For Palm, it is just the beginning. For 3Com…

2000-03-03

Yes, yes, the Palm IPO has finally happened, and it was all we hoped it would be. At $53 billion Palm, Inc. is now valued at nearly double that of its proud parent, 3Com. The road ahead may be rocky for the fledgling company: nobody, not even Palm, can claim a monopoly on the future of mobile devices. As for 3Com, it success at nurturing the company which now holds a 70% share of the handheld market may be overshadowed by the difficulties it faces following the Palm IPO.

First, to Palm. Against all odds, some would say, the company has succeeded where the likes of Netscape and Lotus failed. It has taken on the company with a reputation for standing on the shoulders of giants, the “innovator” that is Microsoft, and it has won – despite a less functional product, a less glamorous interface and a far less effective marketing machine. IT observers have used their best hindsight and determined the reasons why Palm has been so successful, but the truth is that nobody really knows. Whether it is down to battery life, weight or Zen, the fact is that the punters prefer Palm.

The future is likely to be less predictable than the past – we can say this with some certainty. Just because Palm owns the lion’s share of the PDA market, this does not guarantee its future success. It is not so much that the competition in the PDA space is fierce. Rather, the PDA space is a transient thing, involving collision rather than convergence with other technologies such as wireless technology and portable computing. Already the company is feeling the heat of its mobile rivals and does not always appear to be jumping in the right direction. As we covered \link{http://www.it-analysis.com/00-01-13-2.html?its,here}, Jean Baptiste Piacengino, Product Line Manager for GSM products at Palm Computing saw a differentiation between PDAs and mobile phones, a line which we do not feel it is valid to draw. Symbian’s Quartz platform, which combines standard palmtop functionality with Web access, mobile telephony and Bluetooth facilities, was launched a CeBit as an indication of the kind of pressure that Palm would soon be facing. Other factors are at play, too: the mobile phone market has a far-greater reputation for product replacement than the IT-based PDA market. The two products may end up the same, but the purchasers may opt for devices from mobile phone manufacturers rather than from PDA makers, through force of habit.

Palm is unlikely to be resting on its laurels, and this fight is unlikely to ever be over. We only have to look at the turnaround of fortunes at UK-based Psion to see that, even if Palm lose a round, there is still plenty to play for. A huge strength for Palm is in the massive range of applications it supports – existing users may be loathe to give up the apps they know, not to mention to transfer the data that the device may store. There may be difficulties ahead for Palm, Inc., but the company is as in a good a position as any to overcome them.

Meanwhile, what of 3Com? In some ways, the sell-off of Palm is a good thing as it will enable 3Com to focus on its “core business” – whatever that means, given the current, chaotic IT landscape. However, Palm has played a large part in the recent success of Palm – the PDA division made up 13% of 3Com’s 1999 revenues. This is not to mention the lift it is reputed to have given to the overall share price, even prior to to announcement of the Palm sell-off.

3Com has a reputation for solid strategies, but has not always been so successful at making them happen. The company’s bread-and-butter market of network cards and modems is now crowded with low-cost manufacturers, leading 3Com to refocus its efforts on the converging worlds of telephony and networking. Here, however, we are back to crystal ball gazing: the company is entering new territories that do not guarantee success to all comers. It is unlikely that 3Com will fail: the company has a reputation for innovative products and is striking partnerships with companies such as Microsoft, Hewlett Packard and Samsung to help it along. The separation of Palm may well be what 3Com needs, as it can now get down to a business it understands. However, it has to be said that 3Com’s base is far shakier than that of Palm, as the latter already has substantial momentum and presence in its own markets.

3Com’s launch of Palm sees the birth of two organisations, both of which will be subject to the whims of technology’s Lady Luck. Palm has come out of the gate with new products and an enviable market presence, leaving behind a 3Com that knuckle down and make something of its renewed focus. Neither company is guaranteed success, but both stand to gain from their new status.

(First published 3 March 2000)