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Palm sets sail as Microsoft OEM

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The industry's worst kept secret is no more. Palm, Microsoft and Verizon are to host a press conference on Monday in San Francisco to launch Palm's first Windows-based device, the Treo 700W. Late this afternoon, the Wall Street Journal confirmed the news. Snaps of the Treo 700 have floated around the internet for months, and full specifications emerged this week. Palm's shares had been clobbered as a response to its Q1 results throughout the day, but rose in late trading as the news percolated.

So a new era dawns for Palm - this time as a Microsoft OEM. It can't have been an easy decision to make. Microsoft's other great handheld competitor from the 1990s, Psion, is now a Microsoft OEM too - but it only released its first Windows machine into a vertical niche, two years after it had withdrawn from the consumer handheld market. The PalmOS Treo, meanwhile, is a hit.

Palm introduced its first wireless data device in spring 1999. While few noticed at the time, a Canadian pager company had launched a similarly crude device, but ominously, was signing carrier agreements by the handful. That company, of course, was RIM. And RIM was very much the factor for both Microsoft and Palm reaching their agreement.

For only slightly less surprising than Palm's decision to partner with its old nemesis, was Microsoft's decision to undermine its own Smartphone platform - by torpedoing one of its strongest USPs (see Kill The Crackberry!).

Microsoft always needs one nemesis of its own, and preferably a few, and RIM's success in planting its server software in the corporate IT center worried Redmond immensely. Using the same logic that once fuelled its paranoid nightmares about Netscape's browser and Sun's Java, Microsoft feared that RIM would continually add features to its email gateway that would one day make Exchange Server redundant. It's not impossible that one day RIM might be in a position to boast that itself: but that day is a long way off. And opting for standards-based authentication, directory services and email is a mighty wrench.

Meanwhile, Microsoft's struggling smartphone platform always had one ace up its sleeve: the ability to sync with Microsoft Exchange. In choosing to license ActiveSync to all comers - Nokia and Symbian weren't slow to sign up - Microsoft removed that USP. Better to let the Smartphone team make its own way than risk the Exchange business.

Now that Microsoft has finally snagged a household name for its Smartphone business - that doesn't look like such a bad move.

As for Palm, although it finally had a hit wireless data device in the shape of the Treo, we didn't see many Blackberry users defect. That's despite offering a clutch of alternatives, and despite prime OS partner PalmSource inking a deal with RIM to put Blackberry Connect on Palm devices.

As Stephen Wildstrom notes in Business Week, Blackberry Connect on non-RIM devices is one of the great VaporWare sagas of our time. Neither Palm nor Symbian have one available. Nokia too has been especially keen to offer it on its mid-tier phones, such as the 6820, but still doesn't. (If any readers have such a beast in captivity, let us know). RIM's patent dispute with NTP hasn't helped.

Having broken its long dependence on PalmOS, Palm is now free to pick and choose whatever platform it sees fit: and Access, which is buying PalmSource, would very much want that to be Linux. But supporting several platforms is something the company can ill afford to do, and spreads its diminishing brand equity even thinner.

There are two downsides, one short term and one further out. The first is compatibility: which means persuading customers to buy their applications all over again, and persuading PalmOS developers (many of whom target more than one platform) to continue development for as long as necessary. This won't be easy.

And to negotiate the future successfully, Palm will need to compete for Windows business with extremely low cost Asian manufacturers who build exactly what carriers tell them to build: HTC, for example. We recall the words of Scott McNealy, when we asked him why he didn't license Windows.

"Every company that went onto Wintel ultimately hollowed themselves out," he said. "It was a self-imposed lobotomy. They're no longer R&D companies… they were shareholder disasters."®

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