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VIDEO CASE 6-1 Palm Inc.: Developing Competitive New Products

Developing new products often requires a complicated and challenging sequence of activities. "It's not as simple as taking what the customer wants and creating a product," says Joe Sipher, director-Wireless Products at Palm Inc. "If we did that, we would have ended up with something like Apple Computer's Newton, which was a failure because it incorporated too many features into the product." While this perspective seems counterintuitive, it has proven highly successful for Palm Inc. as a pioneer in the development of the handheld computers often called personal digital assistants (PDAs).

THE COMPANY The inventors of the first Palm products, Jeff Hawkins and Donna Dubinsky, started out developing personal computing connectivity and shorthand software for other PDA manufacturers in the spring of 1994. According to Dubinsky, "We started out as an applications software company. We worked with Casio, Sharp, Hewlett-Packard, Apple, and others-everybody who was working in the field at that time. But none of the platforms were compelling. Most people thought a PDA should be a smaller version of a laptop computer." Although Palm Inc. was the leading software developer for these PDA entrants, sales were too low to keep the company running. "The reasons why early hand-held computers failed were because they had too many features, making them too big, too slow, too heavy, and too expensive," explains Andrea Butter, vice president of marketing.

Palm managers saw a dismal future in being the leading applications provider for a nonexistent market. However, as Butter states, "We felt we knew what customers wanted to do in handheld computing and one day an investor challenged us and said, 'If you know how to do it, why don't you do it?'" They accepted the challenge and today Palm Inc. is the leading provider of handheld computers with 55 percent of the worldwide market. In addition, Palm's operating system software is used by licensees and strategic partners such as Acer, Franklin Covey, HandEra, Handspring, IBM, and Sony in 71 percent of all PDAs.

THE POSITIONING DILEMMA Defining this type of product has been a challenge. These products have been referred to as information appliances, handheld computers, personal information managers, and personal digital assistants (PDA). Physically, these products have a thin, panel-like body measuring about 5033030.50. They typically use a pen or stylus and handwriting recognition software to allow users to store addresses and telephone numbers, enter appointments on a calendar, make notes and to-do lists, and interface with personal computers to transfer e-mail and other data. Some versions also have tiny keyboards. Hawkins and Dubinsky viewed PDAs as digital replacements for paper-based systems, such as DayTimers, Rolodexes, and Post-it® Notes.

PALM INC.'S NEW PRODUCT PROCESS Hawkins used his own experience with the "GRiDPad," the first handheld computer developed in the mid-1980s, and "Graffiti," a shorthand-type of handwriting recognition software developed for other entrants in the PDA market, to design the first Palm product-the PalmPilot. Hawkins's R&D consisted of carrying a rectangular block of wood in his shirt pocket with "function buttons" glued to it. When people asked him if he was free for lunch, he would take out his "connected organizer," tap on a "button," and observe their reactions. Hawkins tried several variations before settling on a final design: the PalmPilot had only four function buttons (calendar, addresses and phone numbers, to-do lists, and memos) because those were the most frequently used applications. In addition, Palm Computing conducted a survey among customers of Casio's "Zoomer" PDA. The most important finding was that 90 percent used a personal computer. As a result, the PalmPilot also included PC connectivity. Finally, the PalmPilot was sold only in computer and office supply stores because their salespersons were perceived to have greater skills in selling technology-based products.

The original PalmPilot was launched in 1996 at Demo'96, a trade show whose attendees were technology opinion leaders. The PalmPilot was the "media darling of the show" and sales skyrocketed. The original PalmPilot has since been retired. The Palm product line, however, has evolved to include a variety of new models. Each model has maintained the same commitment to the design philosophy of the original PalmPilot: they must be simple, small, and connected.

COMPETITION AND THE PDA MARKET When Windows CE, an alternative to the Palm operating system, came out in 1997, Dubinsky recalls, "We said 'Oh-oh, it's all over for us now.'" Hardware manufacturers such as Hewlett-Packard, Casio, and Philips partnered with Microsoft to create products that had functions similar to Palm and offered simplified versions of Microsoft's popular Word and Excel programs, the familiar Windows-like interface, and Internet searching and paging via a PC card interface. However, these products were pricey, sluggish, and consumed more power than the Palm products. In addition, consumers weren't interested in devices that were positioned between PDAs and personal computers.

Palm also faced competition from Web-based personal information managers (PIM), which performed identical functions as the PalmPilot. These organizers were stored at the user's Internet service provider and accessed via browsers such as Netscape or Internet Explorer, or portals such as Yahoo! or America Online (AOL).

Finally, the PDA market is facing pressure from consumers to converge with other digital technologies and provide expansion capabilities such as a wireless modem, a digital camera, and a mobile telephone. This trend has created new competitors such as mobile telephone manufacturer Nokia.

THE FUTURE OF PALM COMPUTING Palm has responded by developing new products to meet consumers' needs. For example, the Palm m100 handheld series is the lowest-priced Palm and offers users who are new to PDAs easy personalization through changeable faceplates. The Palm III offers better screen contrast, a faster processor, expanded memory, color display, and longer battery life. The best-selling product, the Palm V, offers a sleek, ultra slim industrial design, recessed buttons, and a rechargeable battery for continuous operation.

The Palm VII revolutionized the PDA marketplace by targeting the rapidly growing wireless and mobile market which has an estimated potential of 20 million subscribers in 2002. The Palm VII offers wireless Internet access through the proprietary Palm.Net "web clipping" technology. E-trade, Ticketmaster, the Wall Street Journal Interactive Edition, the Weather Channel, USA Today, Yahoo!, and other content partners provide information optimized for the small screen of a PDA. In addition, users can send and receive e-mail messages and conduct e-commerce transactions.

Similar in design to the Palm V series, the Palm m500 series brings two sleek, expandable additions to the Palm product line: the Palm m500 monochrome handheld and the Palm m505 color handheld. Along with the traditional functions and features of other Palm products, both models feature Palm's new SD Card and MultiMediaCard expansion slot and the Palm Universal Connector, which provides either serial or USB connectivity. The expansion slot offers an easy way for users to add storage; applications; content; and add-ons, such as a portable keyboard, wireless modem and camera. Both products contain software such as Palm's Mobil Connectivity, Palm Reader, DataViz Documents To Go, MGI PhotoSuite Mobil Edition, Infinity Softworks powerOne Personal calculator, AvantGo, and Chapura Pocket Mirror.

Finally, Palm has encouraged third-party software developers to extend the Palm operating system functionality by developing applications such as contact and schedule management, sales force and field automation, personal productivity, groupware, and financial management. There are currently more than 175,000 developers registered to provide Palm platform solutions. In the future, Palm products will create "Personal Area Networks" that will allow Palm users to interact with other PDAs, printers, and corporate networks!

Questions

Which of the steps in the new product process discussed in Chapter 6 did Palm Computing use to develop the PalmPilot? What activities did Palm Computing use in each step?
What are the characteristics of the PalmPilot target market?
What kinds of learning or behavioral changes were required by consumers who purchased the PalmPilot?
What are the key "points of difference" of the PalmPilot when compared to substitute products?
How would you rate the PalmPilot on the following reasons for success or failure: significant points of difference; size of market; product quality; market timing; and access to consumers?

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