As widely expected, erstwhile PDA poster child Palm is to spin off its operating system into a discrete business unit at Palm, Inc. Whether this portends a formal split between hardware and software, it's too early to say, and we'll go into the well-trodden pros and cons in a moment.

Palm is the company that for many Americans invented the electronic personal organizer business, but it's found itself in the awkward - nay impossible - position of competing with its own customers as it's sought to entrench its position.

Palm succeeded in licensing its platform software to hardware OEMs including Sony, Samsung and Handspring, but much like Apple in the mid-90s, has continued to dictate the price and terms of the OS license on which these customers depend. And with the Palm-compatibles outstripping Palm in terms of innovation, performance, features and price, that's left many wondering whether Palm could really have its cake and eat it.

With over 90 per cent of Palm's income coming from hardware, it's become particularly difficult for the company to maintain its stance of neutrality on the issue.

So Palm announced its move late on Friday to ring-fence its OS business with a Chinese wall. Palm's statement made no indication that a formal split was likely, although it's openly told financial analysts that the existing business model was unsustainable.

It's unlikely that Palm wants to spin off the OS division completely. It admitted as much, with the announcement of "An Advisory Council of Palm OS licensees" to oversee the division.

But maintaining control over OS features and OEM pricing is critical to Palm, which gains a huge advantage in specifying which APIs should be developed, for example, or which licensees should get discounts and where. While Palm controls PalmOS, it is effectively a market maker, and the much vaunted 'Palm economy' remains a Soviet-style command economy of Palm's own making.

The only question is if not a spin off, then how much bureaucracy is Palm and its licensees prepared to accept?

Well, for example, Sun has succeeded in promoting Java as a open industry standard, even though it remains as much a vendor-owned proprietary technology as it was the day it was born, six years ago. (And try suing them if you disagree).

Sun has succeeded despite formal revolts by its partners, and despite being rebuffed by grown-up standards committees (once by ANSI, again by ECMA) simply by saying "we're nicer than the other guys". And incredibly, it's worked.

But Java has a couple of things going for it which PalmOS doesn't, and folks, they're important. No one (or at least since that crumby Pascal that came with the original IBM PC) has seriously promoted a viable hardware neutral platform. That was nice, but more importantly, Sun was far-sighted enough not to gouge its licensees for the privilege of playing in the Java sandpit. (Or maybe not far-sighted enough, as more than one Sun exec has since privately rued to us how Microsoft got its Java license in 1995 far too cheaply. Whatever).

Realistically, the best course for Palm is to steer PalmOS into some corner where its integrity is 'protected' by well-meaning "Advisory Councils", quasi-independent pseudo standards outfits or at worst, a stakeholder joint-venture.

And the decider then is whether prospective licensees see enough value in this to play along.

Alternatively, they could throw their hat in with the phone companies (via Symbian) or Microsoft, both of whom have considerable technology leads over Palm - by for example. having made the choice of 32bit chip supplier that Palm made this week several years ago - and each has orders of magnitudes more capital. Or they could go for Linux, which is emerging as a PDA platform for far eastern manufacturers fed up with these silly licensing games.

And who would blame them? ®

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