The Pre: Palm’s Plot to Take on the iPhone

A few weeks ago, Jon Rubinstein was booking up the side of Mount Tamalpais in Northern California while I wheezed like a steam engine in his wake. This was irritating on two levels: 1) I do this hike all the time, and 2) he had already gone for a long run earlier in the day.

The executive chairman of Palm Inc., Rubinstein, a wiry 52, is a marathoner. So I persevered. I was trying to find out the answer to a question that’s riveting the tech world these days: namely, Will the Pre save Palm? An iconic Silicon Valley company that pretty much launched — then lost — the smart-phone category, Palm has been teetering on the brink of irrelevance. But now it’s fighting back with the Pre, the much hyped smart phone that Rubinstein & Co. have been working on for two years; it launched June 6 ($199 at Sprint stores in the U.S.) with all the expectations of a summer-movie blockbuster. (See TIME’s video “Family Tech: Palm Pre vs. iPhone.”)

You probably know that smart phones — cell phones as versatile as desktop computers and connected to the Internet — have been around for more than a decade. But thanks to the iPhone, the category has suddenly become white hot. (See the best inventions of 2008.)

Putting a Net-connected computer in everyone’s pocket is expected to be a sensationally lucrative business. The planet pullulates with some 4 billion mobile phones, after all, and Palm says only about 10% of them are smart phones. During the next few years, that number may reach 50%. Morgan Stanley Research even described the migration to Internet-connected mobile devices as “one of the biggest opportunities in the history of the technology industry.”

And that’s where Rubinstein, a former Apple hardware engineer who oversaw the iPod division, comes in. His job is to restore Palm to its former glory and carve out a nice slice of the smart-phone pie. But to do so, Palm will have to compete with Apple’s iPhone. Launched two years ago, the iPhone has created nothing less than a new way of doing business. By last January, more than 21 million iPhones had been sold; nearly 50,000 applications are now available for download at its online App Store. Rubinstein, an easygoing guy, smiles when we discuss this and points out that the market is large and expanding; Palm doesn’t need to steal any of its competitors’ customers to thrive. The smart-phone race is a marathon, not a sprint. “We’re only at the beginning of the journey,” he says. By that measure, the Pre represents the first couple of miles. (See a comparison of the Palm Pre and Apple iPhone.)

Yet if the Pre stumbles, Palm might never catch up. The industry sets a blistering pace, and Palm is already late to market. But if anything worries the famously secretive Apple (which, it goes almost without saying, declined to comment for this story), it has to be Rubinstein. He wasn’t merely once an Apple insider; he was in the inner circle, a man close to Steve Jobs himself who helped overhaul the engineering processes core to Apple’s turnaround. He worked on the top projects at 1 Infinite Loop and, for a time at least, got to see where Apple was headed. He’s the guy best equipped to take Palm there too.

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Another Bite at the Apple
Rubinstein is a 30-year technology veteran who has worked at Hewlett-Packard and a variety of start-ups, including the legendary and doomed NeXT Computer, where he was wooed by Jobs. He arrived at Apple in 1997, about the time Jobs returned from exile and, as one of Jobs’ trusted lieutenants, ran the hardware side of the company. The candy-colored gumdrop iMac he built helped haul Apple back from the brink. When Jobs decided that Apple should make a digital-music player, it was Rubinstein who discovered a tiny hard drive at Toshiba’s research labs that would be the soul of the new machine: the iPod. (See the top iPhone applications.)

Then he burned out. Like others on the executive team, he had made a small fortune in Apple stock — $26 million by some accounts — and he didn’t need to work anymore. What he wanted to do, he told Jobs at a meeting in the boss’s office one September day in 2005, was build a house on the beach in Mexico, drink margaritas with his wife and toast the setting sun. Rubinstein told Jobs he wanted out. “He goes, ‘Really?'” Rubinstein thunders, imitating a man in shock. Then he chuckles.

The meeting wasn’t acrimonious, and he believed the door was open should he ever want to return. Jobs did not beg him to stay, and they worked out a plan for an orderly transition. Rubinstein went south and built his house, inventing a clever firefighting system that pumps water from the swimming pool (the closest fire department is 35 minutes away).

