Microsoft should abandon Windows Mobile, abandon Zune, and buy Palm. I know this will be hard for Redmond--admitting defeat after all these fears flogging Windows Mobile--but it is the only path to success. With Microsoft's help, Palm can really become an Apple spoiler.
Microsoft should leave Palm pretty much alone; offering mostly improved developer tools, access to capital, and better compatibility with Microsoft Office. Jointly, the two could build an applications and entertainment store.
The Palm brand name should stay, something that might be harder for Microsoft to accept than writing a check for the purchase. Most buyouts are subsumed into Microsoft, but this one shouldn't be.
Why should Microsoft do this and why now?
First, because Zune and Windows Mobile (also known as Windows Phone) are going precisely nowhere. Dead in the water with only limited acceptance in the marketplace. Microsoft has done more than enough to support Windows Mobile and potential customers have reacted with a shrug. Likewise Zune, which is a fine device in a market where being a fine device just isn't enough.
Second, because the time is right. Palm's Pre is still considered a big success, which it won't be after Christmas. A purchase by Microsoft right now will give Palm a chance to tinker with the Pre, gain some developer support, improve its music and app store offerings, and generally spiff things up for a full assault on Apple in 2010.
Microsoft effectively relaunching its mobile efforts by purchasing a winner--Palm--would only add to Steve Jobs' troubles. They may be momentary, but now is the time for Microsoft to strike.
Mobile applications are a potentially huge business and with Windows Mobile, Microsoft is making almost negative progress. Becoming a major Palm developer would give Microsoft a better entry into the market and a better platform to run atop.
This does not have to be a full buyout to make sense. In fact, a 49 percent stake in Palm might be the best way for Microsoft to enhance Palm's future without appearing to have swallowed Palm whole.
It might also quiet the fears that cellular carriers and handset manufacturers seem to have of Microsoft coming in and taking over their industry. As much as anything, this is why Windows Mobile has failed to gel in the marketplace and it why there is nothing Microsoft can really do to compete with its current and supposed future offerings.
By buying Palm and managing it with a light and supportive touch, Microsoft can make excellent platform, the Palm Pre and webOS, even better. That would be a good thing for both companies and their customers, current and future.
Neither company is poised to do truly great things alone. But, together, much is possible.