The Next Small Thing

But one challenge couldn't be solved virtually: marketing. How was Palm Computing going to push Touchdown into the retail channel? How was it going to change the minds of consumers? Ed Colligan sums up the dilemma: "We had a killer product. But the market was a dog. And we had no money to fund a launch. What were we going to do?''

Dubinsky figured that Palm needed $5 million to bring Touchdown to market. Her plan was to raise up to $2 million from a new corporate partner, to collect matching amounts from venture capitalists, and to leverage the partner's marketing power to crack the market. But most companies didn't want to talk about investment. They wanted to pick Palm's pockets. Dubinsky listened as suitor after suitor devalued the company's prospects. She broke off negotiations time and again, whenever it became clear that a potential partner really wanted to devour Hawkins's intellectual property.

It was early 1995. Dubinsky was approaching 40. Her life had been devoted almost solely to work. And work was heading off a cliff. "We were in a tough spot," she says. "We were going to have to start spending money.'' Even the always-upbeat Jeff Hawkins understood that the company was in dire straits: "This was the one time when I knew we were at risk.''

Almost randomly, Dubinsky ran through a long-forgotten list of potential partners, looking for even the most remote synergies. One name jumped off the page: U.S. Robotics. In less than five years, the fast-moving modem maker had seen its revenues skyrocket from $50 million to almost $900 million. Dubinsky knew that U.S. Robotics, based in Skokie, Illinois, was looking for a foothold in Silicon Valley. And she had previously identified the company as a potential partner in the development of a modem for Touchdown.

Dubinsky called a friend in investment banking who had worked on USR's initial public offering, and the friend arranged an introduction. Hawkins and Colligan met with Jon Zakin, then the vice president of business development for U.S. Robotics. Colligan watched Zakin's face as Hawkins put Touchdown through its paces. "It was wild,'' Colligan says. "He got it immediately, like a snap of the fingers. He told Jeff, 'You've thought this thing through.' ''

Dubinsky followed up with a phone call. Zakin said he wanted to do business. Dubinsky suggested that U.S. Robotics invest $5 million, and Zakin agreed to consider the offer. Then both sides agreed to meet in Palo Alto, California within two weeks.

Zakin still seemed enthusiastic when the Palm team sat down with him in late September. In a second meeting, he was even more upbeat. But he never mentioned the $5 million offer. Dubinsky felt flummoxed - though not for long. That night, Zakin called with a different offer: What if U.S. Robotics bought Palm Computing?

"It was almost terrifying how decisive they were,'' she says. "After all the frustrating negotiations we'd been through, these guys turned on a dime. They were ready to buck conventional wisdom.''

She called Hawkins to discuss the pros and cons. "I was worried about another company imposing its will on us,'' Dubinsky says. "But U.S. Robotics had cash, a great reputation with the retail channel, manufacturing strength, and global presence. And Touchdown was at a turning point. Was it going to be another nice gadget that failed? Or would it be the start of the next generation of computing?''

For $44 million in stock, Palm Computing became a division of U.S. Robotics. Within six months, after fighting to ensure that Palm's 28 employees were suitably compensated and after ironing out hellish details about who would control manufacturing, Touchdown crossed the goal line - under its new name: the Pilot.

Zoomer was a distant memory. The Pilot was a smash. The first units shipped in April 1996. "By midsummer, we couldn't build enough of them,'' Colligan remembers. "Customers were stamping their feet. And we weren't just selling to geeks in Silicon Valley. We were selling all over the place.''

And big companies were buying - each other. One morning about a year ago, the people of Palm Computing woke up to learn that 3Com would acquire U.S. Robotics in a deal valued at $7.8 billion. Says Colligan: "I told everyone, 'Sure, we're part of a big company. But if we keep executing the way we have been, I can't imagine anyone wanting to screw around with us.' " 3Com apparently agreed.

Today the PalmPilot is more than a hot product. It's the center of an industry. More than 5,000 programmers are working on new software applications. Some 200 developers are designing hardware add-ons. And the Palm PDA is more than a business phenomenon. It's a cultural phenomenon, a hip techno-artifact featured in TV shows ("Murphy Brown") and Hollywood movies (Wag the Dog).