October 5, 2004 11:49 AM PDT

PalmOne grabs Microsoft Exchange license

Rivals PalmOne and Microsoft appear to have cast aside their differences, as the handheld maker licenses an e-mail synchronization tool from the software giant.

PalmOne said Tuesday that it has signed a deal to license Microsoft's Exchange Server ActiveSync protocol, which the handheld maker said will help provide secure delivery of e-mail to upcoming versions of its Treo smart phones. Milipitas, Calif.-based PalmOne said it will use the software to extend support for Microsoft Exchange corporate e-mail products by adding the capability for wireless server synchronization. Financial terms of the deal were not released.

The deal eliminates the need for people to use third-party software to integrate Exchange e-mail on PalmOne handhelds and possibly marks an end to the staunch rivalry between the two companies.

Microsoft markets the Windows Mobile operating system for handhelds. PalmSource makes the Palm operating system for PalmOne's handhelds. The two former divisions of one-time Palm Inc. operate today as independent companies.

"This is really good news for PalmOne--not so much for the functionality, but for the removal of a big objection to Palm in the enterprise market."
--Carl Zetie,
analyst,
Forrester Research

Connectivity to mobile devices has been one of Microsoft's key selling points to get corporate customers to upgrade to Exchange 2003, the latest version of the e-mail server. Such capabilities until now have been reserved for devices running on Windows Mobile, Microsoft's operating system for handheld devices, but Exchange customers made it clear that that wasn't enough, said Chuck Sabin, senior technical product manager for Exchange.

"This is a decision the Exchange team made to fulfill the customer demand being made of us," Sabin said. "We continue to value and trust our relationship with the Windows Mobile team, but when we look at the customer requirements from an Exchange perspective, we needed to take a broader view."

Windows Mobile remains the best choice for an "end-to-end solution" for mobile e-mail, Sabin said, but the reality is that corporate IT folks need to deal with a hodgepodge of mobile devices acquired by workers.

"The IT administrators know the proliferation of devices is out there," Sabin said. "They want to provide more capabilities to workers, but at the same time, they need to think about how they manage these devices and how they can gain a bit more control over things accessing their network."

Sabin said Microsoft is working with other makers of mobile devices to extend Exchange access, part of a program the software giant began last year to boost revenue from licensing key technology assets.

"This is part of an overall IP (intellectual property) licensing announcement Microsoft made some time ago...to make key technologies available to partners and competitors," Sabin said. "You will likely continue to see additional announcements concerning this technology with other companies."

PalmOne said the new relationship with Microsoft underscores growing demand from corporate customers for e-mail-capable wireless devices. The company pointed to benefits, ranging from better application performance to improved security, as potential advantages of the integration of the two companies' technologies. PalmOne said devices armed with the Microsoft software will offer immediate integration with data in existing Exchange Server 2003 systems, including calendars.

Company executives highlighted PalmOne's pledge to be open to any software as key in striking the deal with Microsoft and said the alliance will create savings for customers.

"Having wireless synchronization to Exchange 2003 available out of the box will enhance our smart-phone customers' experience while slashing company IT costs," Ed Colligan, president of PalmOne, said in a statement.

Alex Slawsby, an analyst at research company IDC, said the deal gives Microsoft a new avenue to boost Exchange upgrades without sacrificing any Windows Mobile opportunities, where the main issue continues to be price.

"Windows Mobile certainly has made inroads on the Palm OS...but it's debatable how much further market share Microsoft can take," Slawsby said. "Palm continues to focus on the entry-level price bands, and unless Windows Mobile gets into that entry-level space, there's only so far they can get."

Slawsby said the PalmOne agreement is aimed more at Exchange concerns than at Microsoft's ambitions in the handheld market. "I don't think it should be read as Microsoft conceding anything" in the handheld market, he said. "It's not a comment on, 'We'll never sell Windows Mobile and compete against the Treo.' It just adds to the number of devices that support Exchange."

Other industry watchers agreed that the deal is targeted primarily at existing Exchange users looking to integrate different models of handheld devices. Carl Zetie, an analyst at Cambridge, Mass.-based Forrester Research, said the deal will also help PalmOne win more customers in the enterprise space.

"This is really good news for PalmOne--not so much for the functionality, but for the removal of a big objection to Palm in the enterprise market," Zetie said. "People in the corporate market have been adopting (Windows Mobile) by default because they assumed it was easier to integrate with other Microsoft products, like Exchange."

Zetie said he does not expect the deal to spur an immediate spike in sales of PalmOne handhelds, because the enterprise space accounts for only a small portion of the overall handheld market. Moreover, he said, Microsoft's concession to PalmOne is not a sign that the company is losing faith in Windows Mobile; rather, he believes that the software maker has wisely decided to recognize diversity in the handheld sector.

"In parts of Microsoft, they have begun to acknowledge that (Windows Mobile) is not a clean sweep--and may never be," Zetie said. "This is a sign that they've accepted that the handheld market is more of a mixed environment than the desktop, in particular in the enterprise space."

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Backward/Forward Compatible
Does this mean that current palm systems will be able to take advantage of this? Will this work for the new Treo 650?
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