Putting Fluff Over Function More processing power? Who needs it? The makers of the new Palm V bet that you'll buy the hand-held organizer for its looks alone.
By Daniel Roth

(FORTUNE Magazine) – On Feb. 22, 3Com launched its newest Palm computer. Almost three years in the making, the Palm V, the latest incarnation of the world's top-selling hand-held organizer, offers a phone book that stores 6,000 addresses; a calendar that schedules 1,500 to-do items; a backlit screen; two megabytes of memory; 16 megahertz of processing power; an infrared beaming eye; and one-touch computer synchronizing. These features should sound awfully familiar to Palm users--they're exactly what's found in the Palm III. But at $449, the Palm V costs $150 more than its older sibling and $80 more than the new Palm IIIx, which has twice the Palm V's memory. And unlike the Palm VII, scheduled to launch this year for under $800, the Palm V doesn't offer any kind of wireless access to e-mail or the Web.

So why buy the Palm V? Simply put, because of the packaging. Encased in the kind of anodized-aluminum skin usually reserved for James Bond guns and Detroit concept cars, the Palm V is one-third the weight and half as thick as its predecessors. Sure, form and packaging have long been important in furniture, fashion, and even the consumer-goods industry. But aside from a couple of spurious flings with fashion in the past, the computer industry pretty much ignored design until Steve Jobs, creator of the turquoise iMac, declared in January that "for most consumers, color is much more important than megahertz." Now Silicon Valley is waiting to see whether 3Com can sell the Palm V on the strength of its curvy design, rather than its processing power. Says Janice Roberts, 3Com's senior vice president who oversees the Palm division: "We want to appeal to people not just on the rational level but the emotional level."

Palm execs can't chuck rationality altogether since the product line is so important to 3Com's growth. The Palm accounted for 6% of 3Com's fiscal 1998 sales (ended last May). This year it should contribute 12%, according to Goldman Sachs analyst Ajay Diwan. Palm has consistently been the fastest-growing division of 3Com and commands about 70% of the hand-held device market. To maintain its dominance, 3Com has to make sure the Palm doesn't become just any old hand-held computer.

To see how the Palm is embracing style and glamour, take a look at the unit's numbering. It's no mistake that the III, V, and VII mirror BMW's 3, 5, and 7 series cars. No one has been able to better push buyers' emotional buttons than luxury-car makers. Ask a BMW owner how much torque his engine has, and you'll likely get a blank stare. But one thing BMW owners know is this: If you're young and sporty, get the BMW 3 series. More interested in showing how successful you've been? The 7 series is for you.

In the luxury-car business, this kind of image-based marketing is commonplace. But in Silicon Valley it's a radical concept. Palm's competitors--the thousands of hand-helds running Microsoft's CE operating system--are more traditional: They battle on features. A recent ad for the Everex Freestyle palm-sized device displays the requisite checklist of features: Vibrating alarm? Freestyle has it, the Palm III doesn't. Voice recorder? Freestyle yes, Palm III no. CompactFlash? Ditto. "PalmPilot beware," warns the ad.

Partly to avoid fighting over minutiae like who has the most powerful vibrating alarm, Palm has chosen a different road. It's a decision Palm founder Jeff Hawkins made in March 1996 when he introduced the original organizer--then called the Pilot. (Hawkins has since left 3Com to start his own company, Handspring, which will build a Palm-like device.) The Pilot was an immediate hit, selling especially well to upscale men--the typical Microsoft customer. Even today, 80% of Palm III's buyers are men. Hawkins knew that if his product were to succeed, it would need to attract more than that crowd. It would be only a matter of time before Bill Gates wanted in. Hawkins needed a way to set his product apart.

The answer came from the cell-phone industry. When Motorola's StarTac appeared on retailers' shelves in the spring of 1996, it was the lightest, smallest phone ever made, and sold for more than $1,000 when many cell phones were given away. "The StarTac was a radical departure. It looked different, beautiful," recalls Hawkins. "It also commanded outrageous prices. We wanted to do the same thing."

