How Palm beat Microsoft

How Palm beat Microsoft: One of the PalmPilot's parents explains its success. By Mary Eisenhart.

Published September 17, 1998 7:00PM (EDT)

"The thing that disappoints me the most about Bill Gates and Microsoft is not so much their ethics as the fact that they have no class. It's just so disheartening," says former Palm Computing president Donna Dubinsky, with an air of perilously overloaded patience.

Dubinsky, who recently left 3Com (Palm's corporate parent) with fellow Palm founder Jeff Hawkins to launch the start-up JD Technology, is speaking on last month's Hot Chips panel at Stanford, addressing the general theme of "Confronting the Microsoft Challenge." Antitrust attorneys and representatives of a long line of companies bested by Microsoft, each recounting tales of skullduggery and sharp practice, have preceded her.

Competing with Microsoft has been something of a career for Dubinsky, first at Apple and then at Claris before launching Palm. But the last straw was the Palm PC episode.

Dubinsky and Hawkins founded Palm in 1992, one of the myriad start-ups launched to fuel an anticipated boom in pen-based personal digital assistants. Their flagship product, Graffiti, ran on most of the PDA platforms of the time. Graffiti solved the perennial handwriting-recognition problem by deciding it was easier to train the user to learn a stylized script than to train the computer to recognize handwriting. Graffiti met with enthusiastic acceptance but failed to hold on to its investors amid the collapse of better-funded companies such as Go and Eo and general chaos in the marketplace.

By the time Hawkins had come up with the idea of building a pocket-sized device that ran Graffiti but also offered a breakthrough in speed and simplicity, Palm was out of cash. In late 1995, US Robotics acquired Palm (and was itself acquired by 3Com in 1997).

Thanks to the financial infusion from USR, Palm survived, and shipped the Pilot 1000 in early 1996. Within 18 months, it had sold a million units -- stunning success in a market Microsoft had been trying unsuccessfully to penetrate for years with a succession of Windows-related technologies.

Then came the fall of 1997, when a raft of hand-held computers running the latest version of Windows CE -- a Windows operating system designed for hand-held devices and other consumer appliances -- took aim at Palm's market. Microsoft's name for the new platform: Palm PC.

"We'd been doing business as Palm Computing since 1992," Dubinsky recounts. "We were very well known to Microsoft. The product was a huge success -- Bill Gates was there when we launched it!"

"It's obvious," says Dubinsky, "they were trading off of our goodwill."

Palm sued. Moreover, says Dubinsky, it shrewdly sued in Europe, "because the laws in Europe are somewhat quicker to resolve these issues than in the U.S., where they're quite protracted. We won in Germany, and they had to change the name of that product."

"It's really inconceivable to me," she says. "They claimed, in the course of the litigation, that they couldn't think of anything else! Ethics aside, this is no class."

Dubinksy and Hawkins have had the last laugh, so far. Today, says Dubinsky, the Pilot enjoys 80 percent market share in the personal information manager market, and 3Com is still having trouble manufacturing enough Palm IIIs to keep up with demand -- although Palm hasn't announced sales figures since the first million units.

How did it all happen? And why did Dubinsky and Hawkins leave 3Com? Dubinsky sat down with Salon and told us the story.

What is JD Technology, and why does it exist?

We're going to be licensing the software that we did at Palm Computing to create new hand-held devices for, ultimately, a big company. There are going to be a whole lot of these in the next few years, and we know an awful lot about them, so we think there's a great opportunity to build a big new company.

What can you do as JD that you couldn't do as senior executives at 3Com?

First of all, I can have more independence. As a senior executive at 3Com, I really had to take into account the objectives and needs and goals of 3Com as a part of running Palm. At JD -- [or] whatever it will eventually be called -- we clearly can optimize for this opportunity as opposed to being a part of a bigger thing.

Do you have employees yet? Offices?

We've borrowed offices. We haven't hired anybody other than the two of us, and we are negotiating a round of financing now with some venture investors.

As the father of the technology, what does Jeff Hawkins bring to the new company?

He's got an incredible vision for what direction this business is going, and has an ability to take that vision and turn it into pragmatic products that people want to buy. That seems sort of obvious, but it's pretty apparent that very few people have that skill set when you look at all the competitors that have come after Palm. The products have really not measured up at all. Even once you've shown the way, and how to do it, people still seem to have difficulty doing that.

One of your most obvious competitors is that large company in Redmond. Microsoft's strategy is different from yours -- they're more or less promoting Win CE as a software-only all-things-to-all-people product. But clearly, any competition from Microsoft is something to worry about.

Absolutely. So far Microsoft's strategy has proven to be an enormous failure, though. People aren't buying it, literally. They're not walking into the stores and buying those products -- or if they are, they're returning them. So in the end the strategy is not proving to be sound. Specifically, we believe that you can't do one thing that goes across all those environments.

What you really need to do is optimize to deliver a great user experience on a device. Their devices are not standing up against Palm's in the market because they are not great devices, and they're a lousy user experience.

Every company you've worked for, pretty much, has found itself in a position of having a better product than Microsoft, competing with Microsoft and, at best, having a hellacious time. Has anything changed with Palm?

Well, I wouldn't say we've had a hellacious time. We've succeeded.

But on the other hand, it doesn't increase your peace of mind to have Microsoft coming after your market.

In one way it doesn't, and in another it does. You could say that it legitimizes the market, to a certain extent, because they're interested in it. But in the end, what matters is who's buying what products, and Palm has an 80 percent market share. In the end, Microsoft's losing in this, and they're losing badly. They've spent tons and tons and tons of money. They've had lots of partners spend tons and tons of money. This is not their first try. They're on their fourth or fifth try. There have been so many tries at this area, and they have failed and failed and failed and failed.

