Past May Dictate Palm's Next Move

Computerworld - What do the IBM AS/400, the Apple Macintosh and America Online have in common?
Beyond the prominent use of the letter A, each offering has been a strong market leader during its respective computer industry era - minicomputers, PCs and the Internet. But the bond runs much deeper than that. All three companies implemented a vertically integrated strategy, delivering a bundled product that users found unusually easy to use.
This approach placed all three companies directly against the grain of their times. No other major minicomputer vendor matched IBM's bundled integration of hardware, operating system and database features. Similarly, Apple tightly integrated its hardware, operating system and user interface, all of which were separate products in the mainstream PC business. Finally, AOL successfully integrated ISP-style Net access with a variety of content services, providing a uniquely integrated Web experience.
This recurring theme in IT industry history recently came back to me as Palm Inc. executives deliberated whether to separate their company's hardware and software businesses. Like other vertically integrated market leaders before it, Palm is now facing what I call the "integrator's dilemma," an especially intractable version of author and Harvard professor Clayton Christensen's much-heralded concept, The Innovator's Dilemma.
The integrator's dilemma stems from the fact that many technology markets have been launched using a vertically integrated business model. This is often the most direct way to get a new product or service to market, since one can assure initial product performance without requiring significant third-party support. The PalmPilot is the perfect embodiment of this approach, and it's not surprising that it was initially a better handheld device than those based on Microsoft's software.
The problem is that while vertical integration is often the most effective way to launch a new market, it's typically a poor way to expand it. Thus, Palm is facing many of the same challenges that Apple faced some 15 years ago. If Palm tries to license its software (as it has to Handspring, Sony and others), it would introduce unwieldy competitive conflicts between its partners' and its own hardware businesses. If it keeps its software in-house, it cuts itself off from an essential source of hardware refinement and innovation.
Few companies have escaped unscathed from this dilemma. PCs, minicomputers, servers, cell phones and VCRs were all initially produced with vertical integration but are now overwhelmingly produced through horizontal structures. Integrated products such as the AS/400 and the Macintosh have remained viable, but largely as niche offerings. AOL is still an important exception. However, the transition