Analysis: Will Linux Make a Difference to Palm Treo Buyers?

Yesterday during a meeting of analysts in New York City, Palm CEO Ed Colligan revealed that among the platforms his company's Treo handheld would support going forward, which includes Windows Mobile and Garnet (the former Palm OS, now produced independently), Linux would join the mix.

But rather than acquire a license to use Access Linux, the mobile operating system currently developed by the company that purchased the Palm OS producer in September 2005, Colligan said he intends for his company to develop its own Linux flavor in-house. The revelation raises all kinds of new questions, as well as the striking irony of Palm's re-entry into the operating system business.

The Associated Press this morning cited Colligan as saying the move to Linux will give Palm control over its own OS, with the result being lower costs and reduced time to market. Perhaps those are his goals today, but they didn't seem to have been his company's goals last year. Without further details - and the company is intentionally remaining tight-lipped - observers are left with little else to do but speculate.

Which is, thankfully, what some of us do quite well. I spoke via e-mail this afternoon with Info-Tech Research senior analyst Carmi Levy. First, I wondered whether the Treo buyer - the same person who might, for example, be interested in the Italian version of the Palm 750, introduced today, with built-in Microsoft Office and HSDPA - would be interested in Linux for its own merits. Or is today's handset buyer concerned more with features than with platforms?

Carmi Levy, Info-Tech Research: People don't buy smartphones as much as they buy mobility. They don't buy a device: they buy the functionality that a given device supports or allows. In much the same way that purchasers of a PC don't have the time, resources, expertise or willingness to code their own software and device drivers, mobile purchasers similarly want whatever they buy to be usable day one, right out of the box.

This thinking extends beyond the device, of course. In the mobile world, the service provided by a mobile device is only as good as the infrastructure on which it runs. If the carrier can't deliver, then the fanciest device with the fanciest OS in the world won't save the day.

While there is a market for a raw mobile platform, it is essentially limited to the developers who will eventually build the fully packaged applications that will be purchased and used by the broader market. As such, it's important for Palm to work with its existing developer community and give the coders a roadmap and related support to bridge to the next platform generation. They've been left hanging out on their own for so long, forced to develop products on a geriatric, feature-thin OS, all with relatively little support from a distracted Palm.

This announcement should bring [developers] a small amount of comfort that pretty soon they'll have a richer playground within which they'll be able to build richer applications - and thus continue to build their own businesses. This announcement means little for average consumer and enterprise purchasers, because it'll be a while before they can see, touch and buy shipping product.

Scott Fulton, BetaNews: My concern is that the whole "open" aspect of Linux wouldn't necessarily appeal to the Treo buyer. Instead, the Treo buyer wants mobile functionality that works right away, connectivity in a number of flavors without hassle, and perhaps a price cut.

Carmi Levy: The open-source nature of Linux doesn't mean a whole lot to the Treo-buying businessperson. If using Linux allows Palm to bring a feature-rich, price-competitive platform to market, then consumers will be happy. I doubt most potential buyers will really care what OS is under the hood. Palm simply needs to make it work more effectively than the current Garnet-based platform, which ran out of gas years ago.

Scott Fulton: But if you're the company developing all those features to put into your own flavor of Linux, I'd think perhaps you couldn't afford to offer too much of a price cut.

Carmi Levy: Most handheld vendors use a licensed OS developed by someone else. Motorola and HP use Microsoft's Windows Mobile, for example, while Nokia uses Symbian. The only other precedents for a hardware vendor developing its own OS for use on its own hardware are Palm with the original generation of its iconic PDA, and Research In Motion, which has always controlled the OS on its BlackBerry devices very closely. By using open-source code as a starting point, Palm positions itself nicely to deliver a robust OS without locking itself into years of license payments to third party holders of copyright. That said, I wonder what took Palm so long to come to this realization. If it had initiated a project like this years ago and had stayed away from corporate deals with Access, it wouldn't be so far behind the major market curve.

Palm can potentially bring a cost-competitive range of products to market, but it needs to manage the project strongly to ensure an appropriate balance between development cost, feature set, and timeline. If it hits the sweet spot, then the Linux-based Treo devices that will result from this process will have at least a basic opportunity to compete in the broader smartphone market. If Palm misses on any one of these three elements, however, it risks losing its competitive footing against both OS and handheld vendors who are investing huge sums in their own next generation platforms. The longer it takes Palm to deliver, the more treacherous the external market will be - which will in turn result in a smaller window of opportunity for the down-on-its-luck handheld pioneer.

A quick note about price cuts: Motorola learned this lesson the hard way when it tried to trade margin for market share. It rapidly reduced prices on the majority of its handheld devices, hoping that the resulting volume increases would strengthen its #2 position against Nokia. What happened was every CEO's worst nightmare: Margins collapsed, and rising unit volumes failed to compensate for reduced profitability per unit. The company slid into the red and has been in turmoil for the past six months. Worse, an absence of higher-end, higher-margin smartphones in Motorola's product pipeline indicates that this situation will not soon correct itself.

Palm is doubtless watching this situation closely, as the lessons currently being learned by Motorola can easily be applied to the higher end of the smartphone market where Palm mostly resides.