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After the PalmPilot, What Do You Do for an Encore?
Dubinsky and Hawkins try their magic touch on Palm's next phase

Donna Dubinsky
Donna Dubinsky
Jeff Hawkins
Jeff Hawkins

Donna Dubinsky and Jeff Hawkins built a company from scratch in a few years on a handheld computer so revered that users have created rings of over 150 interconnected Web sites devoted to it -- the PalmPilot.

So why are the legendary Silicon Valley entrepreneurs, whose creation eclipsed a field of money-losing duds, chucking it all and starting over?

Barely four years ago, Dubinsky and Hawkins had 28 nervous employees, a dwindling bank balance, and a product that lacked the funds needed for launching. This summer, they walked away from their respective jobs as chief executive and chief technology officer of the company they founded -- Palm Computing Inc., now a unit of 3Com Corp. They say they are starting a new venture.

VALLEYSPEAK. The pair isn't exactly going back out into the cold. They have yet to float a formal business plan for a product, but they've been inundated with calls. "People with financing for ideas, people who want to work for us, with us, offer services to us, everything imaginable," says Dubinsky.

Their reasons for leaving smack of Silicon Valley cool. "I'm not a corporate person," explains Hawkins, an electrical engineer with a passion for studying the brain. "I left 3Com because I really craved more independence," says Dubinsky, the business half. "I did not see myself as a 3Com executive, which is what was happening given the importance of Palm to the 3Com business."

But there's more than entrepreneurial chafing afoot. The two haven't actually orphaned their electronic baby. In fact, they say they're cutting loose from 3Com to assure the Palm's future at a time when rivals are fast encroaching on its 63% share of the handheld computer market. Their plan is to make complementary products to turn the device, whose cultish fans are mostly businesspeople and technology freaks, into a consumer must-have.

Beyond that, Hawkins and Dubinsky are tight-lipped about the new venture, which is temporarily incorporated under the name JD Technology Inc. "The success of the new company will depend on the continued success of the Palm," says Hawkins cryptically.

FANATICS. Since it hit the market in early 1996, the 4.7 inch-by-3.2 inch PalmPilots have sold two million units, Hawkins says. Users write on its green screen in a special shorthand with a stylus. That feature, plus its ability to link to a desktop computer and $225 to $300 price range, revived a moribund niche of low-memory devices with clumsy keyboards.

A look at the Web sites devoted to the Palm shows how fanatical its users are. There are sites devoted to business software of all sorts, games with names like Graviton and Kyle's Quest, and even literary texts that have been downloaded into a format that the PalmPilot can read. Analysts say Palm contributes about $300 million to 3Com's revenue now, something 3Com refuses to discuss.

Analysts say that inside or outside the corporate fold, the duo remains a pillar of handheld computing. And they and 3Com have a lot at stake. Tim Bajarin, president of Creative Strategies Inc., a San Jose (Calif.) technology research company, says: "Jeff is a long-timer in the industry. It wasn't just one device he invented. It was an operating system. In that context, their move is very clear. If he wants the Palm to expand, someone has to take the upper hand. That's why he has the blessing of Palm."

NO SURPRISE. Palm's parent 3Com is indeed putting a good face on Hawkins' and Dubinsky's departure only 14 months after it acquired the company in a merger with U.S. Robotics, which bought Palm for $44 million from its founders in 1995. "We had talked about their moving on, so it wasn't a surprise," says Janice Roberts, 3Com's senior vice-president of marketing, who manages the Palm unit. "I think it was very important for them to go off and look for new ways to apply their creativity. We respect that, and that's why we're looking to partner with them."

Whatever the move does for their creativity, it has its risks. For one thing, they won't be able to dig into the pockets of 3Com, which has over $5 billion in sales. "There's no question in my mind, they will be running a pretty hot startup," says David Takata, a technology stock analyst with Gruntal & Co. But "even after they announce a startup company and the product, it could take a year for them to get it out into the market. They won't have the kind of channels and expansion capabilities of 3Com."

Mike McGuire, a mobile computing analyst with Dataquest, a unit of Gartner Group Inc., believes the handheld computer has little consumer appeal at this point but predicts the $900 million category will evolve into a $2.7 billion business by 2001. For that to happen, the handheld category needs devices that provide wireless Internet connections that will prove useful to busy families, he says -- and lower prices: "The daily mundane transaction, the grocery store list, bank transactions, messaging from the kids -- these are the kinds of things that represent an opportunity for small palm-held computers. Theoretically, that's what Jeff and Donna are trying to do. They've got the time and the money to do this right."

Not that much time. Since Dubinsky and Hawkins helped prove that the handheld niche exists, industry goliaths have been crashing back into it. Two international consumer-electronics giants, Casio Computer Co. and Philips Electronics, have teamed up with Microsoft Corp. to offer their own versions of handheld computers that run on Windows CE, a small-screen cousin of the Windows operating system. Microsoft also sells its own handheld computer, dubbed the Palm PC until Palm sued for trademark infringement. After a settlement, Microsoft now refers to the category as "Palm-size PCs." Next year, Microsoft is expected to release a new version of its Windows CE operating system that runs on Palm Computing's competitors.

"Although WinCE will be a serious competitor [to the Palm operating system], it is too early to tell if it will be a big winner and a standard," adds Creative Strategies' Bajarin. In other areas, such as software development, "Microsoft has tried to take on established and successful players like Intuit Inc. and their Quicken product and not made any real headway."

CLUELESS GIANT? Dubinsky claims she's unfazed by Microsoft's or anyone else's assault on their territory. "There are four things that drive this handheld computing category: Form (every millimeter matters), connectivity to a personal computer, ease of use, and price value. So far, these things have not been achieved by competitors," she says. "Microsoft has failed to build decent products on that strategy. It is totally clueless as to this category."

Hawkins is slightly more circumspect: "I always worry about Microsoft. Everyone should. They have a lot of people and a lot of money. But they continue to misunderstand this market. They may get it right this time. But it will not be successful. I'm virtually certain."

Phil Holden, a group product manager for Windows CE at Microsoft, wishes "both of them well in their new venture -- competition is great." But he makes it clear his company isn't about to play dead in this field: "Microsoft is very focused in this area in delivering the right quality solutions for our customers." He says Microsoft is developing its handheld computers so they can be used for transcribing voice, among other things.

But no one is discounting Dubinsky and Hawkins as competitors, with their fortuitous mix of personalities and experience. The daughter of a scrap-metal businessman from Benton Harbor, Mich., Dubinsky spent nine years at Apple Computer Inc. and co-founded Claris Corp., the recently downsized Apple software unit. Apple's mistakes with Macintosh, such as not letting other computer makers license its operating system, weren't lost on Dubinsky in developing the Palm.

Hawkins is the son of an inventor whose creations included a device that helped humans communicate with dolphins and an air-cushioned boat, 50 feet in diameter, that toured Long Island Sound with an orchestra aboard. "I learned a lot about how the world works, how things are put together -- fasteners, materials, plastics," he says. "It may sound silly, but when you're building something, it helps to know how mechanically something's going to fit together."

Now that they're separate from Palm, but still joined at the hip as licensees of its operating system, that's a question they face themselves.

By Erin Joyce in New York

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