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Commentary: Palm's fading presence

In the last year, the company has slipped from its dominance in the PDA market--bad news for Palm and its customers.

In the last year, Palm has slipped from its dominance in the PDA market to become a fading presence, particularly at the high end of the market--where the biggest profits are.

Palm is losing ground to Pocket PC-based devices, primarily from Compaq Computer (and its iPaq) but also from Hewlett-Packard. One reason for its slip is the advantage that Pocket PC devices have in terms of fundamental operating system capabilities. The Palm OS still lacks multithreading, multitasking and other features that are considered basic in the enterprise market--and that have always been part of Windows CE devices (including Pocket PC).

A year ago, Palm promised to have a completely rewritten operating system and a new generation of ARM-processor-based PDAs on the market in 2001. Now that deadline has been pushed to late 2002, and it may slip into 2003. Meanwhile, Pocket PC 2002 devices all run on Intel's StrongARM chip.

This is bad news for Palm's aspirations to grow market share and profits by pushing more heavily into enterprises--and for Palm users, who often need more capability than current systems offer, to enable various enterprise-class applications.

Meanwhile, Microsoft plans to release Windows CE 4.0, with native support for the company's .Net services, this month. Palm is not even talking about Web services, and in fact does not even ship a browser (although Handspring Visors do ship with an integrated browser).

This gap could be the deciding factor for enterprises: Companies that are considering significant investments in developing Web services will not buy pervasive computing devices that do not support .Net or a Java-oriented Web services model. For .Net, we expect Palm to become primarily a thin-client access device, putting it at a great disadvantage in Microsoft-centric environments.

As a device for basic PIM (personal information manager) activities and simple applications (such as basic checklists and data tracking), Palm still has a strong following among enterprises. The problem for Palm is that, while most companies are initially deploying PDAs to users for PIM use, they are also looking to the future and determining what other applications might make it to the handheld device.

Although Palm offers a simple OS, application development can be more complex when compared to Pocket PC because of the latter's similarity to Windows and Microsoft's traditional strength in supporting application developers.

For applications with any degree of complexity, Pocket PC devices, using Visual Basic or Visual C++, are a better alternative than Palm (plus, Pocket PC will soon become part of the .Net framework development environment). Although Palm development can also be done in C++ or other development environments (such as VB add-ons, Metrowerks and Satellite Forms), this requires an information-technology developer to learn new skills and the PQA language. In addition, Pocket PC offers affinity to Internet Explorer, Exchange, Word, SQL Server, Exchange and so on, and is a more secure environment than Palm.

See news story:
Palm dangles Bluetooth before developers
Palm saw a huge jump in sales in the consumer market after Thanksgiving. However, we believe this was driven by sales of its older, heavily discounted Palm Vx, not its newer high-end units. While Palm will continue to dominate the consumer market, where it has little competition, we expect it will be difficult for the company to earn profits as a low-end vendor.

Palm is not a low-cost producer, and without high-end sales it will have trouble finding the resources to keep up with Windows CE in OS development.

We expect Palm to be a continuing, but fading, presence in enterprises for several years, primarily in PIM applications. Enterprises should focus their PDA development efforts for more mission-critical corporate applications on Windows CE/Pocket PC.

Meta Group analysts Jack Gold, Dale Kutnick, David Cearley, John Brand, and Carolyn White contributed to this article.

Visit Metagroup.com for more analysis of key IT and e-business issues.

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