Palm Pins Its Hopes on Nova

The smartphone maker debuts its new operating system, code-named Nova, at January's CES. Palm says its phones for it will bridge the BlackBerry-iPhone gap

By Peter Burrows

Jon Rubinstein got the call in mid-2007 while he was living on the Pacific Coast of Mexico, working on his dream house after a storied nine-year stint at Apple (AAPL). Former Apple finance chief Fred Anderson and Silicon Valley financier Roger McNamee, partners at private equity shop Elevation Partners, were considering an investment in struggling smartphone maker Palm (PALM). They wanted Rubinstein, who's known informally as "Ruby," to come aboard. Having led development of products such as the iMac and the iPod that had saved Apple from oblivion, Rubinstein thought the opportunity smelled intriguingly familiar.

A few days after getting the hard sell in person from Palm Chief Executive Officer Ed Colligan, Rubinstein agreed to become Palm's executive chairman in charge of product development (Colligan would handle the business stuff). Rubinstein's rationale was that for all its problems, Palm could still manage a comeback. It boasts a well-known brand, close ties with key phone companies, and a track record of making breakthrough products like the original Palm PDA and the Treo smartphone. The company was already working on an ambitious new operating system that would be a foundation for a wide range of useful mobile tools. With the right leadership, Palm could find a niche in a critical area for tech: mobile Internet. "The next 10 years is all about the transition from notebook to mobile computing," Rubinstein says.

Aiming for the "Fat Middle"

Rubinstein's efforts are about to bear their first fruits. On Jan. 8 at the Consumer Electronics Show in Las Vegas, Palm is due to unveil the long-awaited operating system, code-named Nova, as well as the first of a family of products that will run on it. While Palm has protected its plans with Apple-like secrecy, Rubinstein and others say the goal is to create products that bridge the gap between Research In Motion's (RIMM) BlackBerry devices, oriented to work and e-mail, and Apple's iPhone, oriented to fun. "People's work and personal lives are melding," Colligan says, adding that Palm is aiming for the "fat middle of the market."

Palm needs to hit its mark. The company has lost share and its stock price has plummeted 80% since Rubinstein joined. With about six quarters of cash currently in the bank, Palm's last best hope may be Nova, to be released by mid-2009. Cash-strapped carriers are loath to take on the cost of supporting another platform and software developers are busy building software for other devices, including the iPhone, BlackBerry, and phones that use Google's (GOOG) Android software. "If they can't show me a large, active audience, I'm not going to be interested," says Jeff Holden, CEO of Web 2.0 company Pelago, maker of a social networking tool for the iPhone. "At this point in the game, you're toast unless you have something completely unbelievable."