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Perhaps no company born in the pre-dot-com era has been through as many reincarnations as Palm. The company struck gold with the original Palm Pilot in 1996 and had captured 65 percent of the handheld market by 2000 – only to see its commanding lead slip away over the next few years to competitors like Handspring, Research in Motion (RIM), and Hewlett Packard (see part one of this article).

Over the same period, the company’s “family tree” branched into something more like a thorn bracken. In 1995, even before the introduction of the Palm Pilot, Palm co-founder Jeff Hawkins sold the company to modem-maker US Robotics. That company was acquired, in turn, by networking giant 3Com in 1997. A year later, Hawkins and two other co-founders left 3Com to start Handspring. Then Palm separated from 3Com and went public in 2000. In 2003, Palm bought Handspring and spun off its operating-system division, which became PalmSource (and was acquired last month by Access, a Japanese mobile software developer).

With the acquisition of Handspring and its Treo line, Palm became a player – if a minor one – in the smartphone market. The Treo has only a 3.1 percent share of the smartphone market, according to analyst firm IDC. By contrast, the company’s nonphone handhelds, Zire and Tungsten, still command more than one-third of that market . Nevertheless, as we noted yesterday, the cultural ascendance of the smartphone has forced Palm to focus much of its engineering effort on the Treo, and to consider the possibility that its handhelds will soon be a thing of the past.

Clearly, competition and technological change have forced Palm to take many unexpected turns. The latest is perhaps the most surprising: this fall Palm announced that instead of equipping many of its future devices with PalmSource’s Palm OS, it was going with Microsoft’s Windows Mobile 5.0 operating system. That move raises many questions about the company’s future – including whether or not it can sustain an identity separate from Microsoft.

2005: Partnering with Microsoft and RIM

With the divestiture of its software business in 2003, Palm was free for the first time to use another company’s operating system in its products. Douglas Edwards, vice president and co-founder of the mobile software development company Handmark, says that it was clear, from that moment, that Palm would someday partner with Microsoft.

Although it took two years, Microsoft and Palm got together in September 2005, announcing that Microsoft’s Windows Mobile 5.0 would be used on a future version of the Treo. “When Palm got out of the OS business, it made [working with Microsoft] inevitable,” Edwards says.

Insiders at Palm say that while customers are happy with PalmOS, the company needed to switch to another operating system if it hoped to grow to the next level. Indeed, Windows Mobile 5.0 contains features that are not included in the Palm OS.

But, although Palm has good reason to partner with Microsoft, it must now adjust to life as one of many Windows licensees. It must differentiate its products from those of Audiovox, Motorola, Samsung, and other companies. And, like them, it now depends on Microsoft’s ability to keep its operating system competitive with Symbian, Linux, and the Palm OS.

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