New products based around Palm Computing's Palm operating system are targeting the consumer, education and corporate markets. Soon, even the youth market may gets its own hardware, the company says.
Eventually, company watchers say, most new innovations in Palm hardware will come from third-party developers while Palm concentrates on improving and licensing its operating system.
The moves, if successful, could greatly improve Palm Computing's bottom line, which new President Alan Kessler says is now a US$1 billion business. That US$1 billion figure, which Kessler calls the "Palm economy," includes 3Com's own product sales and licensing deals as well as hardware, software and services delivered by third parties.
Kessler, the Alan Greenspan of the Palm economy, wants to make Palm Computing the dominant operating system vendor for handheld devices.
Three-pronged reorg
With the business groups in place, Palm is now looking to segment its market, targeting such focus areas as consumers, education and the corporate market with variations on its Palm hardware.
"Further down the road, there's the youth market and other areas we can go," Kessler said.
Analysts' outlook: Solid
"Our long term view is that nobody buys devices anymore. They buy a set of services. I think Palm realizes this and that is good," said Matthew Nordan, an analyst with Forrester Research Inc. in Cambridge, Mass. "The concern I have is in Palm trying to figure out who the target population (for devices and services) is."
Taking corporations for example, Nordan said, "Business people who want to carry around a device are probably one out of 100. If you want to have stickiness in a corporate account, you don't just sell them a device ... and say, 'Here's how you connect it to the PC.' "
Palm is heading down that road. The company will license its operating system to hardware makers that are targeting new markets. It will, for example, seek licenses targeting the cellular phone market.
The competition that cellular handset vendors might pose to its own sales of Palm VII or Palm V devices doesn't seem to bother Kessler.
Wanted: Good partners
Palm, as it has done with Qualcomm, will leave most of the grunt work of hardware development and marketing to its licensees. This is unlike Microsoft Corp. (Nasdaq:MSFT), which has created a hardware reference specification and minimal device requirements for its Windows CE licensees.
Palm's Device Business Unit will also address the market by adopting Blue Tooth, a short range wireless networking technology under development now that will allow Palm devices to communicate with cellular phones, among other things.
Ultimately, though, say sources, Palm will put greater emphasis on its operating system and hardware.
Operating system to reflect changes
Palm will also work to make its APIs more available, so that developers can make extend functionality, such as wireless communications, to devices based on the OS.
Though Kessler would not comment further on the OS and its development, Palm developers say they expect a major revision of the OS before the end of the year.
As Palm Computing moves further towards becoming a software company, its partners will become more important as sources of hardware innovation.
An emphasis on OS
Sources say these devices will look very much like a Palm III device, but will include an expansion slot on the back.
A number of plug-in devices will be made available for this slot, such as a pager, a scanner and a module to turn the handheld into a cellular phone. The devices will be plug-and-play in that they will include the software to needed to support them, instead of requiring that it be installed on the device, sources said.
Critiquing the device, one source said, "So what happens when someone calls you and the hardware plug in that supports a cellular phone isn't plugged in?"
Despite the coming changes to its OS and the realignment of its overall strategy, Palm Computing will continue to refine its own Palm VII and Palm V models with thinner plastics and will eventually introduce color devices to the line, Kessler said.
"(Palm V) taught us that size matters ... and thinner is better," he said. "We'll be thinner, and there will be lots of add-on devices for Palm V."
Palm will also announce new wireless abilities for the Palm V -- including new add-on hardware -- at its developer conference in October, Kessler said.
Users should also expect the wireless Palm VII to be launched into national availability this fall.
May the best OS win
Microsoft has been long rumored to be targeting cellular phones as one aspect of the upcoming release of Windows CE 3.0.
Windows CE 3.0 is in beta now. Its first beta was released last June, and another release should follow before the end of this year. Windows CE 3.0 should ship in the first quarter of 2000, said Jonathan Roberts, general manager of Windows CE and market development at Microsoft.
"This would be the system you use for cell phones," Roberts said.
Also targeting handhelds and handsets is Symbian, an alliance between PSION, and handset makers Nokia, Ericsson and Motorola that is creating cellular handsets based on the EPOCH operating system, developed by PSION.
This alliance has the potential to lock up two-thirds of the market for cellular phone operating system, Nordan says. He thinks these companies, however, will "hedge their bets," and build devices based on a number of operating systems, Palm OS included.
To that end, he has helped to reorganize Palm Computing into three business groups targeting software platforms, handheld devices and services.
Analysts believe Palm's licensing strategy is a solid one.
"These folks that are entering the space are (potential) partners," he said. "We've been very clear that we're not getting into the telephone (handset) business."
To support its push to license the Palm OS into different markets, Palm Computing will make a number of changes to its operating system, including an effort to make the software more modular (and, therefore, easier for developers to work with).
Palm's operating system licensing strategy will likely make it primarily an OS vendor. That will leave partners, such as Handspring Inc., to deliver the most innovative hardware designs, developer sources speculate.
But Palm won't be alone in targeting the handheld device and cellular handset market.
