Palm's Life Line

What can Palm's tumultuous history tell us about the future of the mobile device market?

Palm is nine years old, and for its first four years, it lived a charmed life. It created the market for personal digital assistants and dominated that market. Then things got interesting: Competition from hardware and software companies loosened Palm’s grip on the PDA, while at the same time the overall market for technology collapsed. Finally, the ascendance of the smartphone forced Palm to consider the possibility that its handhelds were destined to become a thing of the past.

These combined forces of competition, recession, and the changing nature of what a PDA is have forced Palm to make big, seemingly counterintuitive changes to its business model almost as a matter of course.

Consequently, Palm’s short, eventful history serves as a useful guide to the factors that have shaped, and will continue to shape, the market for PDAs. Here, then, is a chronology of Palm in two parts. Today, we will cover 1996 to 2004. Tomorrow: 2005 and beyond.

1996-2000: Creating a Market

In 1996, the Palm Pilot ushered in the era of the PDA. While other companies, such as Apple (with its Newton), had tried and failed to build a following for their handhelds, within two years of the Palm Pilot's arrival, Palm was doing more than one-quarter billion dollars in annual sales. By 2000, the company had garnered 65 percent of the 11.2 million-units market for handhelds (here defined as a non-phone device), according to analyst firm Gartner (no relation to the author). Palm’s steady march of increasingly sophisticated handhelds, including the Palm Pilot and Palm III, V, and VII, all featuring the Palm operating system, eventually turned the company into a billion-dollar-a-year business.

Mobile professionals clamored to buy the latest edition of Palm's handhelds. "There was a unique moment in time where Palm was the poster child for the Internet generation,” says Palm's senior vice president Ken Wirt. “Palm was super red hot...but nobody ever stayed that hot for long.”

2001 to 2003: Suffering Losses

Indeed, Palm couldn't keep generating the heat. Its dominance vanished as devices such as the Handspring Visor and Research In Motion's BlackBerry entered the market. And it wasn’t just hardware that posed a threat: Compaq, Hewlett-Packard, and other PC makers chose to license Microsoft's competing PocketPC operating system instead of the Palm OS for their handheld devices.

In March 2001, Palm announced that it would sell the m500 and color m505 handhelds, featuring expansion slots for adding peripherals, but the devices were delayed by several months. Palm had prematurely announced the products “to steal some thunder” from rising handheld competitor Handspring, according to Todd Kort, a principal analyst with Gartner. (Handspring was founded by former Palm executives Jeff Hawkins and Donna Dubinsky.)