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Originally Posted by Traecer Prime
...I can tell you the split made sense. It would have made even more sense 1, 2, or even 3 years before, but Palm was hamstrung during that period by tax laws and an overbearing corporate parent. At the time, Palm, Handspring, Sony, and HandEra were all using Palm OS, and there were rumors that Toshiba and Dell were turned away from Palm OS because Palm (the hardware division) didn't want competition from them. Regardless of rumors, it was obvious Palm was not set up as well as Symbian or Microsoft to license their OS since every new license represented a new competitor to itself. But tax laws required that the PalmOne/Source split not happen for a period of time (1 yr or 2, I forget) after the 3Com/Palm spinoff. If the PalmOne/Source split happened immediately, the shareholders faced significant tax penalties.
The problem with waiting was that the PDA market started to crater during that time. By the time it finally happened, HandEra had exited the market completely (not surprising), Handspring was looking at smartphones to save it, and Sony found itself in a world of trouble (not all of which was PDAs). The split (and simultaneous merger with Handspring) should have strengthened both resulting companies. PalmSource was finally free to license Palm OS to whomever they wanted without regard to PalmOne. PalmOne was (theoretically at least) no longer responsible for developing the software platform, and could concentrate on making the best devices. Plus, with the Handspring merger, they picked up a ready-for-production new smartphone product line. Things should have been great for the two companies. But the continuing decline (some say maturity) of the the PDA market caused sales of PalmOne's core product line to decline, and caused PalmSource's second biggest licensee Sony to finally exit the market. Lagging PDA sales have prevented new licensees from signing up with PalmSource, and their lack of a viable smartphone OS offering has crippled their potential revenue stream (frankly, though Cobalt is better than Garnet, it doesn't provide anything other smartphone OSes have). The China MobileSoft acquisition is supposed to help remedy that situation, as is Palm OS/Linux, but we'll have to wait and see how that plays out.
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Interesting take on things, Traecer Prime. There is NO way PalmOS could have been spun off as a viable company, for several reasons:
First of all - and most importantly - with licencing fees at less than $10/device and a limited # of licensees, revenues are limited right from the beginning. Pretend licensees were selling 2 million devices/quarter -> 8 million devices/year. Revenue comes to around $80 million/year. Peanuts. Then factor in the costs of the OS company doing business (salaries + benefits for several hundred employees, R + D, marketing, stock bonuses/payouts for execs [PalmSource's biggest expense?!?!], etc.) and they would probably be spending around as much - if not more - as they made. That's what's happening now. If your business model has no potential for profitability, it's not a very good business model...
A blast from the past:
http://www.palminfocenter.com/view_Story.asp?ID=2447
I think there was a (2 year?) moratorium of any spinoffs (otherwise there would be a huge financial penalty) but the OS company could not have survived on its own earlier anyway for the reasons listed above. After once having a market cap (value) of over $50 BILLION in 2000, it soon became apparent by 2001 that the emperor Palm had no clothes.
http://news.com.com/2100-1040-257867.html?legacy=cnet Spinning off the OS earlier would only have hastened the decline.
The only way the OS could be a profitable business given static PDA sales would be to offer PalmOS as an OS for cellphones, since the cellphone market is probably over 100 times as big as the PDA market. Unfortunately, as we all now know, PalmSource has been unable to deliver a phone OS attractve enough to convince licensees to buy the millions of copies needed to make PalmSource a viable company.
Given the facts that an independent OS makes no money and over 95% of Palm's income came from hardware sales, the strategy of protecting its profitable hardware sales by limiting licensees made a LOT of sense. In fact, I could never understand why Palm allowed Sony to become a license. It was only a matter of time before licensees with better engineering resources would ship better, less expensive hardware than Palm and steal marketshare + profits. Licensees like Symbol (selling in a niche Palm wasn't active in) and TRG/HandEra (Palm could parasitize them for development without fear that this tiny company could likely ever compete to any degree with Palm for sales to the Average Joe) made a lot more sense than licensing to Sony.