CNET también está disponible en español.

Ir a español

Don't show this again

Tech Industry

Tough decisions ahead for Palm

Chris Le Tocq warns of trouble ahead. With businesses finally buying more expensive handheld devices, Palm remains focused on a slowing consumer market. Did somebody say "disconnect?"

    Palm has been beset by a flurry of bad news, but the handheld device maker faces even more serious trouble on the horizon.

    The termination of Palm's agreement to acquire Extended Systems puts a major dent in the company's ability to penetrate enterprises--and this at a time when demand for PDAs from enterprises is starting to build real momentum.

    Extended Systems provides two key capabilities to corporate purchasers of PDAs. The first is the ability to do sophisticated synchronization of e-mail, PIM data, database data and corporate documents. The second is the ability to manage and control PDAs remotely. In addition, Extended Systems has a corporate sales force that understands the solution elements that need to be in place to make a successful volume sale.

    The market isn't going to wait and management knows that if that growth is not driven by sales of Palm PDAs, it will be driven by sales of Pocket PCs. But with the corporate market starting to register significant growth, Palm has lost a big opportunity to improve its lackluster sales performance.

    Given the growth of interest in Compaq Computer's iPaq, it is likely that Palm's current leading share position in the corporate market will be permanently lost to Compaq (and Hewlett-Packard) by the end of the year. (Earlier this week, a report projected that Compaq would topple Palm from the top spot in revenue from handheld devices, perhaps as soon as this quarter.)

    The troubling news for Palm is that at a time when enterprises are willing to fund purchases of the more expensive PDAs, the company faces a consumer market that is drying up.

    No headroom
    The challenge for Palm as it faces the PocketPC is one of headroom. Today PocketPCs are more expensive, but offer more capabilities. By 2002, PocketPCs will be less expensive and still offer greater functionality. Palm likes to talk about "the Zen of Palm," but it is tough to survive on a single mantra, much less on a set of applications and a user interface that is 3 years old.

    In a sense Palm's product message has always been stronger; a Pocket PC by definition includes less than a PC and the result is a focus on the negative--what is not included--whereas Palm is more than a high-end organizer and can focus on that positive message. Nevertheless, as Microsoft works to remove the negatives, Palm has failed to add to the positives.

    By 2002 Microsoft will provide PocketPC applications that work effectively with standard Excel and Word documents (the current offerings destroy PC formats), and is likely to partner with a third-party synchronization vendor to provide its own server sync software. Extended Systems was a longtime partner with Microsoft and had been the front-runner for a partnership/acquisition until the Palm merger; now the current leading candidates are Synchrologic or Pumatech. It is possible that Extended could be back in the running now the acquisition has fallen through.

    In 2002 expect Microsoft to aggressively link PocketPC devices into the .Net architecture. PocketPC devices are targeted to be full .Net clients, able to run .Net applications locally, and provide the ability to synchronize with Web services and work with XML versions of Word and Excel documents without destroying their formats. In the face of this type of capability, Palm has to step up its products' capabilities, and provide an enterprise-ready product.

    The PDA is all you need
    Unfortunately, the definition of "enterprise-ready" is a fast-moving target. 2002 will be the start of a transition for PDAs. Today PDAs are an accessory device; it is still very difficult for users to commit to working with only a PDA. By the end of 2002, the synergy between Web applications and PDAs will make PDA-only working a reality.

    The .Net architectures are designed to support PDAs as full peer clients to PCs. Handheld devices will presumably be able to work with Microsoft's new .Net Web-based Personal Context Services. These store current versions of documents, and provide full-featured applications that work with those documents on a PDA or in a PC browser. And by 2004, PDAs will have the sort of memory, storage and processor power featured in today's entry-level notebooks.

    In effect, handhelds will undergo a transition from optional accessories to full-featured Web service clients. For many users, all they will need is a cradle, a keyboard and a screen to effectively replace a PC!

    The year 2002 is shaping up to be a critical one for Palm.

    That's when PocketPCs will start working more effectively with PCs, offering increased functionality through Web connectivity. They will also be priced more aggressively, thus putting a further squeeze on Palm. By the end of next year, Palm, facing severe margin pressure, is likely to position its units as lower-functionality (read: cheap) devices.

    The only way out is to enhance its applications, focus on more effective PC interoperability and plan for functionality as a .Net client. Above all, the company must leverage its most critical asset, the Palm brand.

    The challenge is that Palm's ineffective corporate sales strategy has left the IT field wide open, allowing Compaq to elbow it aside in favor of the iPaq brand. Product enhancement is good but Palm needs the resources to invest in corporate sales and it needs them now.

    Sony to the rescue?
    As Palm casts about for a way out of this trap, the prospect of being acquired by Sony becomes increasingly likely.

    Indeed, Sony has aggressively committed to Palm with its Clie line. The latest Sony device provides a full color screen and multimedia capabilities that compete effectively with iPaq. Motorola has recently announced that it will be building access to Sony's memory-stick devices into its forthcoming Dragonball processors. At today's depressed stock price Palm looks like a very attractive acquisition target for Sony.

    Palm needs the resources now. An acquisition would provide access to corporate users through Sony's Vaio sales force, and could revive the Extended Systems acquisition as well. If Palm doesn't get the resources it needs--and soon--then the PocketPC will own the corporate market. And Palm's future? Think of a consumer-only organizer--and a low-function one at that.