Palm's New Dough—and New Blood

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Decade of Innovation

The Elevation deal marks the latest in a long history of sweeping changes at Palm. The company's debut product, the Palm Pilot, was launched in 1996 and defined the category of handheld computing throughout the late 1990s. If you had a handheld organizer, you bought a Palm Pilot, or later a Palm V. Born as an independent company, Palm was acquired by USRobotics in 1995, which was in turn acquired by 3COM (COMS) in 1997, only to be spun out as an independent company in 2000 when it clocked its first billion-dollar year in sales.

That same year, founders Colligan, Hawkins, and Dubinsky struck out on their own to start Handspring, which launched a consumer-oriented line of PDAs running Palm's operating system software, dubbed the Visor. Competitive with Palm's products, and priced to move, the Visor ate into Palm's consumer handheld business, and Handspring reported sales of $370 million in its fiscal 2001. Then came the Treo, which for the first time successfully combined a Palm-based PDA with a wireless phone. Palm tried its own phone-PDA combo in 2003, but it fell short of the Treo, which in turn prompted a merger of the two in 2003.

Along the way, Palm had split off its operating-system business into a separate company called PalmSource, whose mission was to license the software to other manufacturers. Sony (SNE) and Garmin (GRMN) and a few others took out licenses, but ran into a declining market for standalone PDAs. PalmSource ended up in the hands of Access, a Japanese software maker.

Meanwhile, sales of standalone PDAs have tanked in favor of smartphones. Palm is still the top seller of those devices, but IDC estimates sales of its non-phone PDAs dipped below 300,000 in the first quarter of 2007. HP saw its unit sales dip below 200,000 while Dell (DELL) dropped below 100,000 and exited the business.

Anderson compares the current chapter of Palm's story to the Apple saga, just after the introduction of the iPod. "It's like joining Apple in 2002," the year before iPod sales really took off, he says.

That's the way he and Rubinstein and their Elevation cohorts would prefer the story plays out. Better that than entering the digital media player business as an Apple competitor in 2002.

Hesseldahl is a reporter for BusinessWeek.com.