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Palmspring – The end of the “gee-whiz” era of handheld computing?

I have been chomping at the bit to write something on the impending Palm/Handspring union but have been busy with other matters for the past two weeks. For those of you who haven’t heard, Palm is going to acquire Handspring for about $169 million in a transaction expected to close later this year. Palm’s website has a press release describing the business benefits associated with this transaction. I have a few thoughts and comments that I would like to share regarding this merger.

Perhaps we all should have seen this coming. I wrote awhile back about the impending demise of Handspring (more due to financial concerns than a lack of interesting products). The company’s financial position, combined with its strategic decision to exit the low-end organizer business were soft signals that the company was looking seriously at an exit of some sort.

What does this merger mean for the handheld and smartphone industry? I have a few ideas:

Low-end competition is over – Handspring’s decision to exit the low-end organizer business and focus on smartphones, combined with the success of the new Zire, places Palm in the driver’s seat for low-end Palm-based organizers. Without Handspring in the business, there will be an end to bloody competition on the low-end between the two companies. I don’t have enough space to talk about what Dell’s entrance into this market really means, but suffice it to say that the bloody battle within the Palm community for low-end dominance is over.

Winning recipe for so-called “smartphones”? I am personally not a fan of the term “smartphone”, but it seems to have gotten some acceptance in the marketplace. Nonetheless, the combined entity has two smartphone platforms, the Tungsten W and the Treo. All indications are that Palm viewed the Tungsten as a “transition model” (direct quote from a Palm representative) and that the upcoming revamped Treo will be the company’s only platform in this space. For some early scuttlebutt on the Treo 600, I advice you to check out this article at TreoCentral.

Provided that all of the Treo carriers remain with the combined entity, Palm will find itself in a much better position to enter this market, as Handspring will be bringing carrier relationships in both CDMA and GSM.

All of these positive benefits aside, the smartphone market continues to be a tough one to conquer, largely because the devices are expensive, first-generation products. Hopefully the reunion of the premier OS and handheld device companies will result in a device that is far more integrated than any of its predecessors.

End of the “gee-whiz” era of handheld computing – I hope that you will indulge me for a moment on this topic. More than anything, this merger tells me that the “gee-whiz” era of handheld computing is over. Combining the phenomenal success of the new low-end Zire, market research reports from IDC and Gartner describing the slowdown in new handheld sales, and the entrance of powerful new entrants into the space (namely Sony and Dell) tells me that this market is no longer about making the biggest, fastest, most feature-rich handheld. This market is maturing and is going to be driven more by business fundamentals, good marketing, and smart product design. What does this mean in the end? Well, I believe that new products will continue to grab headlines by integrating interesting features (cameras, video, phone, etc.), but that the bulk of the revenues will be earned by convincing the average consumer to give up his/her Franklin Planner or other paper-based calendar management system for a new handheld computer. This challenge will only be compounded by the fact that the number of people who can command IT support for and get an expense report approved to purchase a mid-to-high end PDA continues to shrink. If Palm can continue to block and tackle on the low-end and re-establish itself as a new feature/function leader (IMO, the Sony Clie is the reigning king in that category for Palm-based handhelds), the company could actually build a very defensible position. But this is not an easy task.

There is never a dull day in the world of gadgets.

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