When does a revenue trickle become a revenue stream? It takes more than one quarter, for sure.
Hardware revenue still makes for a huge proportion of Palm's revenues, accounting for 97 percent in Palm's fiscal first quarter, which ended Sept. 1. Content fees joined those from access and licenses to represent just 3 percent of Palm's revenue that quarter. (For the first time, Palm counted content fees, which are comprised of placement fees for Web clipping applications and advertising revenue from AnyDay.com's Web calendar service.)
Nonetheless, with other makers of handheld devices--Handspring and Sony--now selling Palm OS-based units, the trend for Palm's fee-based revenue might be swinging upward.
Handspring, for example, is aiming for the consumer segment and wooing consumers through the Web, consumer-electronics retail chains, and mass merchandisers such as Target. The more successful Handspring becomes in selling its handheld devices, the more licensing revenue goes to Palm. Although it appears that Palm is competing with its licensees for product market share, Palm will benefit through licensing revenue.
As a business strategy, diverting the revenue-growth focus from hardware to operating system usage fees makes sense. As with all new products, prices for Palm-branded handhelds will eventually fall as technology advances. However, competition from Microsoft Windows CE-based handhelds will make inroads against Palm devices.
Although Palm is investing millions of dollars in an advertising campaign to promote its OS, instead of the devices themselves, the marketplace has yet to see concrete steps to support the new strategy. Gartner believes that Palm's long-term success will depend not only on selling more devices but also on a proliferation of devices that are based on its OS and of applications that increase the functionality of a handheld device.
(For related commentary on Palm, see TechRepublic.com--free registration required.)
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