Palm plans resurgence

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…can take a vision and execute on it by building successful products, an approach many believe Palm needs right now. McNamee said he believes Rubinstein's strong execution history will fit well with Palm's founder Jeff Hawkins.

"We are intensely attracted to the idea of teaming Jon with Jeff Hawkins," he said. "We feel like that is a team that can't be beat."

But analysts say Rubinstein's presence on the management team doesn't necessarily mean a slam dunk for Palm.

"Rubinstein is a good addition for them," said Charles Golvin, an analyst with Forrester Research. "And there is a lot of potential for success. But the cell phone market is not the MP3 market. Palm is not creating a new category. It needs to evolve the market. So there are a whole set of other challenges associated with that."

Dealing with carriers who distribute the phones and competing against entrenched handset makers that are much larger than Palm are only some of the challenges Rubinstein did not face when conceiving of and building the iPod, Golvin said.

But there is little question Palm faces a tremendous opportunity. According to IDC, roughly one billion handsets will be sold in 2007, and less than 10 percent of those handsets will be smartphones. But that will change over the next few years, said IDC, which predicts that, by 2012 or 2013, smartphones will account for about 25 percent of all handsets sold.

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Increasing competition
Today BlackBerry is the clear leader in the smartphone market, with its various BlackBerry phones. RIM, which up until recently focused exclusively on the corporate market, has expanded into what's known as the "prosumer" market. These are consumers who also want to use their phones for work, and expect to get email and other multimedia functionality on their phones.

The BlackBerry Pearl was the first RIM product to make it into the prosumer/consumer market. And this year the company introduced the Curve, a multimedia phone geared toward consumers rather than enterprise users. Last year Motorola and Samsung introduced their own versions of the consumer smartphones, the Moto Q and the BlackJack respectively. And Nokia, with its Nseries phones, and Sony Ericsson, with its Walkman phones, have been selling such products for more than a year throughout Europe and Asia.

Palm, which introduced the new Treo 680 this year, has lost some ground to these competitors. Critics have complained that the Treo 680 only offers incremental improvements over older models of the phone.

Palm executives say they are already working on a new lineup of Treos. Even though Jon Rubinstein's influence on the product portfolio probably won't be felt for at least 18 months, McNamee said he is pleased with Palm's current product road map, which calls for new products on the market towards the end of this year and into early next year.

But in the future, McNamee said there is huge potential for Palm to innovate around its software.

"If you look at the industry over the past 12 months there has been huge innovation in hardware," he said. He pointed specifically to the Moto Q, BlackBerry Pearl and the Samsung BlackJack, which have become smaller and thinner. "But now we're hitting a point where you can't get too much smaller without sacrificing functionality," he added. "We think the game is all about software. And software innovation is where Palm truly excels."

But catching the competition, especially Apple, could be difficult for the company, say some analysts.

"The iPhone has been very hyped," said Sean Ryan, a research analyst with IDC. "But it will have an impact on the market. It's particularly scary for Palm because they haven't diversified their design much, and Apple is also known for software development."

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