Palm competitor - or is it a partner?

Palm hopes Handspring expands the market for Palm devices.

Palm Computing is likely to give Handspring, which is expected to debut a new Palm OS-based handheld next week, a little breathing room in the marketplace. But not too much.

As previously reported, start-up Handspring on Tuesday will announce Visor, a low-cost handheld that runs the Palm operating system. Although Handspring is licensing the OS from Palm, it also makes the two companies competitors. But there are indications that "coopetition" may be more the hallmark of their relationship than competition.

Palm Computing has begun shifting its focus toward businesses and licensing its Palm OS, which leaves newcomer Handspring a path to target consumers, sources said.

The two companies are working closely together on the release of the Handspring device. Palm Computing's president Alan Kessler, for example, saw Handspring's products last week in a private meeting with Handspring founder Donna Dubinsky and is aware of her company's plans to target, among other things, consumers, sources said. The device also borrows many pieces from Palm Computing's Palm V, according to sources. The biggest piece is the operating system and Palm applications, including calendar and address book, which Handspring has tweaked to suit its needs. Those who are familiar with Visor say that it will support nearly all of the existing Palm OS applications, provided that they follow Palm Computing's programming guidelines.

"I think that these companies are pretty tight," said Matthew Nordan, an analyst with Forrester Research.

Some overlap is unavoidable, but the companies, which share intellectual property as well as some close personal ties (Dubinsky and Handspring co-founder Jeffrey Hawkins also co-founded Palm), will likely stay out of each other's ways, according to Palm Computing officials. Still, "It will become clear that Handspring is going to take over retail," Nordan said. Visor "screams traditional retail product. I would assume they're going through traditional channels."

At the same time, Palm Computing, a division of networking giant 3Com, is shifting to some extent, to target the business market. "3Com continues to emphasise the mobile professional and as such is focusing more on the enterprise as it adopts handheld computing," said Marc Bercow, vice president of platform development for Palm. To that end, Palm will hire a new vice president of enterprise computing, roll out new service and support programs for businesses and develop improved Palm-to-server synchronisation technology, according to Kessler.

But that's not all. Besides the new business focus, Palm is also making an effort to license its operating system. Handspring, of course, is the most recent licensee to date, but IBM and Symbol Technologies have been selling Palm OS-based devices for some time. Symbol, for example, sells a rugged device aimed at use in industries, such as manufacturing. Whether or not the new direction gives Handspring room to take over the consumer market for Palm OS-based handhelds remains to be seen. Despite all of its new efforts, Palm Computing won't stop making devices or concede the consumer market either.

"From the platform perspective, we think that this market is growing at a high rate. We think there's room for a lot of players," Bercow said. "We view Handspring as a partner, but there may be some short-term pain." That means, "It's possible that customers will choose between Handspring and Palm products," he said.

But no pain, no gain as far as the 3Com division is concerned. Even if a user chooses Handspring over a Palm device, Palm Computing will still get a piece of the action because its operating system appears in both company's products.

When the low-cost, highly expandable Visor debuts on Tuesday, the company with the most to lose may be Microsoft, maker of the Windows CE-based operating system for handhelds and other devices. Visor is expected to sport many of the features offered by Windows CE-based handhelds (called "Palm-sized PCs") but that a Palm handheld still can't; this includes the ability to play MP3 music files. And the price of Visor machines will be less than half of the price of many Windows CE-based products.

Bercow said he doubts Microsoft will be able to add improvements and features as quickly as Palm licensees. "I still don't see (Microsoft) making any movement there. Handspring is a great example of the power of the Palm platform."

Handspring declined to comment on Visor.