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The Palm and Handspring union: A marriage of convenience, possibilities

Scrappy little Handspring will be acquired by Palm in a deal that is estimated to be worth about $170 million in stock.





We have praised PDA-maker Handspring, Inc. in earlier columns for its innovative nature and ability to make rapid technology decisions that effectively pushed the envelope in the handheld computing segment. We have also maintained that the company has boldly created products and tweaked their technology in the face of Palm, Inc., which still rules the PDA segment in terms of installed base but has been criticized as moving too sloe and being too cautious -- especially as it concerns the enterprise user.

To its credit, Handspring has even taken a bold step and developed a workable smartphone type product -- or at least a device that merges a PDA and cell phone -- which has set new standards in terms of how these devices should look and feel. More important, there are actual users out there of the Treo PDA-phone series, about 200,000 says a spokesman for the company (not counting the Treo 290 model).

Now comes word that scrappy little Handspring will be acquired by Palm in a deal that is estimated to be worth about $170 million in stock, which is quick a bit in this depressed economy. Palm will absorb the company -- lock, stock and PDA assets -- and in the process get an instant foothold into the potentially big smartphone market. The deal also brings original Palm Pilot developers and Palm founders Jeff Hawkins, Donna Dubinsky and Ed Colligan back into the fold to run a new division within Palm that will focus on developing and expanding smartphone-type devices under the Palm label. A new series of these devices will be unveiled very soon, although we are sworn to secrecy and can tell you nothing about it right now. What we can talk about, however, is some of the reasons why the union is taking place, and what the potential impact might be on the enterprise segment.

First, the reasons why the marriage had to happen: Although clever and smart and full of developmental vinegar, Handspring was running into some financial problems. While the company was not down to its last PDA dollar, it was looking for an influx of cash to keep the development wheels turning, bankroll the impending launch of a new series of products, and increase its push beyond consumers and into the enterprise segment. Executives of the company are quick to point out that they had two alternatives to stay in business: find outside funding and remain independent; or, agree to be acquired by Palm. They chose the latter because it offered the "scale to execute our vision", says the company's vice president of marketing.

The company had blazed new trails in terms of converged technology (PDA-enabled cell phones), but needed a strong financial and image base to make a significant impact in the worldwide smartphone market. While the Treo series was interesting and relatively successful, the company was about to participate on an entirely new level with planned new product introductions (again, we can't say a word yet). In order to be successful, Handspring needed more cash, a stronger marketing base, and the viability that could only be delivered by the Palm name.

Despite a relatively strong interest on the consumer side, Handspring was not making a great impact in terms of enterprise sales. Let's face it. The key to selling within the enterprise is having the right distribution channels and getting the support of the systems integrators and developers who concentrate on specific vertical markets. Palm took a while to get the formula straight, but does have access to those much-needed channels. Now, with the acquisition, Handspring's devices can be sold through these channels and to companies that have for a long time recommended the "Palm buy."

Palm has a really strong relationship with IBM Corp., which can now be leveraged to sell current as well as newer Handspring products through these very solid channels. This is important since there is no way Handspring could compete against a company like Dell Computer, which started shipping its own Palm OS-based PDA late last year and is already the fourth largest PDA maker in terms of U.S. sales.

Palm also a lot to gain from the union. As stated earlier, the company gets an instant tow-hold in terms of communications-oriented PDA devices -- which is important given the reasonable success of its cellular-based Tungsten and more recent 802.11-enabled PDA systems. Palm recognizes the importance of reliable wireless communications in the design of these small systems, and obviously plans to create a very strong wireless division with the addition of Handspring. This division is expected to be headed by Ed Colligan.

Handspring also brings the all-important wireless carrier connections to Palm. Just as Palm had developed strong distribution contacts and channels, Handspring has fostered some very tight relationships with wireless carriers such as Sprint PCS, which presently sells its Treo devices as part of their wireless packages.

What can we expect to happen after the Palm-Handspring deal is finalized sometime this fall? Well, for one, the Handspring brand will probably disappear, so remember to save all of those old Treo devices in your personal museums. Devices like the Treo 270 and 280 will most likely continue for a short while, but will eventually be replaced by a whole new series of devices that are better designed to compete on the worldwide stage.

A very good and trusted friend of ours also predicts that Hawkins and Dubrinksy will dutifully and legally stick around after the marriage is official, and eventually will go off and launch into some other interesting project. After all, they are creators and entrepreneurs and more motivated by blazing new trails than being tucked away within the confines of a large corporation. This is just the nature of the entrepreneurial beast.

We expect the new Palm-Handspring union will create a very large splash in the U.S. smartphone market, and will easily create some ripples within the enterprise as corporations wake up to the fact that small and flexible PDA-enabled phones can be successfully used in a number of sales and field force applications. After all, cell phones equipped with cameras are already being used on a very small scale by people in the construction and real estate industries to zap visual images to co-workers and clients. It is only a matter of time before this use expands and spreads to other industry segments.

Handspring has its immediate eye on two industry segments in particular as it moves forward, healthcare and real estate. We expect this vision will quickly expand into other segments as the company comes under the Palm umbrella and is absorbed into the company's strategic planning. Our hope is that the spunk and tenacity that is now a hallmark of Handspring will not be diminished as Palm closes its grip on the company.

The tough challenge, though, is to not only continue to develop and evolve smartphone technology, but to carve out an applications niche by showing skeptical enterprise users that these devices can find a comfortable and ROI-proven niche as honest-to-goodness tools. There were roughly 12 million PDAs shipped last year, as compared with maybe 500,000 cell phones, according to some estimates. An estimated three million so-called "converged" technology devices (PDA-enhanced cell phones) were also shipped. It would seem, then, that smartphones are a technology that is desperately in search of applications beyond standard voice communications. The challenge is to both create these applications, and then convince users that they are really necessary.

Tim Scannell is the president and chief analyst with Shoreline Research, a Quincy, Mass.-based consulting company specializing in mobile and wireless technology and initiatives. Shoreline works with end users, looking to implement mobile solutions, and vendors, developing new products and seeking business and customer opportunities. The company also specializes in training and strategic planning projects. For more information on Shoreline Research and the company's strategic services please go to www.shorelineresearch.com.


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