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Palm Computing: Jeff Hawkins’ innovation catches on

August 2007 (The New Business Road Test)

This case study examines Palm Computing and the way in which it was able to identify and perform on its critical success factors.

It is rare today to sit in a business meeting and not see at least one person tapping away at a handheld organizer. While these little battery-operated gadgets have been on the market since 1993, it was not until 1996 that the concept really caught on. Introduced to the public in April 1996, the Palm Pilot was a near-instant success, selling 1 million units in its first 18 months. Palm’s little invention had been accepted faster than any other computer – even faster than televisions, video recorders, mobile phones or almost any previous consumer electronic product. In just two years, the company sold more than 1.5 million Pilots. What made Palm so successful, beating out the earlier Apple Newton and Microsoft’s Pocket PC?

Learning the hard way

The Palm story began with Jeff Hawkins, an electrical engineer and inventor who was more interested in the human brain than starting a multibilliondollar company. In the late 1980s, Hawkins was working for GRiD Systems, a computer company in the San Francisco Bay area. It was at GRiD that Hawkins worked on pen computing. With this new technology, users could write directly on the computer screen with a stylus (it looked like a pen but contained no ink); theoretically, the user’s handwriting could be recognized. The key word was ‘theoretically’. The concept depended heavily on the computer’s handwriting-recognition capability.

Hawkins had already developed PalmPrint, a software program that could recognize hand-printed characters. In 1989, with Hawkins’ software under licence, GRiD developed and marketed a tablet computer called GRiDPad. While it was a modest success as the only pen computer available commercially, it was too big and heavy, at 4.5 pounds, and too expensive, at $2500, for use outside the specialized markets for which it had been designed.

In 1991, Hawkins set out to create a pen computer that would be more appealing to everyday consumers. He was convinced a pen computer would be appealing to customers and pitched the idea to Tandy, GriD’s parent and the operator of some 7000 consumer electronics stores. As Hawkins saw it:

Palmtop computing devices will be as ubiquitous as calculators by the end of this decade . . . To get an idea of the market size for these computers, consider the possibility that most high school students, nearly all college students, and most professionals will own one. With prices starting at $200, it is entirely conceivable, and I believe likely, that 50 per cent of those people will own or use a portable handheld computer at sometimein their life.

Tandy and two venture capital firms liked Hawkins’ idea, and in January 1992 Palm Computing was financed with $1.3 million in exchange for 40 per cent of Hawkins’ company. Hawkins’ proposed product, the Zoomer, would consist of hardware and an operating system that allowed the computer to serve as an address book and a diary. Hawkins knew he could not develop the Zoomer alone, so in early 1992 he hired three talented engineers and set to work.

Hawkins and the Palm Computing team immediately faced pressures from the project’s various partners. By autumn 1992, there were six partners on the Zoomer project, including Casio, Tandy, AOL and Intuit. Palm was a living example of too many cooks in the kitchen. These partners wanted everything and the kitchen sink included in the product. Palm’s engineering director Monty Boyers said, ‘They had the longest, longest list of features they wanted to put into the device. And it would not make any difference to them at all whether these things made sense or not. Our point of view was: “Gee, we don’t need all these things. Let’s make this other stuff work really well”’. With Hawkins at the helm, the Palm team tried to stave off the idea that ‘more is better’, focusing instead on simplicity and functionality. But the battle wasn’t easy.

In August 1993, Apple began shipping its Newton. Palm’s Zoomer followed in October. Neither of the two products was terribly successful. Of his own product, Hawkins said, ‘When I personally used the product, I felt it was usable, but a lot lacking’. At $700, this somewhat heavy and cumbersome handheld device was equipped with only a mediocre handwriting-recognition tool. And by then, the Palm team realized the need for PC connectivity, which the Zoomer lacked. They wanted to find a way to move data back and forth from the Zoomer to the PC.

