Analysis: Palm pushing for more influence over Treo’s software destiny

November 8, 2006, 11:20 AM UTC
Fortune

Treo680_1

Palm (PALM) is angling to gain more influence over the Palm OS, and might

even be negotiating with Palm OS owner Access to hand over the source code and

let the Treo maker run with it.

I came to that conclusion after spending a couple of hours at Palm’s Sunnyvale headquarters yesterday, chatting with Marlene Somsak, vice president of corporate communications; and spokesmen Jim Christensen and Jimmy Johnson. Unlike the old days when I covered Palm as a business reporter for the San Jose Mercury News, I could be freer with my point of view and push them a bit on what I see as a critical issue facing the company:

The Palm OS is comatose. And Access, the Japanese company that now owns the Palm OS after its purchase of PalmSource, seems incapable of doing much about it.

During the course of our discussion, I learned a few things about the structure and mindset of Palm. Most important, 80 percent of the company’s engineers are software engineers, and the company still prides itself on its ability to design mobile software that’s easy to use.

Despite all this, Palm is in real danger of losing control of its destiny. Consider this:

  • Access, a company with no apparent experience successfully developing mass-market mobile operating systems, owns the software behind the bulk of Palm’s business. The people responsible for developing the Palm OS have not delivered a significant improvement to the software in years. Meanwhile, Palm’s product roadmap is at the mercy of Access – while Palm engineers can deliver clever hacks that approximate modern capabilities such as multi-threading, they can’t rebuild the operating system from scratch to most efficiently deliver a multimedia experience.
  • The overwhelming majority of Palm devices are now sold through wireless carriers, which determine almost everything about the Palm buying experience including customer service and price.
  • Microsoft-powered smartphones are emerging as a high-value and fast-growing segment of Palm’s business. Though Palm has not yet broken out data that show how Windows Mobile-powered Treos are selling to enterprise customers, I got the impression that the numbers will be impressive when Palm shares them in December. Still, while Palm can make some tweaks to the Windows Mobile experience, Microsoft has the control. Case in point, it takes a very un-Palm-like three or four button pushes to call up the camera in the Windows Mobile Treo – and that’s because of the way Microsoft structured the software.

Back to the Palm OS: While Somsak and Christensen were quick to defend the Palm OS’s ability to deliver great smartphone products today – and I agree that the Treo 680 is a prime example – I still held that Access’s lock on the OS remains a problem.

“Looking at it cynically,” I said, “it seems like you guys are doing a bunch of the work, and you guys are 90-plus percent of their revenues, and they’re just sitting back collecting checks.”

You’ll have to ask them about that, Marlene said.

I would if I had their phone number in Asia, I said.

Access does still have an office here, Jim said. But the Palm folks couldn’t name anyone in that office except a PR person.

“Is this situation, the way you guys see it, sustainable?” I asked.

There are two ways to answer that, Jim said. First, Palm’s basic handheld business, the minimally connected handheld computers that store contacts and manipulate files, will do fine with the basic Palm OS for the foreseeable future. That business, while it has been shrinking or flat, is about $450 million in annual revenue for Palm with nice profit margins.

Second, the Treo smartphone has different needs and different functionality from a basic handheld. It will need something more than the current Palm OS provides. “It’s not an ideal situation for the smartphones, but by working with the carriers and doing the things that we’ve done and innovations on top of it, it does make a difference.”

I told them it still seems like it would be a real challenge for Palm to run fast enough and compete, pulling the dead weight of Access. The three of them cracked up at my bold language. I’m just calling it like I see it, I said. Palm has a history of innovation in both hardware and software, and it needs advanced software in the smartphone area where it’s growing. “We all know that you can’t just sit on an old OS and say that it’s great because it’s simple, and have that be your plan,” I said.

  • The Palm OS source code

Then it got interesting. “Any chance they’d just give you the source code?” I asked.

“That’s a good question to ask them,” Jim said.

“I’m sure if anybody’s asking them, you are,” I said.

“Well, it’s an interesting idea,” Jim offered. “So, I don’t know how to answer that one, actually. We’re going to continue to develop on it anyway.”

“If they were to give you the source code, would you take it?” I asked.

“Probably,” Marlene said, “but I can’t imagine, I mean, yeah. It’s certainly a hypothetical.”

“It’s a hypothetical, but have you asked for it?”

“I’m sure there have been all sorts of discussions about ways to best take the Palm OS forward, but I don’t think that we would be at liberty to say what was proposed or responded, or anything like that,” Marlene said. “But clearly, we introduced four new phones this year, two Palm OS, two Windows Mobile. We’re committed to Palm OS. We want to see it go forward. … We want to have control of our own destiny, and riding multiple horses is definitely a good way to stay in the race.”

As ever, Palm’s communications professionals were diplomatic. But reading between the lines, it seems the reckoning I mentioned a few weeks back can’t be far off. Palm wants control of its destiny – and it won’t have that until it has more control of its software.