The decline and fall of the Palm empire

The once-mighty Palm, still successful on paper from the momentum of past glories, is doomed to decline and failure. It wasn't always thus. Here's my preemptive post-mortem.

About 12 years ago, I met with a man I didn't know, working for a startup I was unfamiliar with to see a product I'd never heard of.

The man was Ed Colligan. The startup was Palm Computing (though it had recently been acquired by modem maker U.S. Robotics). And the product was code-named "Touchdown," later to be branded the "Palm Pilot."

At the time, I was executive editor of a computer magazine, and Palm was just one of a dozen or so companies scheduled that week. Most of those meetings were forgotten minutes after they concluded. But the "Touchdown" meeting was a revelation. Colligan, now president and CEO of Palm, left me a device to test.

At the time, there were dozens of electronic organizers on the market. But the Palm Pilot blew them all away with its radical ease of use and zippy performance.

Since then, I bought seven Palm OS devices: Palm Pilot 1000, Palm III, Palm IIIxe, Palm VII, Palm Vx, Treo 270 and Treo 650. I even published for a couple of years an e-mail newsletter devoted to the platform called, "The Palm Reader."

The company invented the first great "connected organizer," a PDA that synchronized with desktop applications like Microsoft Outlook and Lotus Notes. A software developer of almost any skill level could create applications for it, and thousands did. Later, the founders of Palm invented the first great smart phone -- essentially a Palm Pilot that made phone calls. They were cheap, simple and fun to use.

The genius behind both these inventions was, of course, Jeff Hawkins. Together with co-founder Donna Dubinsky, Hawkins launched the companies and invented the devices that transformed -- and, for a time, dominated -- mobile computing.

The Palm Pilot was great for the same reason iPods, Macs and other Apple products are great. In each case, development was lorded over by a design and usability fascist driven by a powerful vision of the complete user experience.

What went wrong?

The tragic story of Palm's fall from greatness is a history of squandered resources and misplaced effort.

As transcendent as the company's product and design decisions were, its business decision-making was always problematic.

It all started when the founders of Palm raised money for the first product launch by selling the company to modem giant U.S. Robotics in 1995. The founders gained the cash they needed, but lost full control of both the company and the product -- forever.

One year after U.S. Robotics was acquired by 3Com in June 1997, the founders left the company in disgust and launched Handspring, which eventually developed the first good mass-market smartphone, the Treo. 3Com made Palm an independent, publicly traded company in March 2000. In January 2002, Palm disastrously spun out its software division as an independent company called PalmSource. Then, in August 2003, the company merged with Handspring and renamed itself PalmOne. In April 2005, the company, now called PalmOne, spent US$30 million to buy the "Palm" trademark from PalmSource, and changed its name back to Palm. In December 2006, Palm paid $44 million for access to the Palm OS source code it used to own, so it could make its own software again.

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See the trend?

Palm merges with another company only later to be spun off. The company ignores the founders' direction, only to later acquire their startup and take up their direction. Palm spins out the software division only later to buy back the rights to it. Palm gives up the Palm trademark only to later buy it back.

How many times has Palm distracted, divided and plundered the company with spinoffs, acquisitions and mismanagement?

Palm's official timeline provides another view of what went wrong.

From 1995 to 2000, many of the timeline milestones use the word "revolution" and feature multiple design awards for innovation. The company was an unstoppable, invention-crazy company focused like a laser beam on product greatness.

The news in 2000 was all about the rapid growth in developers, from 31,000 early in the year to more than 100,000 by September.

After that, the "milestones" are bland corporate blather about partnerships, new markets and boring new product launches. The "revolutions" and design awards moved from Palm's history page to those of other companies.

It's an oversimplification, but as control over Palm was transferred from the visionaries to the suits, the products became more generic and uninspired.

Which was OK -- for a while.

Why Palm is doomed

Unless Palm finds its way, it may slouch into obscurity or cease to exist altogether in the coming years.

Currently, Palm is a profitable company with lots of customers, partners and investors. The company seems to be doing OK, and Wall Street isn't worried. Blackjack.

The problem is that the world has changed radically in just the past year. It's hard to believe, but it was only a year ago that the smartphone purchasing decision was as easy as paper or plastic -- BlackBerry or Treo?

But as more players jump into the smartphone handset market, margins shrink and user expectations rise. And everyone seems to be innovating except for the great innovator -- Palm.

During the past year, all the major players launched "Treo Killer" devices, including Reseatch in Motion with both its BlackBerry Pearl and the Pearl's full-keyboard cousin, the BlackBerry 8800. Samsung's goes directly after the Treo market. The Motorola Q is hot. Nokia, Hewlett-Packard, Sony, Samsung and others are all gunning for Treo with brand-new, full-featured smartphone gadgets.

And then, last month, iPhone changed everything. Jobs' Macworld keynote was like a nuclear bomb in the world of smartphone enthusiasts. The "key influencers" who gave Treos visibility and cachet a year ago -- Hollywood types, gadget freaks and absolutely everyone who's anyone in Silicon Valley -- have stopped talking about Treos and are simply waiting for the iPhone to come out, at which time they will unceremonially dump their Treos and embrace the new innovation leader.

Meanwhile, it looks like Palm isn't even trying to innovate. Colligan said in an interview recently that the company is focused on ease of use, rather than design, and that the company doesn't want to "follow design fads." In other words, Palm is not only failing to set trends, it's not even following them anymore.

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Reason for hope

Despite my doom-and-gloom scenario, there is reason to hope that Hawkins may save the company yet again.

Rumors suggest that Jeff Hawkins is toiling away in some secret lab to build a revolutionary device that will leapfrog Palm ahead of the pack. If the rumors are true, Palm has a chance to survive. If false, Palm is probably toast.

The $64,000 question is: Has Palm lost its mojo? In other words, does Palm still think like Apple -- that the product is everything -- or is the company thinking more like HP, where partnerships, branding shell games and big enterprise deals are most important?

HP fails in the smartphone market in part because of an institutionalized delusion, common at most big and old Silicon Valley companies, that enterprises buy smartphones based on security, back-end infrastructure support and integration with enterprise systems in general.

Yes, those things are important. But in the smartphone market, cool is king, even at the biggest companies. RIM does a great job supporting business goals. But RIM is number one because people "love" their BlackBerrys. Palm is number two (but dropping fast) because people "love" (or used to love) their Treos.

A gadget that elicits an emotional response from buyers can emerge only from visionary design, and cannot be produced with a design-by-committee corporate culture.

Palm has plenty of cash and reasonable prospects for growth. My advice is to throw every penny at Hawkins and let him build the device of his dreams without interference. Everything the company now has started with Hawkins' design vision.

Given its history, however, I think it's likely that Palm will squander Hawkins' genius yet again with another disastrous stunt, such as selling the company.

The software business, PalmSource, sold out to Japan's Access Systems in a US$324 million deal. The company changed the name of the operating system to the Garnet OS. That product is now headed for obscurity and irrelevance.

Will Palm follow PalmSource down the road to oblivion? We'll see.

If the company can remain true to its founding vision, remain independent and out-innovate everyone else like it used to, you can disregard everything I've written here. But if Palm remains on its current trajectory, the company is history.

Mike Elgan is a technology writer and former editor of Windows Magazine. He can be reached at mike.elgan@elgan.com or his blog: http://therawfeed.com.