Working quickly, Palm brought to market in November its PalmConnect, an add-on to the Zoomer that allowed information to be moved from the handheld to the PC, and vice versa. While PalmConnect was a useful and successful add-on, it did not save the fate of the Zoomer. Both the Newton and the Zoomer failed to gain momentum. After selling 20,000 units in its first two months, Zoomer’s sales slowed to a crawl.

What does it take to win in high-tech?

Hawkins, a tenacious sort, was not about to give up hope after the less than successful Zoomer project. The first thing he did was to strengthen his team by hiring Donna Dubinsky as his CEO. She had a proven track record of managing high-tech teams and delivering results. More importantly, her appointment also released Hawkins from a managerial role he had never wanted to play, leaving him free to concentrate on learning from the mistakes made on the Zoomer in order to develop a handheld that had real market appeal.

Hawkins and Dubinsky learned some important lessons about what it takes to be successful with high-tech innovation. First, they learned that developing new technology was the easy part. Many high-tech entrepreneurs could do that. Second, and far more important, they learned that what was crucial in the high-tech world was linking the promise of technology with genuine customer needs so that real customer problems are solved.

Satisfying customer needs is nothing new – it’s important in any industry. In high-tech, though, doing so or not doing so turns on three critical success factors (CSF). Getting these CSFs wrong dooms the business. Getting them right gives it a good chance of success. What are they?

• Anticipating and understanding customers’ real problems or needs – or, more graphically, the customer pain.
• Understanding deeply an area of technology and what it can and cannot deliver, both today and tomorrow.
• Finding ways to harness the technology to resolve these problems or needs. Can the customer’s pain be relieved?

For high-tech ventures, sometimes the technology comes first and customer pain must be found that can be relieved by the new technology. At other times, the customer need comes first, driving the engineers to develop a solution. Either sequence works, as long as the meeting of the two – the third CSF – occurs. Let’s look at each of these CSFs and see how they played out at Palm.

What did customers really need?

With Dubinsky now on board, Hawkins and the Palm team went to work on understanding what needs customers had that could be resolved by a handheld device. But which customers?

The Palm team decided to target the growing number of PC users. Within this large market, their target was professionals who were not necessarily experts in computers but who were unafraid of technology. Refining the target market further, the Palm team focused on the segment of professionals who worked away from their offices, whether locally or at large distances. What did these mobile professionals who were comfortable with technology really want in a handheld device?

Let’s ask the customers what they really want, thought Hawkins. Their answer was clear: don’t try to replace our desktop computers; just replace our pocket and desk calendars. People wanted an accessory to their PCs, some means of carrying around some of the data already on their hard drives – especially contact and appointment data. Eureka! ‘I realized my competition was paper, not computers’.9 Most of the PC functions that Palm had painstakingly built into the Zoomer served only to clutter the screen with options that the customer didn’t need. Hawkins’ realization allowed him to focus his attention on the features and functionality that his prospective customers really wanted. Instead of developing a handheld PC, Hawkins and Dubinsky pushed their engineers to design a straightforward, portable, easy-to-use organizer.

Hawkins knew what was on the drawing boards at other companies and was sure that every one of them was missing the boat. What everyone was doing was not what the customers wanted.

Peter Skillman, who worked with Hawkins as a consultant for IDEO, the engineering firm that teamed up with him on several of the Palm products said, ‘Jeff understands the user experience and instinctively knows what’s important to them. He has a real empathy for customers’. In other words, he was able to execute on the first of his industry’s CSFs.

Hawkins identified the characteristics most important to his market. Customers required simplicity, small size, reasonable price, attractive design and connectivity. ‘We knew people would want something that’s reliable and intuitive and quick, very quick. Faster and easier to carry than paper. Products can do complex, sophisticated things. But the user experience has to be simple’. A Forrester Research study concurred, finding that people used their handheld organizers to manage calendars and to-do lists far more than they used them for complex tasks like retrieving and sending emails. ‘It had to be easy to use for the average consumer’, said Hawkins, ‘not a product for techno geeks, but as easy and fast to use as the millions of Day- Timer and Filofax paper organizers that were sold each year’.

