Handspring’s Tumbling Act

by Reads (4,681)

The other shoe has dropped for Handspring.

During a recent conference call with Wall Street analysts to discuss its quarterly earnings, CEO Donna Dubinsky more than hinted at the company’s planned metamorphosis.

"We are a company that is transitioning out of the organizer business and into the communicator business," said Dubinsky, a statement that came as little surprise to anyone who’d heard Handspring co-founder Jeff Hawkins’ keynote at last fall’s Comdex trade show in Las Vegas.

During an entertaining presentation of the history of computing according to Hawkins, he traced a path from the hefty Osborne laptop in 1981 to the Palm Pilot he’s credited with inventing in 1996. "None of these," said Hawkins "were quite what the public wanted or needed in a hand-held device."

Which brought him to Handspring’s solution: The Treo.

"The Treo combines a cell phone, a pager and an organizer into a single device," Hawkins said. "The Treo is the beginning of a new era of innovation that will fundamentally change the way people stay in touch."

So what’s prompted this shift for Handspring from PDAs to convergent devices?

Well, it’s likely a combination of market forces, but bottom line it’s the bottom line. Every handheld company, from Compaq to Palm to Sony to, yes, even Microsoft, is struggling to profit in the nascent handheld computer market. Why? You simply can’t get rich selling hardware (unless you’re Michael Dell) because the margins are too slim. What you need is some higher-profit "razorblades" to sell with your "razors." And it’s this pursuit of recurring revenues that will ultimately transform the PDA industry.

Take Sony, for example.

Sony’s obviously committed to capturing a major portion of the handheld entertainment device market, and it’s certainly got the capital to do it. For Sony, it’s not just about selling Clies. It’s about selling music and videos. Sony is huge in the content arena (i.e. Sony Pictures and Sony Records) and any device that can ultimately play music and videos is simply a razor for its razorblades.

And Microsoft, the king of recurrent revenues, is not without a plan. As Microsoft’s Ed Suwanjindar told me last year at PC Expo in New York, the bottom line for the Pocket PC is selling Office seats (Microsoft Office being the company’s cash cow). Once you’ve sold a seat on Office you’ve sold a ticket on the Upgrade Express, a ride that apparently lasts a lifetime.

Handspring thought its razorblades would be licensing fees from Springboards, but that hasn’t transpired as expected. So now it’s looking elsewhere and what more prolific example of recurring revenues than the "pay-by-the-minute" telecommunications model.

Still not convinced that Handspring is dumping PDAs? You obviously missed Handspring’s recent string of press releases.

In December Handspring announced partnerships with wireless software companies Neomar, Extended Systems, Synchrologic, Aether Systems and Infowave, and in January it landed two European distribution deals, one with Britain’s mm02 and the other with Sweden’s APE Telecom. Plus, Handspring has more than 20 wireless carriers worldwide engaged in testing the Treo. Also in December Handspring announced it would receive a $10 million dollar investment from cellphone maker Qualcomm. Qualcomm, whose products cater to CDMA networks, hopes that Handspring will move forward in that area in addition to the GSM world it is pursuing in Europe.

So, it’s true. Handspring will be doing a flip or two and a daring bit of tumbling this year in an effort to find its razorblades. Problem is, Microsoft’s got its eye on those razorblades too.

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