Tuesday, June 08, 2004

Why HP and PalmOne will be the last 2 PDA makers

Steven Bush, founder of Brighthand, has this interesting article on the evolution of the PDA market -- Then there were two. The article begins 20 years ago, with the innovative Newton being dreamed up in a lab at Apple and lightly sketches a few historical points on the market's evolution. More interesting is his analysis of the market today, and where we will be in the near term. He observes:
The "Big Three" Pocket PC manufacturers of just a few years ago -- HP, Compaq and Casio -- has dwindled down to one, HP. And the "Big Three" on the Palm OS side -- Palm, Handspring and Sony -- is now down to palmOne.
While acknowledging that other manufacturers such as Dell and Garmin still exist, he believes they will be niche players. What's missing from the article is an analysis on how and why we ended up where we are.

On the Palm front, my view is that Palm made good decisions about partnering -- licensing their OS when Apple had made the wrong decision on this point so many years before. However, they made two mistakes. The first was execution. While the licensed the OS, it remained too tightly connected to their hardware business. By the time they made it a truly independent business, the market was already in decline. And far too much time and energy was spent in this process. Not to mention the process of spinning off from 3Com or being acquired by 3Com. Corporate restructuring may be necessary but it can be very disruptive.

The second mistake was around innovation. Palm became stuck in their approach to the PDA market and change was a monolithic process. New operating system releases were painful for the company and for licensees. The company was not able to take some of the base ideas and technology and use it for adjacent device categories like mp3 players or smart phones, both of which started growing much faster than the core PDA market. This inflexibility and inability to innovate limited licensee growth. Palm's competitor, Microsoft, hasn't succeeded here either, but MS has the drag through revenue and relationship with the desktop and laptop platform that Palm had to compete against. Palm needed more of a constellation of devices supporting the same set of APIs, if not running the same OS.

On the Pocket PC front, rather than saying HP, really we should say Compaq was the winner here. This is a story of early commitment to a market, innovative engineering, hard work, and smart marketing. Despite Dell's proven approach in the PC and Laptop market of gutting cost throughout the engineering to delivery cycle, Compaq/HP has been able to hold their ground in this segment of the market. I attribute this to the innovation necessary so far in the PDA segment and for this reason I would not count out Dell in the future. Once Microsoft publishes a universal reference platform that can be made cheaply in China and is appealing to consumers, Dell will be back in the game. As long as consumers are looking for innovation in the device, Compaq/HP will continue to lead.

But as I have written elsewhere the PDA market is in a period of terminal decline. Perhaps it is more appropriate to say a period of transition -- the things we do with a PDA are not going away. Just the idea that Palm was born on, a personal digital assistant. Perhaps the old adage is true, that it is always that characteristic which gives you your strength which is also your weak point. Palm succeeded because it eschewed the general programmability model of the Newton and focused on providing core functionality and doing a great job in that limited area. Now the market is moving in three directions, away from the core value proposition that Palm was built on --

(1) even more special purpose consumer electronics (mp3 player) though I expect this market to drive toward high volume and low cost rather quickly.

(2) general programmable device with a very small form factor -- smart phone. In this market I expect to see the greatest challenge coming from integration with the rest of the computing stack. Here Symbian is the only player with any significant volume.

(3) integrated platform, running the same OS, from smallest device to largest server -- Microsoft and Linux are the two options today.

So what should Palm do? Ditch PalmOS. Start making devices based on Linux. How about the Palm user interface on top of Linux? Start making devices in other categories outside the PDA -- Linux MP3 player, Linux Video recorder, Linux Smart Phone...

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