The acquisition of PalmSource by Japanese software developer Access took many in the market by surprise, not least because Access itself is relatively unknown outside its domestic market. However, the company has played a pioneering role in the development of mobile internet services, both inside and outside Japan, with its i-Mode browser becoming a defacto standard for DoCoMo handsets. More recently it has expanded to provide browsers capable of accessing a full range of internet pages on a number of embedded and open platforms.
The question everyone wants answered is why would a Japanese browser company, however successful, buy a US platform developer best known for providing software to power a maturing category of handheld computers? This is an area PMN started looking at a couple of years ago, prompted in part by a couple of very interesting technology demonstrations at 3GSM 2004. The eventual answer may be quite complex, but the underlying principle is relatively straightforward: the value in mobile software is shifting upwards through the OS stack to the interface layer and Access wants to capture as much of this value as possible.
If we turn the clock back two years, browser companies such as Access and Opera were starting to promote their applications as ‘platforms’ for delivering on operators’ visions of a customised device home screen. It was an attractive proposition: an open standards approach to user interface customisation which leveraged the existing tools and skillsets of web developers.
I remember seeing some very impressive demonstrations from both companies. Access in particular had pulled out all the stops to develop a portal/home screen which incorporated embedded video elements, intelligent menu items and direct links into device applications.
So what happened? Why are the vast majority of subscribers in developed Western markets still using the browser as a separate application to access mobile internet services while the home screen is configured using the embedded software on the device?
As with most things in business, it is a question of money and politics. No matter how impressive the technology proposition, it is never going to get included on a handset unless someone, somewhere along the line is willing to sign-off an increased bill of materials (BOM).
Quite simply, no one was ready to pay for this kind of technology. Advanced browsers were seen as an additional cost element: the operators weren’t going to pay because they thought it was something the handset manufacturer should stump up for and the handset manufacturers weren’t going to increase their BOM when they already had a variety of in-house or pre-integrated browser and ‘lite’ application suites to choose from.
Through its acquisition of PalmSource, Access is buying itself a more persuasive cost argument with these handset manufacturers and more leverage with network operators. Rather than being perceived as an additional line in the BOM, Access can now integrate several BOM elements into one overall platform offering. By combining PalmSource’s newly developed Linux OS, existing application suite and interface with its cutting edge browser technology, it can offer an attractive package of open, easy-to-implement mobile multimedia capabilities.
From a geographical perspective, it is also buying itself access to PalmSource’s strong US presence and the footprint it recently acquired in China through PalmSource’s own purchase of China MobileSoft. The price tag of USD 324.5m may be a fraction of the inflated heights PalmSource reached as a public company, but it is actually quite a respectable amount if you look at the sort of valuation attached to the closest rival: Symbian.
Symbian, of course, will be a key target for the combined Access/PalmSource. The company may continue to service existing customers in the handheld computing space, but the real objective will be the mass-market opportunity of smartphones and feature phones; this is an area where Symbian is currently the clear leader.
It is quite likely that Access’ interest in PalmSource has been sparked by Symbian’s growing presence in Japan. Symbian is one of two operating systems approved for DoCoMo’s FOMA 3G handsets (the other being Linux). In some ways the two companies are potential partners – there is no reason why Access’ browser shouldn’t run on top of the Symbian OS – but Access’ ambitions as a platform provider will inevitably bring them into competition.
By combining its existing customer relationships with Japanese handset manufacturers and operators with its newly acquired, Linux-based browser and application platform, Access could become a strong contender in the Japanese smartphone OS space.
Its chances in other markets are less certain. PalmSource still has very little traction in the mobile telecoms space and it looks more and more likely that its biggest customer (Palm) will pursue an alternative OS strategy. Access has recorded a recent customer win for its browser with Sony Ericsson (on the W600 and W550 Walkman phones), increasing its presence in US and European markets, but it remains a small player compared to the likes of Openwave.
The combined company will need to leverage all of its deep technical expertise and pricing power to prove itself a real rival to Symbian and hedge against the ever-present threat of Microsoft’s growing presence in this space.