What could (and couldn’t) technology deliver?

In order to keep the product small, fast and convenient, Hawkins realized that Palm would need great handwriting-recognition technology. The problem was that at the time, the technology was not good enough. More importantly, Hawkins, who knew this technology arena intimately (CSF number two in high-tech), knew it would not be good enough any time soon. He needed to come up with a better handwriting-recognition tool. His invention was ingenious. Instead of asking the computer to recognize everyone’s handwriting, as Apple’s Newton and Palm’s Zoomer had tried to do – ineffectively, as it turned out – Hawkins decided to create a standard alphabet and characters that people could learn to use. He would train people in a new, but easy way to write.

Graffiti, Hawkins’ new alphabet, mimicked traditional Roman letters with just simple modifications. The result was a near-perfect technological solution with two key benefits. First, anyone could learn to print characters that the product could recognize, thus eliminating the handwriting-recognition issue. Second, the handheld no longer needed a keyboard, thus facilitating a smaller product.

Yet another problem with technology was the limited screen space. When writing long words or sentences, the user would run out of room on the small screen. Hawkins’ solution was to have users write one letter on top of another, forcing the software (rather than the user) to display the letters and characters in sequential order. Again, Hawkins came up with an inventive and practical solution that was technologically feasible.

The team also realized the importance of data exchange between the handheld and the PC. Palm engineers wrote software that could import and export data to and from a number of desktop software programs, like Microsoft Outlook and Lotus Organizer. With this functionality, pertinent daily information usually stored on a PC suddenly became portable.

Matching the two – harnessing technology to meet customer needs

With Hawkins’ criteria in mind and the key technologies in place, the Palm crew set out to develop a superior handheld organizer. The team was meticulous when it came to the product’s features and functionality. They knew the machine had to be simple to operate. Keeping it simple meant fewer features. When deciding what features to include in Palm’s handheld, Vice President of Marketing Ed Colligan asked, ‘Is this feature going to sell one more unit?’. If the answer was no, then the Palm team dropped it. Colligan’s discipline was a key factor that helped execute on CSF number three. What the engineers designed would be what the customers wanted – no more, no less. In the end, the team decided on four basic features: a calendar, an address book, a to-do list and a memo pad. Palm’s competitors, on the other hand, missed the boat, cramming far too much functionality into their little handhelds.

Hawkins also realized that existing operating systems wouldn’t work for the simple and sharply focused device he had in mind. A better operating system was needed, and Palm’s Ron Marietti was the engineer who delivered it, another instance of Palm’s ability to execute on harnessing technology to meet customer needs.

While the Palm team was busy sticking to its simple features, the company did allow for software add-ons for customers who might want them. The company relied on outside software developers to provide these applications. Independent software developers could obtain a Palm software development kit and create add-on shareware and commercial programs for Palm’s handheld. Anxious to get their hands on a big audience, these developers designed everything from financial calculators and video games to astrological charts and news updates.

Results – a hit from day one

Palm Computing demonstrated their new Palm handheld at a trade show in January 1996. Half of the more than 400 trade show attendees took Palm up on its $149 pre-order offer. In April of that year, Palm began shipping. PC Computing magazine wrote: ‘The Pilot 1000 is an outstanding product: It’s fast, easy to use, and inexpensive . . . If you’re searching for the ultimate palm-size organizer, look no further’.16 Throughout the remainder of 1996, Palm’s Pilot organizer gained popularity. By the end of the Christmas season, Palm’s Pilot won over 70 per cent of the US handheld market. That year, the Pilot received 21 ‘best product’ awards from the press, consistently beating Microsoft’s handheld launched in the autumn of that year. The company knew it had a hit when computer columnists failed to return its review units.

