The Next Small Thing

"This has been one of the great experiences of my life," says Ed Colligan. "You can't imagine how much fun it is to create a product that actually touches regular folks in their daily lives."

The Perils of Success

If the PalmPilot's future is so sunny, why is Ed Colligan's mood so stormy? Colligan predicts that cumulative sales of the Palm PDA will exceed 2 million units by the end of 1998 - a stunning performance by any measure. The company's third-generation device, the Palm III, has earned rave reviews and won new converts.

But Colligan isn't celebrating. He's preparing for war: "We're lucky to be a subsidiary of a really big company, with the resources to run and grow a business," he says. "We've had a lot of history here. We just have to keep acting smart and staying focused."

One word explains Colligan's mood: Microsoft. What's the reward for winning the battle in a market littered with failures? You get the privilege of squaring off against one of the most powerful companies in the world.

In January, Microsoft announced plans to enter the PDA market with software based on its Windows CE operating system. It teamed up with a collection of manufacturing companies to design a "PalmPC" product line. Colligan found the name irritating: "They are moving to create customer confusion and to distract us from making great products." Palm Computing's lawyers found it illegal - and recently persuaded Microsoft to give the products a new name: "Palm-size PCs."

That's just one skirmish in a long-term battle for leadership in a market that lots of companies dreamed about, that Palm Computing created, and that Microsoft now wants to dominate. The battle is as much a test of corporate character as it is of business skills. And each of Palm Computing's main characters is playing to type.

Jeff Hawkins has a vision. "The threat from Microsoft is a great intellectual challenge," he says. "I worry about it every day. But I'm confident that we will compete successfully. I enjoy facing a bigger competitor and outsmarting it. That's scary as hell. But it feels great when you win."

Donna Dubinsky has a plan. "We have purposefully tried to leverage the Microsoft infrastructure," she says. "We connect great to Windows 95. But it's hard to build any product with a PC link that doesn't touch Microsoft's turf - since it sees everything as its turf. I guess we're just cheeky enough to believe that customers will select great products. Our job is to deliver them."

And Ed Colligan has a mission. "My job," he says, "is to kick Microsoft's butt." He sounds grateful for the challenge.

Pat Dillon pdwolf@aol.com has written two Fast Company cover stories: "Money Changes Everything" (June:July 1997), and "Is Selling Out 'Selling Out'?" (February:March 1998). His new book, Lost at Sea: An American Tragedy, is a nonfiction account of the nation's worst modern fishing disaster. It will be published in September by the Dial Press.