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Palm OS out the Window

Posted on 22 Nov 2005 at 16:33

Mark Needham assesses the PDA market following Palm's decision to 'surrender' to Microsoft

Another long war is over and Microsoft has won again. The next version of Palm's Treo, expected to be called the Treo 700, will run Windows Mobile rather than the Palm (or PalmSource) operating system that's powered all Palm hardware to date. When General Robert E Lee surrendered to Federal forces at Appomattox Courthouse, he said: 'After four years of arduous service, marked by unsurpassed courage and fortitude, the Army of Northern Virginia has been compelled to yield to overwhelming numbers and resources.' Whether Palm's army fought to the same standard is debatable, but the result was the same: the bigger battalions won.

At first, the new Treo will be available only in the US, on the Verizon mobile network, and the models on sale in the UK through most of the first quarter of next year will still be running Palm OS. But it's clear that in the long term Palm can no longer produce its own OS and that, like HP, Dell or Fujitsu Siemens, it will produce handheld computers based around other OSes. Some of these may be Linux based, but most of them will come from Microsoft.

Eight years ago, when Palm was still at the top of its game, Microsoft announced that it was producing handheld system software that competed head-on with Palm's own OS. Initially called Windows CE, then renamed Pocket PC, Microsoft's OS was first derided as an ugly, awkward-to-use dog. But Microsoft kept on copying Palm's innovations and, as it has historically always done, improved its OS from release to release. It spent some of those large profits it makes from its domination of desktop software to promote the sales of handhelds produced by its partners, particularly HP. Meanwhile, Palm seemed too busy blurring its brand image by changing its name every other month.

The idea was that if Palm split itself into two separate companies - PalmSource making the OS and palmOne making the hardware - other manufacturers would be persuaded to make machines based on the Palm OS. The Palm brand was put into a company called the Palm Trademark Company, which was owned 55 per cent by PalmSource and the rest by palmOne, which agreed to buy a minimum number of licences from PalmSource every year (an agreement that still has two years to run). But PalmSource was no competition for Microsoft - after Sony ceased to make its CLIÉ range of Palm OS PDAs, two-thirds of PalmSource's modest annual sales of $60 million came from palmOne. So in May 2005, palmOne agreed to buy back the other half of the Palm Trademark Company for $30 million, and palmOne renamed itself Palm. 'Over time, customers have come to identify the name Palm more with physical products than with the operating system that powers it,' said Palm's official statement in an attempt to justify this branding shambles.

Palm is now a hardware company that, after it's fulfilled its obligations to buy a certain number of licences from PalmSource, can buy other licences wherever it likes, for Linux, Windows or whatever else it sees fit. PalmSource, meanwhile, announced that it had agreed to an all-cash offer of $323 million from Access, a Japanese software company that produces web-browsing software. For a company that makes a profit of barely $16 million - with only one customer that's now changing suppliers - this seems like an astonishingly high valuation. Access is supposed to be interested in PalmSource's work in porting Linux onto handhelds. For this price, it had better be good.

Despite this chequered history, there's still a large number of people out there who are using Palm devices, or have such warm memories of previously owned Palm devices that they might realistically be tempted back. Palm, like Apple, is an emotional brand and its user loyalty runs high. I know someone who's used a Treo 600 ever since its arrival in 2003, and even though he's gone through five handsets in under two years he still loves it. I'm amazed that he gave it a fifth chance: who would have cut the same amount of slack to a Dell or an HP? Jane Hambleton, a sales manager for a software components vendor, is another Palm fan. Like so many others, she told me that she loved her Treo 650 and rated it as a definite improvement over the Treo 600. But she also had to admit that it was fairly irritating to have a phone that rebooted itself ten times a day: 'It seems that there are many other good options for smartphones out there' was her parting comment, with just a hint that her brand loyalty was becoming severely strained.