How Microsoft and Palm Got Together Over Software
September 27, 2005
By LAURIE J. FLYNN
SAN FRANCISCO, Sept. 26 - Microsoft's truce with Palm, its longtime rival in palmtop software, was forged with a rare agreement to allow Palm to tinker with the Windows Mobile software, the companies' leaders said here Monday.
The details of the new relationship came as Microsoft and Palm unveiled a Windows version of Palm's popular line of cellphone-organizers, the Treo, in a combined effort to capture a market that has eluded them both: corporate customers.
Until now, the Treo has run only on Palm's own operating system. But the new Treo for Windows device, yet to be named officially, will provide customers with the Windows interface that is the standard in most businesses. "Customers and carriers have been asking for this," said Ed Colligan, Palm's chief executive.
Bill Gates, Microsoft's chairman, said the companies decided to put their rivalry behind them more than two years ago, when Jeff Hawkins, a Palm founder, visited Microsoft to discuss a development and marketing agreement. But Mr. Gates said a partnership made no sense until Microsoft was well along in developing Windows Mobile 5.0, which it released in May.
"Palm always did great work," he said. "We lusted after some of the things they did well and wanted to combine them with some of the things that we did well."
Initially, Microsoft resisted the idea of allowing Palm to differentiate the way Windows Mobile worked on the Treo, but eventually relented. Palm added interface elements like the ability to speed dial by pressing a person's photo on the screen, the ability to decline to take a call by automatically sending a message (rather than ignoring it) and the ability to go through your cellphone voice mail with on-screen icons.
"This is unique," Mr. Gates said. "Most people take Windows as it is." Both companies contributed development and expertise to the project, the executives said.
A combination cellphone and organizer, the Treo lets customers send and receive e-mail, view spreadsheets and create documents, as well as conduct a range of specialized tasks. The Windows version will be sold initially through Verizon Wireless, the nation's second-largest cellular carrier, beginning early next year. No pricing details were given.
Palm said it would announce agreements with other carriers by the middle of next year.
The Treo for Windows will have features critical to the corporate market that the Palm operating system lacks, analysts said, including sophisticated multitasking and integration with Microsoft's e-mail program for personal computers. Eventually, the Treo for Windows will be able to "push" e-mail to users rather than requiring them to fetch it.
Patrick Zerbib, an analyst with the Adventis Corporation, a telecommunications consultancy in Boston, said it would be hard for the Palm operating system to match those offerings. "Microsoft is going to put its considerable resources behind it," he said. "It's going to be difficult for a small competitor to survive."
Palm produced one of the first hand-held devices in the mid-1990's, developing both hardware and software. In 2003, it spun off its software unit, PalmSource, opening the door to an eventual Windows version of its hardware. Also in 2003, Palm acquired Handspring, a company created by Palm's founders who had developed the Treo.
The Palm operating system has struggled, and in August, PalmSource was acquired by Access, a Japanese company, for $324 million.
But Palm's Treo has proved popular. Last week, Palm reported that it shipped 470,000 Treos last quarter, an increase of 160 percent from a year earlier. Mr. Colligan said that Palm would continue to sell Treos running the Palm operating system and that offering a choice would only expand the market.
Windows-based hand-held devices have also shown recent gains, and Windows Mobile now runs on devices from Motorola, Hewlett-Packard and others. Both Microsoft and Palm must contend with Research in Motion, the Canadian company that dominates the corporate world with its BlackBerry device, as well as Symbian, the software operation owned by a consortium of cellular handset makers.
"There's no question this is going directly after the BlackBerry user," Tim Bajarin, an analyst at Creative Strategies, said of the new Treo.
