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Big job, big expectations

David Nagel, the newly tapped head of Palm?s operating systems business, is being counted on to kick-start the company?s flagging sales. A lot's riding on the appointment but can he deliver in time?

When Palm decided to give a boost to its newly formed operating system unit, it didn't have to look far to find a big name from Silicon Valley.

David Nagel, AT&T's chief technology officer, already sat on Palm's board and was overseeing the creation of the company's software unit. Besides his tenure at AT&T, Nagel comes to the job with a resume that includes a high-profile stint as senior vice president at Apple Computer, where he led its worldwide research and development group.

The creation of a separate software unit at Palm was a restructuring supervised by the 56-year-old Nagel, who takes the helm at a critical time in the company's history. A couple of weeks ago, Palm announced plans to acquire the technology assets and intellectual property of Be. As he figures out how to blend that expertise in with the rest of the organization, Nagel, who is effectively in charge of developing and licensing the Palm operating system, is being counted upon to kick-start the company's flagging sales.

That can't happen fast enough for Palm investors.

Palm is looking to recover from a brutal spring in which it was plagued by a glut of its products, a bungled introduction of new models, and steep losses that have severely cut into the cash holdings raised from its March 2000 stock offering. The company's share price trades under $4 a share, down from its 52-week high of $67.37.

But Nagel is bullish about the prospects for his unit and Palm, saying the company's devices are simpler and cheaper than those using the rival Pocket PC operating system from Microsoft. Nagel allows that Palm still has work to do to make its devices more powerful but says he has learned from his past that if you try to build a device that does everything, it will surely fail.

Q: What are your goals for Palm's OS unit?
A: To build a great business. I mean that seriously. There is an enormous opportunity and space to be the leading operating system and platform provider. We've got a great start on that, (with) more than 80 percent market share.

And to achieve that goal, where does the Palm OS need to go over the next few years?
It starts with a lot of real assets. (Palm's OS) is generally viewed as the easiest to use. It's certainly the smallest, so the licensees can build affordable devices that do a lot and don't cost a lot. But I think that the obvious things that it needs to do in the next few years is for one thing, support the whole spectrum of networking...a lot more than it has. I think that needs to be built into the operating system in a very fundamental way. The assumption (is) that the devices will one way or another be connected to a network. PULLQUOTE TEXT

Another area is a focus on wireless as a subset of the whole category of networks. These are portable devices people want to take them with them. They don't want to have to find a plug in a wall somewhere. The degree of integration has to be even tighter than has ever been achieved on the PC. That's one of the reasons these things are a lot easier to use and boot up instantly and so forth. We need to take steps to--I hate the word--modernize but (also) take steps to evolve the operating system. We need to make sure it works on the right microprocessors so one of the first--and maybe the highest--priorities is to get it ported to ARM and some of the other advanced microprocessors that are clearly going to be important in this area.

Palm recently announced the acquisition of the technology and engineering talent of Be. What does that add for Palm?
First and foremost, it adds 50 of the sharpest software engineers you can find anywhere. Another area that is going to be increasingly important in the whole handheld, or highly portable personal digital electronics category, will be entertainment products that render media types video sound and so forth. Be has a lot of significant skills in those areas. They are great OS engineers. They are great engineers in general.

In the past, Palm has given its licensees a lot of room to make their own improvements to the Palm operating system, changes that later get incorporated into the OS for all of the licensees including Palm to use. Do you see that changing?
Nope. I think it is going to be really important. That is where a lot of the innovation comes from. It is one of the reasons the licensing program is absolutely key, in my view, to the success of the whole category. A lot of the innovative ideas come from small players, come from people that are willing to try things. Not all those things work, but that is the way the market evolves. I think that has to be the way that the platform evolves.

You give people the opportunity to add innovation. You make it easy for them to do that. You encourage them to do that, and then you watch carefully. When things work and there is a need for a general capability, you begin to reflect that in the operating system.

When you were at Apple, you worked on Copland, which was designed to be a pretty radical overhaul of the Mac OS. Did you learn anything from the challenges there that could help as Palm makes a fairly radical shift from Motorola's dragonball chips to ARM-based processors?
The switch of microprocessors (from Motorola's 68000 family to Power PC chips) happened much earlier and worked very well. Copland didn't, obviously. We never shipped it, at least in my tenure. I think OS X, frankly, has a lot of the capabilities and certainly the spirit we were trying to create with Copland. In the instance of the PowerPC port, we focused just on doing that and not on adding a lot of extra stuff. That was done superbly. Virtually every 68000 application ran. Customers, many of them, didn't know there was any difference.

Copland tried to do everything at once. These sorts of big-bang things don't do very well. There's too much risk, so it's hard to ever ship it. Look, it's taken Apple what, five or six years to ship OS X after Steve (Jobs) and the software folks showed up with a lot of the foundational stuff to build it with.

We didn't quite listen accurately to what the competition was doing. Copland tried to do too many things, in part, because we thought that would be the competitive requirement, and it turned out not to be. Avoid sort-of doing five major improvements in something all at one time, and think very carefully and thoughtfully about what you really need to make a great product as opposed to what an analyst somewhere tells you is an `absolutely positively gotta-have capability.'

Your doctorate is in psychology, and you've done a lot of work with the way humans and machines interact. What are some of the things you have taken away from your research, particularly with Palm being a very personal device?
The most important thing is an absolute passion for creating products that people like to use and can use flawlessly because they are so easy to use. It is something that you just have to have a passion or a zeal for doing. There are a lot of tools you can use--you can do user testing and a lot of other things, but at the foundation of all of it (has) to be this burning desire to do that. It's very obvious that the original Palm devices were designed with that kind of zeal. They've made an enormous impact...they've set the standard.

PULLQUOTE TEXT We already see the tendency on the Pocket PC side to cram everything in there but the kitchen sink. I think frankly one of the weaknesses of the Microsoft strategy, if I can be so bold, is to have everything support everything. So you know, Windows CE has to support Hailstorm, which has to support .Net, which has to support Windows XP, which has to all run under Windows NT, etc. The net effect of that is an operating system designed for a small device that is two times or three times too big. The customers end up paying for all of that.

Palm has mentioned that it would look to spin off the OS unit when it was practical. Are you looking to run your own public company?
This is a first step. I'm looking to do an adequate job and a good job of what I've got, which is a subsidiary. To be honest, it's not a wonderful time to be thinking about spinning a company out, in the IPO sense. I am quite content, frankly, to get the flexibility of building the best business in the industry around the platform assets that we've got. I think the rest of it will take care of itself--if we execute well, if we sign new licensees, if we get some of the critical technology improvements to the platform that are needed. If we do all that and continue to expand the market by going into new territory, the rest of this--I won't have to worry about it. It will happen.

What do you feel is the biggest advantage Microsoft has? What about Palm?
Well, you know Microsoft is a monopoly and thinks like one. In some senses that's both an advantage and a disadvantage. The disadvantages I think we've already sort of touched on. Everything has to support everything else, and it's linked in some gigantic strategic matrix of continued domination of the industry. The great advantage that Palm has and our platform group has is we're free to innovate. We work with a lot of really small, innovative companies in the form of licensees that want a different approach. They want an alternative. They don't want to be a part of a play in the PC software industry. They feel like I do that this is an important category in its own right.

I want to be financially successful. I have great envy, frankly for the success they have had financially. Certainly no one can reproduce Microsoft, but I think we can be very successful financially, on business terms. (But) it has gotten to the point where that is clearly the overarching objective to them. I think we still have the idea of making great products.