American History 1988
Chapter 383 - 372: Come in Handy

Chapter 383: Chapter 372: Come in Handy

"We’re preparing to launch two versions of Palm," Hawkins said as he handed the product comparison chart to Dean.

"One is the Palm 1000 with 128kb memory, priced at 299 US Dollars.

Another is the Palm 5000 with 512kb memory, priced at 369 US Dollars.

As for the cost, the 128kb version is about 200 US Dollars, while the 512kb version is 215 US Dollars."

After laying out the data, Hawkins looked at Dean with a somewhat uneasy expression.

Sure enough, the latter’s eyebrows furrowed slightly, "Do these manufacturing costs include the stylus and the charging cradle?"

"Correct, all hardware costs are included, even packaging is part of our budgeted considerations."

"The gross profit margin for the 128kb version is around 33%, which is a pretty dangerous figure."

Dean glanced at the spec sheet in his hand, and his furrowed brows still did not relax.

Hardware products are not the same as those software bits; manufacturing costs are just one part of all the costs associated with a product.

Other costs include sales costs, operational costs, and the initial development costs, and so on.

Typically, if an electronics product wants to be profitable, its manufacturing cost should not exceed 60% of the retail price.

That is to say, a gross profit margin of around 40% is necessary to ensure profitability with each product sold.

The Palm’s gross profit margin being at 33% means that after deducting the expenses for distribution channels and company operational costs,

it might not generate even a cent of profit; a poor sales performance could even lead to losses.

"As long as we exceed 100,000 units in the final sales volume, we can keep the costs down to 180 US Dollars," Hawkins quickly explained, which is another difference between hardware and software products.

The cost of producing software is fixed—no matter how many copies you make, the cost is the same.

But with hardware, higher volumes can dilute the cost of each step in the manufacturing process.

Such as production processes, component costs, and even the fees for manufacturing on contract, etc.

Usually, the more that is produced, the lower the cost that is allocated to each product ends up being.

Hawkins’ sales forecast for the first generation of Palm products was 100,000 units, which at least guaranteed they would not operate at a loss.

"In addition to hardware profits, we can also continuously develop software for the system.

According to industry practice, these software will be an important part of our value-added services,"

In a handheld computer system, subsequent updates of apps cost money, which is common practice.

Apple, HP, IBM all do this, and sometimes the price of a single app can reach dozens of US Dollars.

Clearly, the profit margin of software applications is much higher than that of hardware, given that their only cost is programming.

Hearing Hawkins’ arguments, Dean’s furrowed brows finally began to ease.

"How do we update our software applications to users’ devices?"

"Right here," Hawkins pointed to the serial port at the bottom of the Palm, "Using a transfer cable to synchronize data between the Palm and a PC.

In addition to updating applications, the contents of notebooks and calendars can be transferred between the two devices."

"Good," Dean nodded with satisfaction. This was a very practical feature.

Although the sales volume for the subsequently developed software applications could not be guaranteed, Dean roughly estimated that Palm Inc. would break even if not make a profit.

For a first-generation product, breaking even was a success; profitability would entirely depend on market feedback.

"I’ve looked at the spec sheet, does our Palm also support infrared transfer?" Dean made an unexpected discovery.

Frankly speaking, the only wireless transfer method he knew of was Bluetooth, but this technology had not yet become widespread.

Infrared transfer was new to him, and he was inevitably curious.

"Adding this feature was mainly for the convenience of data synchronization between similar devices.

For example, between two identical Palms, and any other handheld computer with an infrared feature."

Hawkins and his team included this feature in Palm for compatibility reasons.

This would lower the cost for users of other handheld computers to switch to Palm.

The data stored on their original device could be transferred seamlessly to the Palm.

Dean found this intriguing, nodding his head as it was akin to the phone cloning of later generations.

Of course, infrared transfer has its limitations. For instance, the devices must be aligned during transfer, with no obstructions in between.

This was quite inferior compared to Bluetooth, which explains why it was eventually phased out.

"By the way, what about the email feature I talked to you about?" Dean had just looked carefully but seemed not to find this app.

"It’s still under development. The network linking feature is causing us some difficulties," Hawkins explained somewhat embarrassedly.

This was the application software that Dean had emphasized during the initial development stages.

The potential customers for handheld computers were business people, and email was one of the most frequently used functions among these users.

Hawkins and his team were ambitious; they wanted the Palm to connect to the internet via a transfer cable.

But after listening to his explanation, Dean shook his head, "Don’t think about connecting Palm directly to the network anymore.

Let’s take a step back and just develop the most basic email function."

"An email without internet connection?" Hawkins sounded confused, could that still be called an email?

"Just like the transfer cable we discussed earlier, we only need to synchronize the data from the computer to the Palm," Dean explained.

Hawkins’ eyes lit up as he grasped a key point from Dean’s explanation.

"So just by synchronizing the email contents from the computer to the Palm, users would be able to view emails offline?"

