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Palm and Handspring needed to merge to compete with the Pocket PC onslaught.

The top news this week was Palm’s acquisition of Handspring. You might remember that Handspring was formed when Jeff Hawkins and other top Palm people became disgruntled by the lack of innovation at Palm and formed their own company. For a time Handspring made huge inroads in the Palm OS market, which was the undisputed market leader in handheld operating systems. Since its launch, Handspring has innovated in areas such as the smart phone market with its Treo series–my personal favorite handheld–while the competition has been good for Palm, whose newest Zire handhelds show lots of promise. And, of course, competition has forced prices down, which is always good for users but not always good for the health of companies. Both Palm and Handspring are losing money, and that is the impetus of the acquisition. Consolidation–the buzzword of the ’00s–will enable Palm to grow market share without significantly growing costs. And working together rather than in competition should improve the products without growing prices. All this is good for Palm OS users, contrary to what most analysts are saying.

The reason prices will not increase is that Palm’s real competition comes from Pocket PC-based systems from companies like Dell, Toshiba, and HP. The Pocket PC has slowly eroded Palm OS market share with improved power management, better handwriting systems, better integration with Windows server systems, and most of all, price. When Palms were half the price and worked for twice the time between charges, Palm OS systems were a no-brainer. Now that Dell’s Axim has changed the pricing structure of the Pocket PC world and more employers are connecting Exchange servers with Pocket Outlook, the choice gets much dicier. Palm needs to corner the Palm OS market in order to make a living in the new handheld market.

Long term, what Palm really needs to improve and promote its Palm Mail application, which works with Exchange, cc: Mail, Outlook, and several other e-mail systems. The perception in the admin community is that they can outfit their entire enterprise with Axims and get tighter integration of e-mail systems with Pocket Outlook. Pocket Outlook’s calendar functions, for example, work very much the same as Outlook applications in Windows 2000 Professional and XP. That lessens the learning curve for sales executives and others on the go and reduces burdens on the help desk. It is an open question whether what I’m hearing from the admin community is actually true. But perception is reality for many admins, who are stretched so thin these days that they don’t have time to research a decision for a month if it’s a close call.

Until recently, Palm didn’t have to worry much about the enterprise space. It had the clear advantage in consumer-level handheld use and too few users connected with their e-mail systems remotely, or downloaded calendar items to their cradle from their Exchange systems. As that market grows, Palm can no longer afford close calls. It needs to be the clear choice of both consumers and businesses. Why? One word: Apple. Macs were the clear choice for consumers, but since they didn’t network well with Windows server systems (and some say they still don’t), they were marginalized in the enterprise. This had an adverse affect on their consumer market because people wanted the same system at home as at work. In the case of Palm, this phenomenon is even more acute because users not only want the same system, they need one device for both work and home. Palm needs to take advantage of all that Handspring talent to make a better enterprise play. If not, it will go the way of Apple: great products that are used mostly by enthusiasts.

James Mathewson is editor of ComputerUser magazine and ComputerUser.com

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