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Why Palm is doomed

The future doesn't look too good.

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Yesterday, we looked at Palm's glorious (and not-so-glorious) past. Now what about the future? Unless Palm finds its way, it may slouch into obscurity or cease to exist altogether in the coming years.

Currently, Palm is a profitable company with lots of customers, partners and investors. The company seems to be doing OK, and Wall Street isn't worried.

The problem is that the world has changed radically in just the past year. It's hard to believe, but it was only a year ago that the smartphone purchasing decision was as easy as paper or plastic (at least in the US): BlackBerry or Treo?

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But as more players jump into the smartphone handset market, margins shrink and user expectations rise. And everyone seems to be innovating except for the great innovator - Palm.

During the past year, all the major players launched "Treo Killer" devices, including Research in Motion with both its BlackBerry Pearl and the Pearl's full-keyboard cousin, the BlackBerry 8800. Samsung's Blackjack goes directly after the Treo market. The Motorola Q is hot. Nokia, Hewlett-Packard, Sony, Samsung and others are all gunning for Treo with brand-new, full-featured smartphone gadgets.

And then, last month, iPhone changed everything. Jobs' Macworld keynote was like a nuclear bomb in the world of smartphone enthusiasts. The "key influencers" who gave Treos visibility and cachet a year ago - Hollywood types, gadget freaks and absolutely everyone who's anyone in Silicon Valley - have stopped talking about Treos and are simply waiting for the iPhone to come out, at which time they will unceremonially dump their Treos and embrace the new innovation leader.

Meanwhile, it looks like Palm isn't even trying to innovate. Colligan said in an interview recently that the company is focused on ease of use, rather than design, and that the company doesn't want to "follow design fads." In other words, Palm is not only failing to set trends, it's not even following them anymore.

Reason for hope

Despite my doom-and-gloom scenario, there is reason to hope that Hawkins may save the company yet again.

Rumours suggest that Jeff Hawkins is toiling away in some secret lab to build a revolutionary device that will leapfrog Palm ahead of the pack. If the rumours are true, Palm has a chance to survive. If false, Palm is probably toast.

The $64,000 question is: Has Palm lost its mojo? In other words, does Palm still think like Apple - that the product is everything - or is the company thinking more like HP, where partnerships, branding shell games and big enterprise deals are most important?

HP fails in the smartphone market in part because of an institutionalised delusion, common at most big and old Silicon Valley companies, that enterprises buy smartphones based on security, back-end infrastructure support and integration with enterprise systems in general.

Yes, those things are important. But in the smartphone market, cool is king, even at the biggest companies. RIM does a great job supporting business goals. But RIM is number one because people "love" their BlackBerrys. Palm is number two (but dropping fast) because people "love" (or used to love) their Treos.

A gadget that elicits an emotional response from buyers can emerge only from visionary design, and cannot be produced with a design-by-committee corporate culture.

Palm has plenty of cash and reasonable prospects for growth. My advice is to throw every penny at Hawkins and let him build the device of his dreams without interference. Everything the company now has started with Hawkins' design vision.

Given its history, however, I think it's likely that Palm will squander Hawkins' genius yet again with another disastrous stunt, such as selling the company.

The software business, PalmSource, sold out to Japan's Access Systems in a $324 million deal. The company changed the name of the operating system to the Garnet OS. That product is now headed for obscurity and irrelevance.

Will Palm follow PalmSource down the road to oblivion? We'll see.

If the company can remain true to its founding vision, remain independent and out-innovate everyone else like it used to, you can disregard everything I've written here. But if Palm remains on its current trajectory, the company is history.


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