First he had to quell a movement in Palm that wanted to compete with Gates head-on. "People were saying, 'Microsoft is going to come out with a device and they're going to have eight megabytes of memory,' " recalls Hawkins. "I said, 'Who cares. I don't need eight megabytes, I can't even fill up two. Let's show the world that this isn't about speeds and feeds.... This is about simplicity.' "

To fulfill his vision, Hawkins turned to Ideo, a product-development shop in Palo Alto known for cutting-edge, gutsy designs. Ideo had designed the first mouse for Apple, as well as products like a children's toothbrush for Oral-B. The new Palm was code-named Razor--as in "thin as a razor"--and assigned to Dennis Boyle, Ideo's design and engineering studio leader. Boyle, who scours shops around the world for cool gadgets (buying two of each: one to use and one to take apart), showed his team product after product he wanted to emulate: the Sony MiniDisc player, the Canon Elph camera, a Panasonic minitape recorder, a pair of Pentax binoculars. Each beautifully designed Japanese gadget commanded premium prices for its looks. By contrast, the Palm Pilot's putty-gray exterior looked uninspired, mundane.

Hawkins wanted a machine that would broaden Palm's appeal--especially among women. So Boyle's lead engineer, Amy Han, corralled 15 female Ideo workers to talk about the Pilot. Why does it have to be square? Why so clunky? Why gray? Why can't it be elegant and feminine? Even Palm's advertisements were a turnoff: a man's hand slipping the Pilot into his breast pocket. Han declared that this product would be softer, rounder. (It's hard to imagine other manufacturers having had a similar conversation as they readied a slew of feature-rich Windows CE devices to compete with the Palm.)

For 2 1/2 years, Boyle and Han met twice a week with Palm at the company's Mountain View, Calif., offices. In early visits the two would bring mockups of different parts of Razor: a one-inch square that demonstrated the on-off button, prototypes showing different screen angles. Everything was reconsidered, from the thickness of the stylus (the Palm's version of a mouse) to its placement (to accommodate lefties, Han and Boyle put a housing for the stylus down either side of the machine). One of the biggest goals was to make the Pilot thinner. To do that, Palm needed to scrap the Pilot's space-hogging AAA batteries in favor of lithium-ion batteries. But battery makers weren't sure if lithium ion would function properly in a machine designed to be recharged in frequent short bursts. Frank Canova, Palm's director of hardware engineering, spent the first half of 1997 getting the reluctant battery makers to work with Palm.

While Canova was struggling over the interior, the Razor's casing also proved to be a challenge. Palm and Ideo badly wanted an anodized-aluminum exterior like the nifty Japanese products. American manufacturers were wowed by the material but had no idea how to produce it. Finally Palm gave up stateside and turned to some Japanese companies for the casing.

By the end of 1997, the first working prototype of the Palm V was built. But trying to get the thing mass-produced was another problem. It took a full year before Palm's manufacturers, in Utah, Texas, California, and Asia, could retool their machines to make something so thin, held together without a single screw. Finally, two months ago, the first Palm V rolled off the production line. When Ideo's Han saw it, she started crying. "I looked at it and said, 'There's my baby.' " (For a review of the Palm V, see The Dreyfuss Report.)

Now with Hawkins long gone, all Janice Roberts has to do is sell this thing. Listening to her, you get the feeling that the Palm V may be just the beginning of a design wave in tech circles. British-born and garrulous, Roberts brings up design in every meeting about a 3Com product, even though the company's main products are often hidden away beneath desks or in closets. Her arms sprawled over the back of two bright-red chairs, she explains that Silicon Valley has myopia about what motivates people to spend. "When you look at how people buy, they don't just look at price," she says. "With all due respect, I'd never drive an American car. Hello?! I have a Mercedes, I have an Audi, a Bang & Olufsen stereo system. All my phones are Nokia."

To see just how far Roberts is taking the Palm from traditional Valley marketing, one need only look at the advertising campaign. 3Com has turned to portrait photographer Timothy Greenfield-Sanders, who has photographed everyone from Orson Welles to Tori Spelling for publications like Vanity Fair and Vogue. Fresh from taking the picture of Monica Lewinsky for the cover of her autobiography, Greenfield-Sanders spent two days preparing the ads. One shows a dancer, naked and kneeling, with the Palm V resting in her hand. In block letters: simply palm. Another is a close-up of a silver Ducati motorcycle, the leather-gloved rider holding his Palm V against the Ducati's engine. In each ad the Palm could just as easily be replaced with a Breitling watch or a Prada handbag. The message: The Palm V isn't a computer, it's an accessory.

Can it sell like one? Palm execs think customers will learn to pay a premium for sleek computing gadgets, as they have already done for custom-designed chairs or slick-looking stereos. For the first time, says Palm-maker 3Com, an executive can whip out a Palm at a cocktail party and not feel like a geek. And that's the Palm V's most important feature of all.

INSIDE: Compaq vs. Dell: Clash of the titans... Q&A with Ross Perot, e-commerce pioneer?... Take your neuroses online... The Dreyfuss Report reviews the Palm V... Alsop on trust and the Internet