubt very familiar with this widen-and-conquer approach.
After all, no one has benefited more from the dominance of the PC platform
than the Bill's behemoth. Will history repeat itself in the handheld
space? Perhaps. But would that necessarily mean that Microsoft would win?
Perhaps the ultimate soothsayer--history--can help us discern the answer.
At the turn of the century (no, the one before that), two competing
technologies jockeyed for the lead in a race for dominance in a new,
emerging product market. The battle was over horseless carriages, and
whether steam power or the gasoline-powered internal combustion engine
should drive them. The Stanley twins of Massachusetts were major players
in the field, building their first light steam car in 1897. Their "Stanley
Steamers" enjoyed brisk sales, with good reason. Steam cars offered many
benefits over gasoline-powered cars, including mechanical simplicity,
better reliability and power, and the ability to run on virtually any fuel,
including coal, kerosene, natural gas, or even wood.
And yet, even with strong early technology, by 1915, steam cars were
clearly losing the race to their gasoline counterparts. A key reason for
the change was the emergence of the Ford Model T in 1908. The Model T's
success came not from technological superiority but in how it was made;
Ford invented mass production techniques to create Model T's cheaply, while
Stanley Steamers remained crafted one at a time by hand. Because Model T's
were so affordable, they were sold in great numbers, making them, and their
gasoline-powered engines, the "defacto" standard of the day. This market
dominance nurtured the growth of a nationwide network of supporting gas
stations, further solidifying gasoline's lead over steam. More
importantly, the increased momentum accelerated research in gasoline-based
technology, so that even the early advantages steam power held were eventually
surpassed in the following years.
Nearly a hundred years later, a similar situation played itself out on the
desktop battlefield between rival computer operating systems made by
Microsoft and Apple Computer. In the early 90's, Apple's elegant Macintosh
operating system enjoyed a clear technological lead over Microsoft's early
Windows 3.0 PC product, which was at best a feeble copy of the Macintosh
OS. With such a clear difference between them, Macintosh supporters
expected consumers to embrace the new devices wholeheartedly, leaving
clunky PC's behind. However, against the objections of some within the
company, Apple priced their computers at a premium, pricing no offerings at
the level of their PC counterparts. Rather than growing their market share
by making inexpensive machines or licensing their operating system to clone
manufacturers (which they eventually did too late), Apple executives
gleefully followed slogans such as "fifty-five or die", referring to the
demand for a 55 percent profit margin by then Apple-France president
In the long term, this strategy would prove shortsighted, as the lower
price of PC's helped solidify their dominance in the market, allowing
history to repeat itself. In the same way the Model T helped drive
innovation in internal combustion engines, the dominance of the PC helped
drive and fund development of PC-specific peripherals, software, and even
the operating system itself. As a result, PC's and Windows have steadily
improved in the years since, to the point that technological superiority on
either side is an arguable point, something unthinkable just a decade
earlier. Today, while Apple still maintains a small loyal following, it
now has no reasonable hope of unseating PC's running Windows, and the once
real hope of capturing the dominant position in the desktop computer market
has long since faded.
Today, the PalmOS platform finds itself in a similar race with its PocketPC
rival. Oddly enough, this time, Microsoft finds itself in the underdog
position against PalmOS, an operating system created and supported by many
ex-Apple veterans, supporters and developers. Like the Macintosh of the
90's, PocketPC handhelds are often perceived as being more powerful than
their counterparts, PDA's running PalmOS. This time, however, Microsoft is
the one burdened by inflated prices--this time not a choice but a
consequence of high minimum hardware requirements needed to run the bulky
PocketPC operating system.
As a result, PocketPC manufacturers have made little headway breaking below
the $400 price barrier, the cost of a basic desktop computer. Entry-level
handhelds running the relatively svelte PalmOS operating system, however,
face no such limitation, routinely selling for less than $100, a far more
consumer-friendly price for people with bills, car payments, children,
pets, and other numerous money-eating expenses.
While PocketPC's have made little progress on the low end of the market,
PalmOS forces continue to advance on the high end, giving even the most
financially-capable strong new choices in the PalmOS camp. The past year
has seen the appearance of no less than three PalmOS-powered phones, high
resolution displays surpassing those found on PocketPC's, and countless
innovative software releases, including a few from companies with pleasant
colors in their names. If this momentum continues, and there's no reason
to believe that it won't, there's a good chance history will repeat itself