Can developers pull dollars from Palms?

Palm's OS unit has a new mantra for its developers: We don't make money unless you make money. But can developers of software for handhelds manage to pull a profit?

Richard Shim Staff Writer, CNET News.com
Richard Shim
writes about gadgets big and small.
Richard Shim
5 min read
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Melissa Francis, correspondent
Palm's operating system unit has a new mantra for its developers: We don't make money unless you make money.

The concept went over well when OS chief David Nagel first delivered it Tuesday as part of his keynote speech at the PalmSource developers conference in San Jose, Calif. But it raises the question: Are Palm developers making money?

The answer appears to be different depending whom you talk to.

Although some at the PalmSource conference say they have flourished despite the difficult year for Palm, other developers say they've had a tougher time, and still others are gone from the conference entirely.

The handheld maker's OS unit is trying to make the handheld-software business more universally profitable for developers. And it's working on a new business plan that makes purchasing software more attractive, for those who sell software as well as for those who buy it.

The goal is to help boost software sales, which appeared to hit hard times last year after enjoying strong growth.

"I wouldn't be surprised if software sales for the Palm Economy were flat" last year, said IDC analyst Randy Giusto. The so-called Palm Economy is the collection of businesses and individuals who make their living through the Palm OS.

Boise, Idaho-based Extended Systems, which helps large companies move their corporate software onto handheld devices, said companies continue to sign up for small trials but have been reluctant to commit to large purchases.

"What continues to be a challenge is the broader deployments," said Donald Baumgartner, Extended Systems' vice president of worldwide marketing.

Hardest hit were many of the companies that created Web-based or content-driven programs. "There were a lot of people that were here last year that aren't here," Giusto said.

The missing "killer app"
One of the difficulties is that there's no one killer program Palm owners want to go into a store to buy. In fact, aside from the built-in programs for the Palm, no application is on more than 10 percent of handhelds.

"The PC model that we got thrown into in distributing software is not as effective with handhelds as it is with PCs," said Gabriel Acosta-Lopez, referring to software sales via retail outlets. Acosta-Lopez is the senior director in charge of developer relations for PalmSource, the new name for Palm's OS unit.

"How do we get the painter...the taxi driver...and the executive?" Acosta-Lopez said. "We can't go to CompUSA."

So software developers have struggled to find the most effective way to sell applications to consumers.

Increasingly, software is being sold over the Web, on removable flash memory cards, and even wirelessly, directly to handheld devices.

PalmSource is playing with several ideas to boost sales, including a program called Cambio that would allow Palm owners to beam their list of favorite applications to other Palm owners. The company is also working to sell more software through its Web site and via an e-mail newsletter.

The efforts are still in the early stages, and Acosta-Lopez said it will probably be another six months before PalmSource is ready to announce anything.

A maturing of the business
In the meantime, others who are part of the Palm Economy are trying to make the most of what many acknowledge has been a tough time in the handheld business. PalmSource counts 200,000 developers in its ranks, although many are students and hobbyists.

Laura Rippy, chief executive of Web-based handheld-software seller Handango, said what she sees is a weeding-out process that shows the maturing of the handheld-application business.

"More of the real companies are sticking around," Rippy said, adding that bigger companies make up a significantly larger percentage than they did a year ago. And the current environment is a reflection of a change in attitude among software companies.

Rippey said companies themselves are changing their business plans, aiming to charge up front for software rather than offering trial versions in the hopes that people will pay down the road.

"Shareware is not sustainable and is really a market for hobbyists," Rippy said.

She added that in many cases, the company has seen sales increase for programs after the free demo versions have been taken off the site.

One game developer said that modest price increases have actually spurred sales.

"There's this perception that if something costs more, it's worth more," said Astraware Chief Executive Howard Tomlinson.

Tomlinson said he has found that $15 is the sweet spot for those who buy his games, with titles including "Bejeweled" and "Zap2000."

Although Tomlinson said his company has seen sales grow dramatically in the past year, he added that overall, game makers are having a tougher time.

One problem in the game business is the economics of so-called shareware, where people download programs for free and are supposed to pay if they keep and use the programs.

Tomlinson said the company has seen about 1.5 million downloads for titles since last October, but typically only about 1 percent of those who download a game pay for it. Tomlinson said he sees anywhere from as low as one-half of 1 percent of users paying to as many as 5 percent paying for games that are extremely popular.

Also having a tough time are some of the many handheld-themed Web sites that popped up in the past few years.

Steven Bush quit his consulting job 18 months ago to work full time on Brighthand, one of those handheld-enthusiast sites. At a meeting early last year, Bush's financial advisers were optimistic he could hire five or six staffers. Now, Bush says, their advice is more somber: "Continue Brighthand as more of a part-time thing and get yourself a job."

"They talk about the Palm Economy, but the handheld market is still immature," Bush said. "These companies are small and their budgets are tight."

However, not everyone is finding the handheld-software business tough.

Karen Jeffrey, who runs Forall Systems, a Chicago-based developer of custom software for the Palm OS, said she has found a comfortable niche doing custom work, such as a program that allows golf instructors to monitor their students.

"Business is great," Jeffrey said. "It seems kind of ironic at a time when Palm is having a hard time."