Nobody expects them to stop trying. We certainly don't expect them to stop trying. We expect them to get better. Eventually they'll get better. But so far we've been pretty amazed that each [new] version is not getting much better. (laughs)

Is it viable to try to be all things to all people, which seems to be at the root of what they're saying here about TV remotes and car navigation systems running Win CE? That seems a little overbroad, especially when it's supposed to be compatible with your desktop computing environment.

Think about it this way -- if it were possible, what would be the user benefit in that? Why would a user care? You can argue that there may be a developer benefit, because you're able to develop once for multiple environments, but then when you think about it, you're going to want to change the user interface, you'll want to change the experience -- so is there even a developer benefit?

The really interesting thing about that whole marketing notion is that there's no user benefit, there's no developer benefit -- there's [only] a manufacturer's benefit. They want to be everywhere. Therefore, they think it's good! (laughs)

Palm is one of the clearest examples of getting away with doing something completely different from Microsoft -- in a market Microsoft wants to be in -- by starting from scratch with a brand new device. Is that a replicable strategy for other would-be start-ups?

The point is that we're in a very different field. In the field we're in, Microsoft's strengths do not apply. You could have asked me the same series of questions, saying, Why hasn't Sony been successful doing this? You chose Microsoft, but you could just as easily have chosen Sony or Sharp or Casio or any of those guys.

The bottom line is, consumer electronics guys don't get it because it's a platform. Microsoft doesn't get it because it's a consumer electronics device. It's effectively a crossover of multiple worlds that has created a new kind of category wherein Microsoft's strengths don't do that much for them; they only get them part of the answer. The same is true of consumer electronics guys who come after this category and have failed miserably too. Now, is that replicable, or not? Absolutely, if there's another example of a new emerging industry in which Microsoft does not have any strengths, clearly you can succeed.

In the long term do you see a bigger threat to Palm coming from the consumer side or the computer side?

I almost think it's going to come from somewhere we haven't even anticipated. (laughs)

In the way nobody anticipated Palm, really.

Nobody sat around a year before we introduced the first product saying, "Yeah, those guys at Palm Computing, they're the ones to watch in this category!" We came out of nowhere, as far as everybody was concerned.

Indeed, you came after numerous spectacular failures like Go and Eo, which caused you to have serious problems getting funding, and essentially had to sell the company to US Robotics to keep it alive.

That's right.

Still, you succeeded, where other companies with much better funding and other "advantages" failed. Why?

I think the real breakthrough in thinking was to say, Let's stop thinking about this as a little miniature computer and start thinking about it as an accessory and complement to the PC. As soon as you started thinking of it as an accessory to the PC, you started designing a whole bunch of things very differently.

For example?

For example, when you're thinking about it as the PC itself, you've got to be able to support printing directly. As soon as you've decided you've got to support printing, you've got an order of magnitude of complexity -- there are a billion printers out there. You've got a testing nightmare to try to test those printers. You just get into a whole bunch of problems.

On the Palm device, we said, "You know what? We're not going to support printing." You can support printing very well out of the desktop. So the desktop machine is going to do the printing, and the device isn't. No printer drivers.

So you just totally change the dynamic of what the device is going to be. In a sense, [Hawkins] redefined it as a window to the data on your PC, then built the software around a synchronization strategy between the device and the PC, and nobody else had done that before.

Everybody was trying to make a little PC that you carried around.

Which is still what Windows CE is.

In recruiting developers to the platform, what would you say to convince them that it's better to develop for Palm than for Win CE?

Eighty percent market share, I have to say. All the developers are just glomming onto the Palm platform, and they're not developing for the CE platform. They don't want to develop for something that's not selling.

Is it easier to develop for one or the other?

It's probably equal. The Windows environment clearly has more tools than the Palm environment, but the Palm environment is pretty straightforward, so it's not too complicated. A competent programmer can pick it up and be productive pretty quickly.

You certainly couldn't make a strong argument that we've got a vastly superior development environment -- that wouldn't be true. But the reality is that the developers want to go where they can have an impact and where they can make sales, and you can't make them in a place that has no hardware being sold.

The volume Palm is doing is absolutely stunning. The growth is spectacular, and that's what's exciting to developers. 3Com just added a third factory. It's been extraordinary.

Would it be difficult for start-ups to get funding for hand-held devices now?

Nobody would get funding for anything in the hand-held market before. Now, all sorts of Palm developers are getting funding for developing on the Palm platform., because everybody's beginning to understand that there's a big market here. If it's this big this early, it only means that it is enormous.

It's just the tip of the iceberg today. I've plotted it against consumer electronics adoption rates, and there's virtually nothing that touches the adoption rate of these things -- not phones, not pagers, not televisions, not video cameras. Literally the only thing you can find that's got a steeper curve is CD audio.

If you could change one thing about the business that would make what you're trying to do easier, what would it be? Or, putting it another way, what do you see as the biggest obstacle in your path?

I think the biggest obstacle is just going to be communication and the noise from the competition out there. With the Microsoft threat, for example, there's always this perception that, Oh, they always win in the end. Oh, they always win on the third time. I just point out to people that they're on their fifth or sixth time on this one.

Debunking myth is just such a huge challenge.

By Mary Eisenhart

Mary Eisenhart is a freelance writer and editor whose stories appear frequently on her Valley People Web site.

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