One day, “out of the blue,” he says, he got a call from Fred Anderson, who had been Apple’s CFO until retiring in 2004. It was Anderson who helped Apple figure out how to buy enough time to execute the turnaround. Anderson had had a terrible falling out with Jobs during the Securities and Exchange Commission’s investigation of an options-backdating scandal in 2007. He settled the case without admitting wrongdoing but blamed the CEO for leaving him exposed. Not coincidentally, at about that time, Anderson joined Elevation Partners, a private-equity firm that had invested $325 million to buy a 26% share of Palm. (It now owns 34%.) Thinking that Rubinstein was just what Palm needed to right itself, Anderson introduced him to Ed Colligan, Palm’s CEO. Colligan visited Rubinstein in Mexico and ultimately convinced him that Palm needed him to orchestrate a Jobs-style reinvention.

Seeing the Future in Palm
As he dug deeper, Rubinstein saw a pattern that intrigued him. Palm’s first hit was the Pilot, which pretty much created the personal digital assistant (PDA). It enabled people to organize all their stuff on a computer, then sync it to the device. Handspring, Palm’s successor in a convoluted corporate history, merged the PDA with a cell phone, but to Rubinstein it was sync that stuck out: “We looked at Palm’s DNA and said, ‘What made it great?’ Synching — from Day One, Palm has been about synching.” But these days, people don’t want to be tethered to a computer, he says. “People keep their data all over the place. It’s no longer spread all over their computer. It’s spread throughout the cloud!”

Ah, the cloud, those enormous storage lockers of the Net that serve data — e-mail, pictures, video and your Facebook, LinkedIn and Twitter pals — wherever you are. The problem is that all these data streams are increasingly hard to manage. I have one contact list of my friends and family on my iPhone; I can also switch to a directory of work associates. But then I’ve got a third list of friends at Facebook and yet another on LinkedIn. The promise of the Pre’s WebOS is that it can take all those feeds and wirelessly combine them into one comprehensive contact list, without duplicates. On the Pre, this is known as Synergy, and it already works with contacts, e-mail, calendars and instant messages.

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When I add a new friend on Facebook, for instance, a few moments later, he appears as a contact on my Pre. If he is already there, WebOS is smart enough to just add anything that is missing — his birthday, say — to the existing contact.

Mashing up all those feeds in one place could be confusing. But the Pre handles it intelligently via something it calls Universal Search. The Pre is a slide phone — a touchscreen on its face gives way to a keyboard below. Simply start typing, and WebOS pulls up a pane that searches your contacts and also gives you the option to search via Google, Wikipedia or Twitter. You can type, “How fast does a zebra run,” hit a Google button and get the answer. Pretty sweet.

The bigger idea here is that WebOS is designed to simulate the Web itself. In fact, anyone who can build a website can write applications for this platform, which is why Rubinstein expects a flood of Pre apps shortly. “The user environment in WebOS is a website,” Rubinstein says. That’s a powerful hook, especially if you believe that the Web will continue to grow relentlessly.

Finally, the user interface is especially cool and does something I’ve never before seen on a smart phone: it can run a dozen applications simultaneously. Each app is represented by a virtual card after it launches; switching between programs is as easy as leafing through the cards. To close an app, you simply flick it away.

The Pre does have issues. I’ve used two for the past few weeks and run into a couple of early glitches. One was an operating-system bug that caused my first Pre to crash. Fixed, says the company. The other was a hardware issue that drained my battery in five hours. Palm says that’s an anomaly but is investigating. The other things I disliked are pretty minor and easily corrected. Cut and paste is very limited and clumsy to use; there are only a dozen applications available at launch, and your IT guys can’t remotely wipe it if it’s lost. Still, I complained bitterly about the same things with the first iPhone in 2007, and now I embrace it with the zeal of a convert. Could that happen with Pre? Maybe.

Apple is taking a “Pre who?” approach so far. But it’s doubtless ticked off that the Pre cheekily syncs with Apple’s proprietary iTunes software. (Rubinstein claims he’s doing Apple a favor by making it easier for Pre owners to buy music from the iTunes store.) Needless to say, Apple is hardly standing still. New iPhones are rumored — perhaps they’ll be unveiled at an Apple developers’ conference on June 8 — and its operating system will get an upgrade.

Still, Rubinstein has managed to keep Palm in the race. The Pre ought to find new converts, but it is Palm’s WebOS that’s the key to success. Rubinstein told me that Palm is working on an array of mobile Internet devices, all powered by WebOS, which he argues — persuasively — is built to last a decade or more.

While I’m not giving up my iPhone yet, the Pre is certainly the first sexy alternative. Palm stock has surged, from $1.42 a share in December to about $13 last week. And the more I hear sources at Apple dissing the WebOS as not being all that revolutionary, the more I suspect this could turn into a marathon after all.

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