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Palm versus Pocket PC. At one time or another during the past couple of years, every major publication has covered this match-up of the two leading handheld platforms. And why not, it's certainly got all of the elements of a good story. For excitement, there's the "gadget mania" angle, as handheld devices, from PDAs to "smart" cellphones, have become the hottest things since Beanie Babies. And for drama, there's the classic tale of the dot-com David versus the deep-pocketed Goliath, with Palm and Microsoft assuming the main roles. But beyond those obvious angles, which any editor would find too tempting to pass up, is a subtler yet no less interesting subplot that gets little coverage: licensing.

The Palm versus Pocket PC licensing story is not about why they're licensing, that's obvious. Licensing is what's made little companies into giants -- quickly -- starting with McDonalds in the 1960s and including Microsoft in the 1980s and Subway in the 1990s. Rather, the interesting part is how they're licensing, because this is where their paths clearly diverge.

Different Roads, Same Destination?

While Microsoft has chosen to use the same basic licensing formula for Pocket PC that it's used for the past two decades with its other software products -- that is, license broadly and allow the free market to decide the winners and losers, Palm has taken a somewhat different approach. Under the auspices of its operating system subsidiary, PalmSource, Palm grants licenses that make sense within a larger picture, that "big picture" being to develop a successful platform used in a wide array of consumer products. In other words, Palm picks-and-chooses licensees, Microsoft doesn't. Microsoft lets the market decide, Palm guides the market.

The question is how does this disparity in licensing philosophies play itself out in the real world?

Both philosophies have their pros and cons. A downside of Microsoft's "market driven" style is that it creates a dog-eat-dog scenario where only the big dogs survive. In this case, "big dogs" doesn't necessarily mean bigger companies but rather ones with bigger slices of the handheld pie, usually the top three. The others simply disappear. It's happened a couple of times to Microsoft, once in its Palm-size PC days when Philips, Audiovox and Everex bolted and more recently with attrition among the Pocket PC ranks. But Microsoft's methodology can also serve to spur innovation, as companies compete for consumers by creating better and more capable products.

The Palm way is not without its downside either. In its pre-PalmSource days, it chose to deny a Palm OS license to an attractive potential licensee, Toshiba, rather than risk cannibalizing device sales for other licensees, including its own hardware division. Toshiba eventually purchased a Pocket PC license from Microsoft and has carved out a significant portion of the handheld market. But the upside to selecting and protecting its current licensees is the low attrition rate among Palm OS licensees, and significant product differentiation as well.

So the question remains: what form of licensing works best? Does Microsoft's "market driven" approach to licensing produce the best products from the resultant cream-of-the-crop licensees? Or does the battle for marketshare weaken its licensees, only to await the next wave of new licensees? And does PalmSource's formula for nurturing and protecting its licensees and their particular segments with the device market result in a stronger handheld industry, or does it stifle innovation?

Join us in debating these issues in the Brighthand discussion forums.