Palm makes peace with Microsoft

New acquisition will see Palm directly supporting PocketPC products, as well as wireless standards, such as Bluetooth

Palm Computing is moving away from its identity as a handheld computer maker, aiming to become a provider of back-end enterprise systems for supporting all kinds of handhelds -- including those of its rivals, PocketPC, Symbian and Research In Motion.

That was the message sent by Palm's acquisition of enterprise-focused Extended Systems, announced on Wednesday, according to industry experts. Extended Systems sells middleware that connects enterprise applications with handheld devices, aiming to make it simple for companies to manage their employees' handhelds, just as they do their PCs. The company also makes short-range wireless connectivity products that are compliant with Bluetooth and the infrared IrDA standard.

The move will give Palm the ability to offer everything a company needs to manage employees' handhelds, including the Palm operating system and hardware, which dominate the North American handheld market. But Palm acknowledges that it cannot pretend competitors do not exist.

"Obviously, we are trying to be the platform of choice," said Chris Dunphy, director of competitive analysis at Palm. "But ultimately we can't expect to meet every need of every enterprise, and there are going to be a mixture of devices out there."

Extended Systems is one of the larger players in its market, and the acquisition is an important boost to Palm's enterprise plans, say experts. "One of Palm's traditional weaknesses is their enterprise business," said Tim Mui, analyst with IDC. "They don't really have anything there, especially for large companies. There are no real products for implementation and management of their devices."

Palm is moving away from the hardware market, with its lower margins, and toward a business model based on licensing its operating system to companies such as Handspring and offering back-end software, Mui said.

That means Palm feels it has little to fear from supporting Pocket PC and other platforms. "Right now they're more worried about driving the whole handheld market, first, then the Palm OS, second, then Palm devices, third. They're not really worried about market share, they're pretty secure in that."

Microsoft has in the past has been accused of leveraging its dominance in operating systems and office software to drive adoption of its other products, including Pocket PC. But the company says its own answer to Extended System will operate as well with Palm as with its own products.

"The last thing enterprises want is to have lots of different strategies for working with lots of different mobile products," said Dillip Mistry, Microsoft's mobile marketing manager for Europe, the Middle East and Africa. "They want one back end to implement a single solution."

He said security, one of Palm's traditional shortcomings, will become more critical as IT managers begin to scrutinise which handheld computers to buy.

Palm admits there are security issues with its products, which could become more important as the devices are connected wirelessly to the company LAN. "In the last few years, we've concentrated on making the Palm OS a great place for developers to work," said Gordon Cline, Palm's security product manager, enterprise division. "With the 4.0 operating system, there will be great security. It will be absolutely shut, with no developer back doors."

Cline noted there are currently several third-party products to secure Palm devices.

Palm devices currently use version 3.5 of the operating system, with version 4 coming up later this year, and version 5 next year.

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