Palm Gets Its OS Back

Paving over a gaping hole in its strategic roadmap, Palm Inc. said today that it has re-licensed the source code for its operating system, known as the Palm Garnet OS, from Access Systems Americas Inc., a unit of Japanese company Access Co. Ltd. .

The contract, under which Palm will pay $44 million for a perpetual, non-exclusive right to use and enhance the OS, concludes prolonged and at times fractious negotiations between the two companies. Formerly known as PalmSource, Access controls the operating-system software for popular Palm devices including the Treo smartphone. Earlier this year Palm said that Access had failed to meet certain obligatory "development milestones" and that Palm would cease making the agreed-upon royalty payments to the licensor as of this month. Palm spun off the operating-system unit in October 2003, hoping to capitalize on revenue from other companies licensing the Palm OS.

Today's announcement represents a James Baker moment: Palm has acknowledged that the strategy was a mistake and that not owning its own OS has hamstrung further product platform development. (See Palm Platform in Doubt.)

The OS upheaval came at a critical time for Palm, which has not introduced a new version of the Garnet platform in almost four years -- a lifetime in the rapidly changing smartphone market.

Symbian Ltd. dominates the worldwide OS market for handhelds, while Microsoft Corp. (Nasdaq: MSFT) has continued to refine and expand its Windows Mobile OS to try to capture a wider share of the enterprise mobile-email market. At the same time, BlackBerry has been seeking new, broader markets for the BlackBerry system. (See RIM Polishes Its Pearl.)

There has long been speculation that Palm would develop its own update to Garnet, perhaps based on Linux; but on its face the new deal signals that Palm will continue to enhance the platform using its closed-standards model. Many observers have contended that the increasingly buggy Garnet is an outmoded OS and that, in the face of sharpening concentration from Microsoft and from RIM, Palm's only realistic choice is to shift to open-source. (See It's Not Easy Being Palm.)

"We believe Garnet is an outstanding OS that deserves to evolve further, and we will evolve it," says company spokeswoman Marlene Somsak. "We have a roadmap, and we think this is the best way to serve the loyal Palm OS customer. We're really excited about it."

"Loyal customer" may be the operative word in that statement; while updating Garnet may satisfy Palm junkies and Treo aficionados for now, it's unlikely to help Palm build market share in an increasingly crowded field.

"Sadly for Palm, this means they're nowhere closer to being competitive at an OS level than they were three years ago," says Carmi Levy, senior research analyst at Info-Tech Research Group , in an email. "Palm needs to either figure out a way to upgrade Garnet into a workable OS, or abandon it completely and start from scratch. Either way, Palm has just paid $44 million for the rights to develop a technology that should have been put out to pasture years ago."

For its part, Access plans to focus on the development of its own open-source OS, currently known as Access Linux Platform and scheduled for release, the company says, in the first half of 2007. ALP is designed to be compatible with the Palm OS via a "compatibility layer" called "GHost," for Garnet Host.

"The best option for Palm is clearly to move to Mobile Linux and open source," adds Fabrizio Capobianco, CEO and founder of open-source mobile email provider Funambol Inc. "After this agreement, I would guess it might not be ALP but something else. It will be very interesting to see where they go. They clearly need to make a move now."

— Richard Martin, Senior Editor, Unstrung

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