Palm's Secret Weapon for the Pre

Against the odds, Palm courted a formidable community of developers whose apps may prove vital to the fortunes of the make-or-break Pre smartphone

By Peter Burrows

As recently as late 2008, Pandora Networks' Chief Technology Officer Tom Conrad still had big doubts about the prospects for smartphone maker Palm. In November, Conrad was among a coterie of software developers invited to Palm (PALM) headquarters in Sunnyvale, Calif., to take an early, up-close look at an operating system for use in the company's phones. "I was totally skeptical when I walked in," says Conrad, who met Palm execs along with representatives of MySpace (NWS), Intuit (INTU), movie site Fandango, and Epocrates, a maker of mobile software for physicians.

Conrad and fellow programmers accepted Palm's invitation partly out of curiosity about the new mobile OS. And partly they were there to take the pulse of a once-proud Silicon Valley pioneer many had long since written off. Conrad still had a fondness for Palm products and figured the brand still had cachet with consumers. "If by some miracle they had come up with something special, I knew there would be a market for them," he remembers thinking. And Palm delivered. After two days of briefings about its WebOS software, "I left a total believer."

Palm has been winning over a lot of skeptical software developers lately, an unlikely turn of events considering the Pre, the first smartphone that will run WebOS, has yet to hit stores. Attracting programmers to Palm is also notable given excitement over competing mobile operating systems from Apple (AAPL), Research In Motion (RIMM), Nokia (NOK), and the Google-backed Open Software Alliance. Normally, developers flock to devices with the most market share. But many developers contacted by BusinessWeek say they would rather write for Palm than other platforms such as Microsoft (MSFT) Windows and in some cases, Google's (GOOG) Android. "From my point of view, Palm is No. 2," says Ge Wang, co-founder of Smule, a maker of popular iPhone apps.

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Apple's iPhone remains the "it" device for legions of mobile programmers. But even runner-up status among developers could be more than enough to help Palm carve out a niche of the fast-growing smartphone business, where success depends largely on the availability of a range of useful tools, games, and other applications spawned by an ecosystem of coders.

If ever a company needed a success, it's Palm. On Mar. 20, Palm announced a stunning 70% drop in smartphone sales from a year earlier, and a net loss of $90 million—30% larger than what Wall Street expected. There is virtually unanimous agreement, even among management, that if the Pre bombs, Palm has little chance of survival. But its shares having risen more than fivefold in six months, Palm is enjoying the benefit of the doubt amid investors, analysts, and—crucially—software developers.

Palm's successful effort to court coders dates at least to mid-2007, when former Apple Chief Financial Officer Fred Anderson, a partner at private equity firm Elevation Partners, championed the deal that gave Elevation 25% of Palm.