Steve, Don’t Give Palm a Hand

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Business Week

Steve, Don’t Give Palm a Hand.
There’s a place for Apple in the handheld market, but it should be as an innovator, not a savior.

Here we go again. First, Pat Dorsey, director of stock analysis at Morningstar.com, mused aloud on the Web news site ON24 that Apple should buy into the handheld computer market. And in a recent interview with Fortune, Apple CEO Steve Jobs himself has voiced regret about not buying handheld market leader Palm Inc. when he returned to Apple in 1997.


They say it’s good to voice your regrets, so wax nostalgic all you want, Steve — but keep your checkbook sheathed. The last thing Apple needs right now is a foray into the ruthlessly competitive handheld market. That would be like sticking your face under the lawn mower while it’s still running.

Resisting the temptation, however, is probably easier said than done. Like a New Economy Icarus, Palm flew high — but too close to the sun — and then plummeted to earth. Its stock has plunged 80% over the past year to around $4 a share, for a good reason. The company lost $390 million in the fourth quarter.

DIGITAL HUB.  Clearly, helping Palm right itself would be no small task — and one that Apple shouldn’t take on right now, given its own struggle to secure the embattled education market and reposition itself as the “digital hub” for everything from MP3 players to video cameras to handhelds, such as Palm.

Part of me, however, does savor the irony of the notion of Jobs wanting to buy Palm. I’m sure that irony isn’t lost on Jobs himself. After all, this is the guy who, against all counsel, steadfastly refused to license the Mac OS during his first stint running Apple. Back in the late 1980s, many Mac experts viewed licensing as the only way to keep Microsoft’s Windows operating system from dominating personal computing.

A decade away from Apple apparently hasn’t changed Jobs’s mind. One of the first things he did on his return to the company was to shut down its belated OS licensing program in late 1997. And who can blame him? In less than two years, Mac clones had gnawed off 1% of Apple’s market share at a time when it was struggling to stay afloat. Apple has never known how to win a nasty price war.

Last year, Palm started replaying Apple’s crisis during the 1980s. The handheld market had grown too large for Microsoft to ignore. Gates & Co. cooked up a slimmed-down version of Windows called CE to run on handhelds — and went for Palm’s jugular. To its credit, Palm responded quickly but took an opposite tack from Apple. It licensed its OS in late 2000 to parry Microsoft’s thrust.

PYRRHIC VICTORY.  The strategy worked brilliantly. Handhelds running Windows CE have captured only 8.8% of the market, according to consulting firm NPD Intellect. Not many companies are left standing when Microsoft comes after them. Just take a look at the sorry shape of poor old Netscape today. Still, Palm has won a victory. Less-expensive, better-marketed rival products, such as Handspring’s Visor have wielded the Palm OS to best not only Microsoft but Palm as well. Palm is being eaten alive by its offspring.

Jobs saw that possibility back in the 1980s and again a decade later. Does he really want to relive that nightmare now? If I were Jobs, I sure wouldn’t. Handhelds are rapidly becoming commodities, with price the only differential. This is ground that Apple — an innovator — must avoid at all costs.

That’s not to say Apple doesn’t have a starring role to play in the handheld market. Indeed, it must take the lead. Palms and Palm knockoffs are here to stay and will change the way people use Apple’s core product, personal computers. Don’t forget that handhelds outsell the more fashionable MP3 players. And they’re taking on ever greater roles, including playing music and video, not to mention making phone calls.

TERRIBLE TANGLE.  Yet, inevitably, the more complex handhelds become, the more difficult they are to use and sync with other computing devices. Herein lies Apple’s destiny. Someone has to straighten out this growing tangle of connectivity and file sharing between personal computers and their little brethren.

Apple should take unto itself, as the ultimate arbiter of all things Mac, the job of building iTunes-style software for handhelds. You know, something that would easily and simply manage the transfer of data back and forth between handheld computers and all other electronic devices, whether computer or video camera. Apple’s marketers could call this software iHand. (Now you know why I never had a career in marketing.) Still, I’d bet my aging Power Computing Mac clone that Apple is working right now on some kind of hub software for handhelds.

Any takers?

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