Can PalmSource Survive?

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Last month, Palm, Inc., under pressure from the other Palm OS licensees, spun its operating system division off as a separate company. Though PalmSource has stood on its own for a very short time, I have some concerns about whether it can survive as an independent company over the long term.

PalmSource’s current financial situation isn’t exactly rosy. It makes the lion’s share of its revenue through its licensees selling handhelds. As it stands now, not enough Palm OS handhelds are being sold to pay PalmSource’s expenses. Even worse, the total number of handhelds sold annually for the last few years has been in decline even as the percentage of handhelds running the rival Pocket PC operating system has been on the rise.

But hope remains. Companies are using the Palm OS in more than just handhelds. There are quite a few Palm powered smart phones on the market as well. And the number of smart phones is expected to experience strong growth over the next several years. I’ve seen predictions that show smart phones outselling handhelds 10-to-1 in just a few years. Clearly, PalmSource needs growth and this is where it has to come from.

However, PalmSource is hardly the only player in the smart phone market. Currently, most smart phones are being sold by Nokia and run the Symbian OS. And Microsoft has recently made a strong entrance into this market. To give you an idea of what a difficult struggle PalmSource faces, a vice president for the market research firm Gartner gave a speech a few weeks ago in which he predicted Microsoft would triumph over Symbian and come to dominate the smart phone market. He didn’t even seem to consider the Palm OS a serious contender.

Not that I think PalmSource should hang up its towel now. There’s still room for hope. But the company has a lot of work ahead of it.

The very best thing PalmSource can do is make the Palm OS the easiest to use smart phone operating system available. A recent survey found that most smart phone users thought their devices were too hard to use. These people weren’t asking for new whiz-bang features; they wanted to do basic tasks like check their email and install new applications. But their current smart phones made these so difficult the users couldn’t figure out how to do them.

If PalmSource puts the money and effort into making the Palm OS even easier to use than it is now, it will have a significant advantage over its competition. And I’m not saying it needs to be a little bit easier than other operating systems; it must be significantly easier. Setting your device up to get your email should take one or two steps, not a dozen.

Fortunately, it looks like PalmSource realizes the importance of smart phones. For example, it announced a couple months ago it was developing a special version of Palm OS 5 just for low-cost smart phones. This will be close to the current version of the operating system but will be tweaked to make it easier for licensees to develop sub-$200 smart phones running it. Though the current crop of Palm powered smart phones is very impressive, they are all too expensive for mass-market acceptance. The goal of the sub-$200 smart phone is an important one for PalmSource to meet.

Handhelds Still Important

Though smart phones are going to be the area of the most significant growth over the next several years, this doesn’t mean PalmSource should abandon handhelds. There is already an established market for these and plenty of people who don’t want to make the compromises necessary to switch to a smart phone.

If PalmSource is going to keep up sales of handhelds running its operating system, it has to at least match improvements made to Windows Mobile for Pocket PC. The support for switching between landscape and portrait modes being added to Palm OS 6 will help a lot, and so will the performance enhancements and other changes being made.

The decision made years ago to make only one version of the Palm OS is proving to be a wise one. Many of the improvements made for its handhelds will also benefit its smart phones, and vice versa.

Handhelds will keep providing critical revenue for PalmSource for years. But this revenue won’t be enough to keep the company in business and therefore it must put a lot of time and effort into other types of mobile devices, especially smart phones.

Outstanding Hardware Needed, Too

Improving the Palm OS is only half the battle. Even the best operating system can’t make a success out of a poorly designed device. And this is even more important with smart phones, whose users are accustomed to very small mobile phones. PalmSource doesn’t make hardware, which is why it has to pick its licensees with great care. As it’s currently running in the red, there’s going to be some temptation to run around willy-nilly giving out licenses to any company that wants one, in the hopes that more licensees will mean more revenue. PalmSource must resist this temptation. Too many ill-chosen licensees fighting over the same customers will mean none of them are profitable, which won’t be to the long-term good of the Palm OS platform.

Thankfully, PalmSource has a long habit of carefully choosing licensees so that each one is attempting to exploit a different market segment, whether it be a special type of device or a specific geographical area. Hopefully, it will see the wisdom of sticking to this policy. I hope to see the Palm OS running on a wide variety of smart phones, not just a bunch of companies making almost exact copies of each other’s devices.

The mobile device market is currently in a period of transition. For years, handhelds have dominated, but now smart phones are coming to the fore. If PalmSource can successfully transform itself into a company that develops the best smart phone operating system available, it will have a long and successful future. If it can’t, it will eventually find itself once again part of a larger company or, even worse, just a fading memory.



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