It took Palm only 18 months to sell 1 million Pilots. But Hawkins and Dubinsky refused to rest upon their laurels. To maintain momentum, Palm worked vigorously to develop newer, better versions of its handheld. Palm III hit the market in March 1997. This version was slimmer than the original Pilot, and weighed only six ounces. Gartner Group said, ‘The product delivers exactly what existing users want’. A still thinner version, the Palm V, was next. While the Palm V had no functional difference from the Palm III, it was a far more attractive product. As Hawkins said, ‘The goal was beauty. Beauty, beauty, beauty. I didn’t want any distraction with other things’. The Palm V sold for $449, weighed four ounces, and was equipped with rechargeable batteries. Palm VII took a jump into the wireless world. Equipped with an antenna, it could send and receive emails and Web clippings. By 1998, however, Hawkins, Dubinsky and Colligan departed to form a new company, having struggled for years under corporate oversight that, in their eyes, limited their progress.

The rest of the Palm team continued to deliver impressive results. By the end of its fiscal year ending May 2000, Palm had reached over $1 billion in sales. During the next six months, it sold another $922 million. It had taken Palm three and a half years to sell 5 million handhelds.

What made Palm a high-tech success? Palm’s success did not result from proprietary technology that was patent-protected, although Palm did win some patents and it did develop its own operating system. The story wasn’t superior organizational processes that others could not match. The key element in Palm’s ability to win in a business where other companies and products – including Palm’s own Zoomer – had failed was the ability of the entrepreneurial team to execute on the three factors that were – and still are – critical to high-tech success. Let’s recap how Palm’s entrepreneurial team – Hawkins, Dubinsky and Colligan – executed on these three CSFs:

Understanding customers’ real problems or needs: Hawkins, Dubinsky and Colligan focused relentlessly on building the small and simple product that they knew customers wanted. ‘Delight the customer’, was Colligan’s mantra for design decisions.
Understanding deeply an area of technology and what it can and cannot deliver, both today and tomorrow: Hawkins knew the limitations of handwriting-recognition technology and what it could and could not do well. With Graffiti, he found a better way to resolve the technical problem.
Finding ways to harness technology to resolve these problems or needs: ‘He was really anal about a lot of stuff’, recalls Karl Townsend, who designed the electronics for the first Palm Pilot. ‘He said, “Look, it’s really important how thin it is; it’s really important how the buttons feel.” All the other products I had worked on, people didn’t have the same passion that Jeff had, and the product then becomes a huge gigantic compromise’.

Of these three CSFs, the first and third are often overlooked in technologydriven companies, where engineering elegance sometimes takes precedence over customer needs. The Palm team, however, executed superbly. At the end of the day, it’s execution – not design brilliance or engineering elegance alone – that counts. Hawkins and his team executed. They delivered cutting-edge products that worked and that customers wanted and would pay for – all things easy to say but difficult to do in the high-tech world.

Lessons learned from Palm Computing

Jeff Hawkins not only knew what it took to succeed with a high-technology firm; he also made certain that his company had the right people to fulfil these necessary criteria. When Hawkins resolved that Palm would produce a simpler handheld, he knew ‘the most critical employee to the project . . . was Ron Marietti’. He needed an engineer of Marietti’s calibre to write the operating system, otherwise the product simply would not work.

Earlier, Hawkins had agreed with his venture capital backers that he should hire a CEO to run the company. It took about a year, but when the time was right that’s exactly what Hawkins did. Donna Dubinsky, Hawkins thought, could execute, and she could do things he could not.

To his credit, Hawkins knew his strengths and weaknesses, having never claimed to be a good manager. He knew the CSFs that his business faced, and he built a team that could meet them. Execution mattered. Contrast Palm’s execution with that of other early entrants into handheld computing – Apple’s Newton and Microsoft’s Pocket PC – which simply failed to understand the limits of the technology and to marry it with customer needs. Hindsight tells us that, at least at its early stages, the handheld computing industry was a tough game to play. There were numerous entrants and quite capable substitutes – pen and paper, principally – that led most entrants to fail. Arguably, Palm’s superior execution – Hawkins, Dubinsky, Colligan, Marietti and the rest of the team – made the difference.

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