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Design Philosophy: A handheld computer is not a laptop or desktop computer, the focus is on managing and accessing information rather than creating and editing documents. This unique user experience requires a unique set of guiding principles--be simple, wearable and connected. An unwavering commitment to these principles makes Palm products ideal for customers and developers alike.
Since its inception, Palm, Inc. has made personal digital assistants (PDAs) popular as no other company has. The company has sold more than seven million of its devices in 35 countries. Its ingenious PalmPilot has attracted an enthusiastic following, allowing it to protect its controlling market share from rival PDAs powered by Microsoft Corporation's Windows CE operating system.
Silicon Valley Origins
Palm Computing, Inc. was established in January 1992. Its founder, Jeff Hawkins, was formerly vice-president of Grid Systems Corp. and was credited with designing that company's line of pen computers. President and COO Donna Dubinsky was a cofounder of Claris Corp.
Tandy Corporation sponsored Palm Computing's first product: the Zoomer (marketed as the Casio Z-7000 and the Tandy Z-PDA) handheld device that was developed in cooperation with Casio Computing Inc. Three California venture capital firms also backed the company.
Palm soon introduced add-on software for connecting Zoomers to PCs. Other early products were the PalmPrint and PalmOrganizer devices based on the Geos operating system developed by Geoworks of Alameda, California. Sharp used these technologies in its PT-9000 handheld pen tablet machine.
In 1994, Palm began marketing itself as a third-party developer for other makers of handheld computing devices, extending beyond the Geos operating system. Three other platforms were under consideration: Apple's Newton Intelligence, Microsoft's WinPad, and General Magic Inc.'s MagicCap.
In September 1994, Palm debuted its Graffiti handwriting recognition software. Until that time, users of personal digital assistants usually entered information by choosing selections on a tiny screen with a little plastic stylus. Adding any kind of practical keyboard would make the devices too large to carry in one's pocket. Apple's Newton already had a limiting handwriting recognition capability, but Palm's Graffiti could be used for taking notes or sending e-mail. It boasted 100 percent accuracy and a speed to rival typing. Graffiti required users to modify their handwriting somewhat--omitting, for example, the cross bar in the letters 'A' and 'F' and writing the letter 'L' in mirror image. Palm claimed the system could be learned in 20 minutes and mastered in a couple of hours. Palm offered the software for the Newton, Magic Cap, and other PDAs.
Giant modem manufacturer U.S. Robotics, based in Skokie, Illinois, acquired Palm in September 1995 for $44 million. Palm was based in Los Altos, California.
A New Pilot in 1996
Palm introduced its new, simplified PDA, called the Pilot, in the spring of 1996. Rather than attempting to stand alone as a computer, the Pilot was designed to easily and quickly exchange information with a PC. It sat in a cradle that was plugged into the desktop computer.
According to Time, venture capitalists in Silicon Valley doubted users would buy a device with as few features as the Pilot offered. However, the very key to the Pilot's success was its Zen-like simplicity. While designing it, Hawkins carried an uncarved block of wood in his shirt pocket for months, tapping on it while deciding the key features the Pilot needed. Eventually, four functions emerged: a calendar, address book, to-do list, and memo section.
The tiny new device measured just 4.7 inches long, 3.2 inches wide, and 0.7 inches thick. It used ubiquitous miniature flashlight batteries that lasted for months. The basic Pilot 1000 retailed for $299, half the price of a Newton. It could hold 500 addresses and 600 appointments. The Pilot 5000 had four to five times the memory and sold for $369.
It took four months for the Pilots to catch on, but soon they were appearing all over Hollywood. Palm shipped more than a million of them in their first year and a half--a faster launch than Sony Walkmans, pagers, and mobile phones. They certainly outsold all other PDAs. The GridPad that Hawkins had designed nearly ten years earlier was simply too big. The expensive Apple Newton failed in the mass marketplace. The Sharp Wizard and the Hewlett Packard 200LX were limited to tiny niches of gadget enthusiasts.
In the face of Palm's success, Microsoft rushed out its Windows CE 1.0 operating system in its haste to dominate yet another market. The units that used it, equipped with tiny keyboards, offered more features than the Pilot but were difficult to use. They failed to threaten Palm's position; the company controlled two-thirds of the handheld market at the end of 1997.
Microsoft released its updated CE 2.0 software in November 1997 and called its new handhelds 'Palm PCs,' quickly landing it in court for alleged trademark infringement. Seven companies, including Casio and Philips, allied with Microsoft in developing their own feature-packed handhelds running the CE 2.0 operating system. They generally proved more complex to use than the Pilot. (Palm soon began referring to its devices by company name and model number.)
Palm continuously updated the Pilot's design. It introduced a modem for it in 1997. However, its software was not well received and third party developers moved to quickly fill the void. The Palm III was introduced in March 1998. It could exchange information with other Palm IIIs via a wireless infrared transmission. Time magazine documented the phenomenon of strangers swapping video games, contact information, and subway maps by this 'beaming.' Other new features included refined styling, a protective lid, and more memory.
Palm kept its own offerings relatively simple, leaving 5,000 outside parties to develop software and hardware add-ons. Users could now link with the Internet, corporate networks, and pagers. The Palm III sold for $399. Wireless modems (supplied by Novatel, JP Systems, and Metricom) sold for $350-$400 and doubled the size of the unit.
