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Shoe salesman quits PDA company

Palm seeks new CEO

Palm's CEO, Carl Yankowski, has resigned, with board veteran and chairman Eric Benhamou taking over the reins as the PDA leader begins the hunt for a successor.

The former Reebok executive and marketing maestro joined less than two years ago, and presided over Palm's decline from its leadership in the standalone PDA business to its current embattled position, with alliances with phone vendors being axed almost daily, and Palm's PDA market share being ceded to more expensive and more capable multimedia devices from Microsoft licensees. In the past year, Palm's stock price has fallen from $56 to $2.

Yankowski never hid his ignorance about technology or the technology industry, but instead touted his marketing nous and branding expertise as the magic that would ensure Palm's long-term future. He was, in other words, a suicidally-wrong choice for Palm, the wrong man in the wrong place at the wrong time.

Yankowski made several mistakes, but they're essential the same misjudgement repeated, like a PDA version of Groundhog Day. He failed to invest in technology when he needed to, and typically for a Brand-washed marketing guy, failed to appreciate the inexorable commoditisation of the industry: he ignored Moore's Law - which like most of the 'laws' of physics, is no law at all - but nonetheless is something you kinda, oughta figure into a long term business plan if you're a leading technology company.

In 1999, America loved Palm, and Yankowski thought the love affair would go on for ever. All Palm needed to do, he reckoned, was keep knocking out the cute monochrome handhelds, with that weird squiggly writing they need, and the network effect would be good for years.

But Palm technology was severely crippled - ironically, that's what helped the device succed in matching such a low price point when it first launched - and when Yankowski finally blessed a move to a new 32-bit ARM processor and sanctioned a new ground-up rewrite of the OS, the investors had lost confidence. And Nokia and Microsoft have quietly moved in for the kill.

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Yankowski's other gross miscalculation was that Palm could compete with its own customers. It was an assumption based on the premise that there was no other game in town, and that there wouldn't be for some time. Yankowski sought to grow the "Palm Economy" by licensing the software, PalmOS, to competing hardware manufacturers. Apple had made the same calculation in the mid-1990s, only to see smarter and faster-moving competitors undercut it on price/performance and features.

And so, heroically, Palm responded in the worst way it could: by accusing the licensees that they were freeloading and demanding higher OS royalties, while it cannibalised its own revenues by flooding the market with rock-bottom-priced Palms. Margins disappeared - and remember the bill of materials on the original $299 Palm cost the company less than $90 - and profits followed.

But it didn't have to be this way.

One of Yankowski's first strategic decisions was to torpedo an alliance with the phone companies' Symbian operation, which would neatly have transferred all that expensive in-house software R&D in exchange for a straightforward $10-per-device royalty payment, and left Palm to focus on what it does best: brand marketing. As it is, Palm has to write, sell and integrate a new OS from scratch. Meanwhile Nokia, largely on the back of a single Symbian-based device - the 9210 communicator - has grabbed the top spot in the European PDA market last quarter.

Yankowski's departure is no surprise, after much of what he proclaimed unravelled. Palm decided it couldn't compete with its partners any longer, and began to spin-off its OS into a semi-autonomous subsidiary. It finally agreed to base its platform on an ARM architecture which is used in 70 per cent of phones. And a panic purchase of Be engineers in August signalled that the long death march to a 32-bit Palm OS wasn't going smoothly.

So what next for Palm? With the PALM ticker scraping the bottom of the NASDAQ, and Palm-creator Jeff Hawkins' Handspring exhibiting much of the leadership that Palm itself has failed to provide, we wouldn't bet against a kind of reverse take-over, with Handspring mounting a buy-out of the old dame. That would provide a delicious Jobs-like symmetry to a company that has employed so many former Apple employees, and made so many of Apple's old mistakes. ®

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