"Exactly, that’s right," Dean affirmed with a nod.

"Not only that, but we need to make sure the Palm’s email has the functionality to edit drafts as well.

This way, even if the user is not by the computer, they can still read emails and write responses.

When the Palm is linked to the computer again, these drafts will automatically sync to the mailbox on the PC side."

In plain terms, the Palm acts as an intermediary station. Although it can’t connect to the internet, it doesn’t affect the user’s work efficiency.

"A genius idea!" Hawkins and the others cast admiring glances at Dean.

Is this why he became the wealthiest man at such a young age? Creativity, vision, management capabilities—he lacks none of these. He truly is an all-round genius.

While this email function might seem a bit superfluous, in this era, it’s enough to sway many potential customers.

Because away from the computer, people can hardly use emails anymore.

Not even laptops can do the job, as there’s no wireless network available yet, and they’re too cumbersome.

But those in business can’t always be by their computers; traveling might even be the norm for work.

At that time, the Palm neatly fills this gap; at the very least, it helps users achieve offline email reading and editing.

Hawkins and the rest could already imagine that with such a design, there would definitely be people interested in their Palm.

"With such a goal for the design, are there any more issues?" Dean confirmed.

"Of course not," Hawkins assured, "we can have it ready in a month at the fastest."

They had already done quite a bit of work; it was only the internet functionality that had presented a real challenge before.

Now, with that part of the design requirement kicked out, developing an offline email feature would be much easier.

"Great, when do we expect our Palm to hit the market?" This was what Dean was most looking forward to. It was also his first venture into hardware products.

"The hardware has all been taken care of, and only the email software needs tweaking. We expect to launch it in March."

It was already the end of the year, less than two months away. Not bad, Dean nodded. Hawkins had kept his initial promise.

Dean was about to say something more, but suddenly he noticed Hawkins and the others had hesitant expressions as if they had something to say.

"Any other issues?" Dean signaled for them to speak freely.

"It’s the distribution channels; we don’t have access to large channel resources." Although Hawkins and his team had experience with Zoomer, it was Tandy Corporation that handled the sales issues.

Now that Dean had acquired Palm, the former parent company was no longer associated with them.

The Hawkings team, who had been engrossed in development, only realized when the product was ready that they had overlooked the subsequent sales issue for Palm.

Well, that caught Dean a little off guard.

In terms of software distribution, he had Bit Company, the unmatched industry giant.

But for hardware distribution, that would definitely involve large chain stores or supermarkets.

Wait a second... Dean suddenly had an idea; he pulled out his phone and began to dial.

"Valentine, it’s me, Dean."

"Hey, buddy, I’m on vacation, the Christmas season." Valentine, wearing sunglasses, was lying on a sun lounger in Florida.

"Sorry to bother you, but I need your help with something," Dean was brief.

"What?" Valentine put down his orange juice and waved for the model beside him to walk away.

"I remember you have a friend who’s the vice president at Sears Department Stores, right?" Dean had a vague impression in his mind.

"Richard, he participated in the last round of financing before Bit went public." This was a favor Valentine had traded with a personal connection.

"That’s him!" Dean snapped his fingers excitedly, "I have a product now that needs to be on their shelves."

"Department store shelves? Dean, when did you start that line of business?" Valentine sat up from the sun lounger.

"A previous investment, and it’s right here in Silicon Valley, a handheld computer."

"Wow, those things aren’t cheap. Are you sure they’re suitable for department store shelves?" Valentine took off his sunglasses, frowning slightly.

He had such experience before; his first investment had been in Atari gaming consoles.

It was because of the Sears relationship that they managed to open up the market, but the items that make it into department stores couldn’t be too expensive.

Most customers coming there were from the middle class; luxurious goods were out of the question.

As far as Valentine knew, Apple’s handheld computer – the Newton MessagePad – was priced at a steep 700 US Dollars, more expensive than a computer.

Quite clearly, no one in a department store would want that thing.

"No, my handheld computer is very affordable, just 299 US Dollars.

Any middle-class family could afford it, and it’s priced only half that of a computer."

Dean’s explanation eased Valentine’s concerns.

"OK, I’ll give him a call. Richard won’t refuse to let your product into Sears."

For the sake of their friendship as well as the past investment in Bit, Richard had to honor this favor.

"Thanks, buddy, we’ll chat more later."

After hanging up the call, Dean didn’t stop; he dialed Draper of Sasser Venture Capital.

In his memory, the latter seemed to have some connection with the Wal-Mart family.

Five minutes later, he received a positive response.

Under the anxious gaze of Hawkins and the others, Dean put away his phone.

"Sears Department Stores, Wal-Mart Supermarkets, the rest of the channels are up to you to negotiate."

"Yo!" Hawkins and Colligan among others celebrated with high fives.

These two stores were the largest and second-largest in America.

As long as their products could make it into their inventory, all problems would be solved.

Watching their jubilant expressions, Dean smiled.

See, the venture capital relations maintained before were now coming in handy.