Palm, a Silicon Valley soap opera

HP just bought struggling smartphone maker Palm, Inc. for a whopping $1.2 billion dollars. What's it all mean? To answer that, it's best to understand the strange, winding, wacky story that is Palm.
Written by David Gewirtz, Senior Contributing Editor

HP just bought struggling smartphone maker Palm, Inc. for a whopping $1.2 billion dollars. What's it all mean? To answer that, it's best to understand the strange, winding, wacky story that is Palm.

Before I get started, let me share with you my bona fides. I was Editor-in-Chief of PalmPower Magazine, the largest independent publication devoted to Palm products, from 1998 through 2002. I also headed up PalmPower's Enterprise Edition, which was a publication funded by Palm to explore the enterprise uses of Palm handhelds.

I spent a lot of my time following Palm, excited by Palm, and then dismayed by Palm and its very strange moves.

Next: A company in search of an identity »

A company in search of an identity

For a company with such a clear and compelling concept (i.e., we make computers that'll fit in the palm of your hand), Palm has always struggled with who it was as a company and who its customers were.

It was originally founded by Jeff Hawkins, who chose the original size of the Pilot because it would fit in a shirt pocket. Remember, this was before even cell phones were that small.

Even the Pilot name didn't survive the drama. Pilot Pen Corporation, the company that makes pens, decided that the handheld Pilot computer was infringing on their trademark. Palm had built substantial branding for their Pilot 1000 and Pilot 5000 models, and by 1997 was forced to change the name to PalmPilot and by 1998, to Palm.

Jeff's Palm Computing got bought by U.S. Robotics. It then got bought by 3Com, so you had a company where half of the business was focused on consumer electronics and half was an old-school networking company. Management didn't always understand what consumers wanted.

In 1998, Palm's founders had enough and left the company. But in one of the most bizarre acts of corporate spin-offs ever, the founders started Handspring, which effectively cloned the Palm handheld. So now you had Palm and you had Handspring, run by the founders of Palm.

In 2000, 3Com spun Palm Computing out as an independent subsidiary, creating Palm, Inc. The company IPO'd with shares at $95, but within a year, the share value had plummeted to about six bucks.

Next: Handspring »

Handspring went on to create the first Palm OS phones, and the Treo brand. But by 2003, Palm itself was moribund and to revitalize the company, they brought Jeff and Donna back, merging Handspring back into Palm. In a fit of complete weirdness, Palm then spun out the Palm OS operating system as a separate company, called PalmSource and renamed the merged Palm and Handspring as palmOne.

Are you keeping up here? So now, we had PalmSource, which owned the Palm OS operating system and palmOne (with a lower-case 'p') which was the combined hardware operations of Handspring and Palm. Oh, and in case it wasn't weird enough, Palm bought Jean-Louis Gassée's BeOS (which had some strong multimedia components) for $11 million in 2001. Palm never did anything with the acquisition.

It gets weirder. Apparently, when the old Palm spun out PalmSource, they gave PalmSource the right to the Palm trademark. So, for palmOne to use the name Palm (which they had, originally), palmOne had to pay PalmSource $30 million. Seriously.

In 2005, a Japanese company, ACCESS, decided to buy PalmSource, effectively leaving Palm, Inc. without its operating system -- the operating system it designed and developed. That's ok, because Palm wrote ACCESS a check for $44 million for the rights to the Palm OS source code, the build called "garnet".

Even though Palm had a huge audience for its Palm OS handhelds, the Palm OS itself was getting a little long in the tooth. Palm decided to license Windows Mobile and introduced its first Windows Mobile handset, the Treo 700w, further muddying the waters that was the Palm brand, especially since Palm had long positioned itself as better than Pocket PC and Windows Mobile.

Then there was the Foleo, the "what the frak were they thinking?" over-priced, almost-a-netbook idea that was announced in 2007, but cancelled before it was released.

Next: Pre thoughts and caviar dreams »

Pre thoughts and caviar dreams

That all brings us pretty much up to date except for, oh, the screwing of its developers. Palm had a wildly loyal developer base, with thousands of high-quality Palm OS applications and hundreds of companies making a good living innovating on the Palm OS platform.

So what does Palm do? Cut them off. After all, anyone who actually wanted to do business with Palm clearly wasn't good enough for Palm.

When the Palm Pre came out, almost no Palm OS developers were given the opportunity to develop for the new WebOS. And not only were their best developers not courted, when TealPoint created a skin for old-school Palms that made the launcher look a little like the Pre, Palm sued them, forcing the product off the market.

TealPoint, for the record, was one of the most prolific developers of extremely high-quality Palm OS products. Other Palm developers didn't get sued, but they didn't get courted either. Palm, according to most then-Palm developers, didn't want anything to do with "that old thing". Palm wanted to start fresh -- and that meant a newer, better class of developers.

Palm has always had a strange desire to be Apple and to provide premium, BMW-class products -- rather than simple Fords or Chevys. That could be because a few of their CEOs either came from Apple or made Apple add-on products, but no matter what, there's always been this strange aspiratonal identity crisis. The company made great products for the "everyman" consumer, but tried to constantly position the products as if they were for the luxury elite.

Next: HP acquisition »

HP acquisition

All of this brings us back to the HP acquisition of Palm for a truly insane $1.2 billion dollars. In my opinion, HP paid $1,195,000,000 too much.

Let's look at Palm's assets. First, there's the loyal audience of millions who have been using Palm OS devices for years. What? Oh, they're gone because Palm discontinued the Palm Desktop and said, "see ya, wouldn't want to be ya."

OK, nevermind.

Next, there's the loyal developer community, who's been building exceptional Palm OS applications for years. What? Oh, they're gone because Palm did everything they could to get the stink of those old developers off the bottom of their corporate shoes.

OK, nevermind.

There's the company's webOS, because there's no other well-integrated operating system for mobile devices and phones. What? Oh, there's Android, the iPhone OS, and even the new Windows 7 mobile operating system, plus, of course, Symbian and BlackBerry. WebOS is nice, but is it worth $1.2 billion?

OK, nevermind. Maybe, maybe webOS is worth $5 million. Maybe.

And then there's Palm's relationship with carriers. Well, there's something to be said for that, but HP already has carrier relationships for its iPAQ phones -- and while some iPAQs are now getting a little out-of-date, they're still strong contenders.

What else might HP get? The management team? Seriously? Have you seen how Palm's management team managed Palm? What about the webOS engineers? Well, if HP had waited a few months, Palm would have imploded, and those engineers could have been picked up for a mere recruiting fee.

Is there any upside at all?

Look, webOS is a fine, little OS. It'd be cool to see an iPad-like device running webOS. And it'd be nice to see more phones, from a more reliable company, sporting webOS as an alternative.

But there's nothing compelling here, nothing that gives HP an advantage they couldn't have otherwise gotten from, say, Android. And it's going to take a whole lot of sales to make up for the $1.2 billion boondoggle that is HP's purchase of Palm.

It's sad, really.

The PalmPower archives are still up. If you want a tour through Palm's strange past as it happened, read HP buys Palm, a Palm retrospective.

Read also: Did HP save Palm with acquisition? Or did it save itself? News to know: HP-Palm; Microsoft-HTC; Gizmodo iPhone; earnings webOS update may have fixed two major Pre Plus problems Palm-HP: Microsoft bites bigtime HP forks out $1.2 billion for struggling Palm - Money well spent? Will HP/Palm be the enterprise challenger to RIM? HP Slate with webOS: The potential iPad rival from HP's acquisition of Palm

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