While Microsoft battles it out against Nokia and Symbian for dominance of the mobile software market, one company waits on the sidelines, largely ignored in the smartphone contest. That company is PalmSource, the developer of the Palm OS, which--despite the fact that it is the most popular PDA operating system in the world, with 30 million units sold--has gotten the shaft in recent debates over smartphone technology.

While PalmSource may dominate the wireless organizers and PIM devices of the world, critics have panned the OS, calling it too slow and not robust enough to handle the new demands of mobile data. They’ve derided Palm-based wireless handsets, saying they’re not true smartphones but rather hybrid PDAs. They’ve pointed at Palm’s insignificant penetration outside of the CDMA market. Overall, the industry perception is that PalmSource is not a true mobile OS.

David Nagel, PalmSource’s CEO, isn’t just out to correct a few misconceptions about his software--he’s set to destroy its critics’ perceptions entirely. And with the help of a few recent product launches, PalmSource may not have too much more convincing to do.

“For the last few years, we’ve been hearing ‘Oh, you can’t do that on a Palm,’” Nagel said in a recent interview. “The perception was that Palm just wasn’t a powerful enough platform. Well, we’ve blown those perceptions out of the water.”

In October, PalmSource licensee Tapwave released the Zodiac, a gaming device that could easily be mistaken for one of the handhelds produced by Nintendo. The device handled graphics intensive action and sports games like “DOOM II” and “Tony Hawk Pro Skater 4” with ease. While the Zodiac’s wireless connectivity is limited to Bluetooth and as of yet doesn’t handle voice, Nagel said the Zodiac definitely disproves any notions that Palm devices can’t handle hardcore computing.

Moreover, in recent months Kyocera, Samsung and PalmOne have offered up new smartphones, all a far cry from their bulky predecessors. The Kyocera and Samsung devices are now among the smallest smart devices on the market, dispelling any misconception that Palm devices are merely wirelessly souped-up PDAs, Nagel said, adding “We’ve proven that Palm OS has what it takes to compete in the smartphone industry.”

A veteran of both the computing and telecom industries, Nagel probably doesn’t need to prove he can make the Palm OS a viable and formidable platform. He worked in product development at Apple Computer between 1988 and 1996, when the Macintosh OS came into its prime, giving Microsoft its first major OS competition and spurring the PC software giant to create Windows. Nagel was later appointed chief technology officer of Concert and AT&T, serving as President of AT&T Labs before he joined the Palm board and was named CEO of Palm Source in 2001.

So while Nagel is no stranger to innovating new technologies, he admits PalmSource could be doing more to sell itself in the wireless space. While so much attention was focused on the development of Symbian’s modular operating system and Microsoft’s scaled-down version of Windows, Palm continued to focus on the PDA market. While the Palm OS produced the first smart wireless devices in the market long before Nokia and Ericsson released their first Symbian devices, Palm still positioned itself as a PDA company. At trade shows as recently as three years ago, Palm downplayed the viability of voice in the Palm architecture. The first--and most successful--Palm-based converged devices were all released by Palm’s licensees.

Though the significance of the smartphone may not have been immediately obvious to Palm, it certainly came to the realization last year. After optimizing its most recent versions of OS-5 for wireless connectivity, PalmSource immediately began work on its next generation of code, deciding to build OS-6 entirely on a network architecture (and therefore a wireless-based architecture). Additionally, PalmSource freed itself from its parent company last December--one of the conditions Nagel made when he took his job as CEO in late 2001--when Palm merged with Handspring to form PalmOne, spinning off PalmSource. Free from conflicting competitive interests, PalmSource is now signing up new licensees and dedicated to developing its wireless OS.

Despite a few faltering steps, to say PalmSource has been left behind the smartphone industry would be a foolish statement. Microsoft made a big splash in October when it beat Nokia to the CDMA market with a Windows-based Samsung smartphone. The announcement was certainly significant for Microsoft, but it’s important to remember that smart devices have been operating over U.S. CDMA networks for years, and the Palm OS powered 90% of them. And while Microsoft and Symbian boast of their ever-increasing developer programs, Nagel is quick to point out there are already 20,000 applications already developed for the Palm OS today.

The smartphone market is still taking shape. Barely 10 million converged devices have been sold to date and true 3G networks are in their infancy. The next few years will determine the winners and losers.

“This is a market in which it’s impossible to judge if you’re too early or too late,” Nagel said. “Would I have liked to have been nine months ahead of where we are now? Sure, you can say anything in hindsight. But I don’t think we’ve missed any opportunities here.”