3Com, based in Santa Clara, California, had acquired U.S. Robotics in June 1997. 3Com manufactured networking adapters and switches. With sales of $570 million Palm accounted for nearly ten percent of 3Com's revenues in the 1998/99 fiscal year. 3Com CEO Eric Benhamou saw the unit as the centerpiece of a revitalized 3Com, according to the Wall Street Journal. In fact, although Dubinsky claimed it attracted little interest at the time of the acquisition, Palm Computing emerged as the best part of the merger with U.S. Robotics, which left 3Com with massive excess modem inventories and other difficulties in combining the two product lines.
Dubinsky and Hawkins left 3Com in 1998 because it would not spin off Palm as a separate company. They formed Handspring Inc. and used licensed Palm software in their own, lower-priced device, called the Visor, which was introduced in September 1999. It featured a slot for effortlessly adding a variety of hardware modules, such as digital music players and cameras. (PalmPilots did have a serial port for adding peripherals.)
By this time (September 1999), Palm held an 85 percent market share, and was aggressively licensing its proprietary Palm OS operating system. Computer Reseller News reported that Microsoft had turned its attention towards secondary functions beyond organizing data, such as playing music clips and video games.
The new Palm VII arrived in 1999. The handy organizer had morphed into a full-time wireless telecommunications device. It was priced at $599, plus an additional monthly fee ($10--$40) for Palm.net service based on usage. Although its tiny screen could not display all the contents of a typical web page, Palm had lined up more than 1,000 Internet content developers willing to accommodate the Palm VII.
Compaq Computer Corporation unveiled another lower-priced competitor, the Aero 1500, in September 1999. Hewlett-Packard Co.'s Jornada 430, priced the same as the Palm VII, debuted the same month. The Jornada featured a color screen.
3Com picked a new CEO for Palm in December 1999: Carl J. Yankowski, head of the Reebok Brand athletic shoe division of Reebok International Ltd. He also had experience with Sony Corporation, PepsiCo, Inc., Polaroid Corporation, and General Electric Co.
Palm controlled 70 percent of the organizer market; a few progressive corporate network administrators were buying PalmPilots by the hundreds. Sales were growing 65 percent a year. Organizers still accounted for 99 percent of revenues in spite of the emphasis the company was making on licensing its software to other companies, such as America Online Inc. and Motorola Inc.
Qualcomm Inc. and Nokia used Palm OS in their most advanced mobile phones. However, Palm saw smarter mobile phones as the company's second biggest competitive threat after Microsoft. Nokia was also a member of the Symbian consortium, which was developing its own operating system for wireless Internet devices. Handspring and Telefon AB L.M. Ericsson were also members of this effort.
In this rapidly changing industry, competitors often had to cooperate. For example, Palm's organizers were designed to work with the Windows-based programs running on PCs. Palm's struggles and victories were cited by opposite sides at the Microsoft antitrust trial.
Palm Inc.'s IPO in March 2000 displayed high-tech speculation at its most febrile. Priced at $38, shares reached $165 each before closing at $95, giving Palm a market valuation of $53 billion--more than that of General Motors and McDonald's, and more than that of its parent company, 3Com, valued at $28 billion. At the time 3Com still owned 94 percent of Palm's stock; however, in July it completed the distribution of its remaining shares to stockholders.
A revamped Microsoft operating system appeared in a series of Pocket PC devices launched by Hewlett-Packard, Compaq, and Casio in April 2000. The Pocket PC enjoyed a sleeker design than the somewhat boxy Pilots. According to the Wall Street Journal, independent programmers who developed Palm-based software remained intensely loyal, often refusing to adapt applications for the rival Windows CE systems. Palm claimed to have 70,000 third-party developers registered in the middle of 2000, up from only 3,000 at the beginning of 1999. Many of these had modest operations, some distributing their programs over the Internet as shareware. In contrast, Microsoft had licensed 200 companies to work on Pocket PC programs; many were larger companies.
Revenues in the last quarter of 1999/2000 were more than double those of the previous year. Suppliers of display screens and memory had difficulty keeping up with ever accelerating demand. A few faulty memory chips were allowed into production; Palm offered a software fix.
Boosting its wireless Internet services, Palm bought AnyDay.com, which produced Internet-based calendars, in June 2000 for $80 million in cash and stock options. It had also bought e-mail provider Actual Software Corp. Palm planned to offer expansion slots in its organizers by early 2001, an area where it lagged behind Visor and Pocket PC devices. Personal electronics powerhouse Sony was preparing to introduce its own PDA.
Principal Subsidiaries: Palm Computing Europe SARL (France); Palm Computing K.K. (Japan); Palm do Brasil Limitada; Palm Europe Limited (U.K.); Palm Europe Limited (Italy); Palm Europe Limited (Switzerland); Palm France; Palm Germany GmbH i.G.; Palm Global Operations, Ltd. (Ireland); Palm Hong Kong Ltd.; Palm Ireland Investment; Palm Latin America, Inc., Argentina Branch; Palm Mexico S.A. de C.V. (Mexico); Palm OS BV (Netherlands); Palm Sales Australia Pty Limited; Palm Sales Canada Inc.; Palm Singapore Sales Pte. Ltd.; Palm Sweden A.B.
Principal Competitors: Casio Computer Co., Ltd.; Microsoft Corporation; Psion; Sybase Inc.
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