June 6, 2000 9:05 AM PDT

Palm continues spree with email software firm buy

Personal digital assistant maker Palm today acquired email software provider Actual Software, the latest purchase in the company's post-IPO shopping spree.

The deal closely follows Palm's acquisition last month of Web calendar firm Anyday.com. The companies did not disclose the terms of the deal.

Palm appears to be using the funds raised from its $874 million IPO in February to further its diversification strategy. The company has said it wants to use fees from the licensing of its Palm operating system and new revenue streams from its expanding wireless Internet services to expand its business. Currently, the company relies solely on hardware revenues, derived from sales of its Palm-branded devices.

Palm's diversification strategy took on additional importance last month when the company revealed it was having trouble procuring enough LCDs and flash memory chips to keep up with demand for its products.

Currently, Palm controls about three-quarters of the market for handheld devices, according to market research firm International Data Corp.

Palm has said it plans to focus on wireless services in the coming months, repositioning itself as a wireless communications and services company. This move reflects the increased competition in the handheld market--where Palm has traditionally dominated--from companies like Casio, Compaq, Hewlett-Packard and Handspring, as well as the expected boom in wireless applications and subscribers. Today, hardware maker Acer said it plans to enter the handheld market.

Actual Software makes email conduit software for handheld devices, which allows PDA users to read and send email from different software clients on their devices. For example, since Palm does not natively support email from Microsoft's Outlook software, people need to download some type of third-party software to make the two products work together.

Actual MultiMail software supports POP3 and IMAP4 email clients, which include popular software products like Qualcomm's Eudora and Microsoft's Outlook. After the acquisition, which will close in the fourth quarter of Palm's fiscal year, Actual employees will continue to work from the company's Andover, Mass., headquarters.

The move makes sense for Palm, whose own email client is not fully developed, according to David Thor, research director for ResearchPortal.com.

"Palm needs to come up with a better client inside the device," he said. "They've got a weird email thing right now that doesn't come built-in and requires that you optionally load it."

A more functional email client is a neccessary part of Palm's strategy to sell its products to corporations, but large companies may be dubious about the company's support of third-party software, noted Ken Dulaney, handheld analyst for GartnerGroup. "It's a tough road to go to claim to be agnostic when on the other side you're selling religion," he said. "There's some dilemma there."

And how the acquisition plays into Palm's ongoing diversification strategy is somewhat unclear, according to Dulaney. "I don't really understand what the strategy is over at Palm at this point," he said. "I have to give them a middle grade because we don't know what they're doing, and the first thing in a strategy has to be to communicate."

 

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