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April 2001 The upper handheld
The Palm and Pocket PC platforms continue their struggle for dominance.
Erik Sherman, Contributing Editor




Ah, poor Palm. Like an unsuspecting child with a "Kick Me!" sign on his back, the company makes an enticing target. And Microsoft—high-tech's version of the playground bully—is smiling close by (along with a few other potential troublemakers). Will Palm end up like the many other innovative companies that built up market momentum, only to watch Microsoft muscle in and wrest the prize away?

No doubt, Palm deserves credit for popularizing the PDA. And no doubt, Microsoft really wants to own the market. But the situation isn't nearly so clear-cut.

PDA vendors are working hard to morph their products from simple organizers into full-fledged Internet and multimedia appliances. Cell phones are pushing on the PDA category from a different direction. Meanwhile, the irresistible force of consumer desire impels designers to increase power and ease-of-use. And don't forget application developers; their buy-in is essential, but they're loyal to revenues, not to vendors. In other words, expect continuing turmoil, because vendors will battle and consumers haven't decided what they really want, anyway.

Before looking at where Palm and Microsoft are trying to head, remember from whence they, and PDAs, came. In 1993, Apple introduced the PDA category with the Newton, but the product suffered a cruel fate due to handwriting-recognition foibles. Palm unveiled the PalmPilot in 1996. Its small size, power, and simplicity caught the eye of early adopters. Continued improvements brought more consumers into the fold, and the company—purchased by 3Com, then spun off again—gobbled up market share.


“Anybody who is building a mobile device is looking to embed Internet connectivity. If they’re not putting it into today’s devices, they’re putting it on the road map.”
Curt Schacker, Wind River Systems

Microsoft watched all this, decided that Windows needed a vacation bungalow, and so devised Windows CE. But even with the promotion from Redmond and some major hardware manufacturers, early versions of the operating system met with disappointing results, leaving Palm today with a lock on sales.

"Palm definitely has a hold on the marketplace, especially in the under-$300 market space," says Ed McKernan, director of marketing at Transmeta, a chipmaker targeting the mobile-device space.

Even looking forward, Palm has some considerable advantages. "If you look at any technology adoptability, it's the simplicity of the form factor," says Imran Haque, vice president of Internet strategy and technology at LogonHealth, a software vendor developing healthcare applications for portable devices, among other platforms. Microsoft's latest take on Windows CE—version 3.0, otherwise known as the Pocket PC—is much improved over earlier editions, but still more confusing than the Palm. "We believe it's not as easy to use," Haque says, though he concedes he personally likes the platform.

It appears that others are starting to like the Pocket PC, too. According to projections from International Data Corp (IDC), the Pocket PC will grab a fifth of all PDA sales by the end of this year and top a third of all sales by 2004. Meanwhile Symbian, whose EPOC platform has found success in cell phones, will just break 10 percent, and other vendors will show only insignificant movement (see the table, "Doing the numbers").




Whatever the relative balance between Palm and Microsoft, vendors on both sides of the aisle tout major sales. Palm, for example, claims that it shipped 3.6 million units in the first half of fiscal year 2001 and boasted four consecutive quarters of doubling revenues. During the recent World Economic Forum, Compaq CEO Michael Capellas noted that demand for the company's Pocket PC-based iPAQ was outpacing supply by 25 times. Compaq also expected to move $500 million of wireless computers just in Europe, with the iPAQ representing the bulk of the sales.

"As of January 1, Compaq is now shipping 100,000 [iPAQs] a month," says Randy Giusto, a vice president at IDC. "It's like the crank was turned on, big-time, in the fourth quarter."

Transformers

All this sets the stage for what is about to happen in the market. Let's be honest: Viewed at the simple level of portable organizers, PDAs are pretty boring. After all, how much excitement can be had from looking up a phone number? But add an Internet connection, and how quickly things change.

"Anybody who is building a mobile device is looking to embed Internet connectivity," says Curt Schacker, vice president of marketing and corporate development for Wind River Systems, which sells software and development tools for Internet devices, among other things. "If they're not putting it into today's devices, they're putting it on the road map."

The PDA vendors are part of the pack, and they have some advantages in the chase. Unlike cell phones, PDAs have enough screen area to make using the Internet almost worthwhile. In many cases, they also have enough processing power to do almost anything, from running a spreadsheet to controlling a digital camera. Also unlike phones, PDAs can add Internet connectivity after purchase. What could be wrong with this picture?


“I still don’t see one device solving anyone’s needs. There’s never been an example in this industry of a one-device-fits-all.”
Randy Giusto, International Data Corp

Actually, plenty. Remember that purchase rates are not the same as adoption rates. "I think the numbers put out by both of these sides are misleading," says Jeffrey Henning, who, before becoming president of the software division of Perseus Development, a software-development firm, followed the handheld computing market for several analyst firms. "Unlike PCs, I think these have a high abandon rate. I know a lot of people who have bought a Palm and don't use it anymore. I know even more people who have bought a Windows CE [device] and don't use it." In addition, people lose or break units. "I've dropped two, and I had one stolen—though I don't know if the person who stole it is using it," Henning quips.


Randy Giusto

Then there's the question of how solidly consumers are welded to their first choice in device. Certainly, Palm has accustomed millions to its interface. Yet the total number of handheld computers sold to date equals no more than a month or two of desktop PC sales, marking the devices as still in an early-adopter phase. "I think there is a chance for big swings in market share," Henning says. "Especially because a lot of people use the Palm with [Microsoft] Outlook, so their data is in Outlook anyway. All you really care about is your data." Because the Pocket PC has its own version of Outlook that synchronizes with a desktop, a transition in either direction would be easy.

So would a transition right away from PDAs and toward a cell phone, pager, or some other device, if people decide that organizer functions are not the main reason for an Internet appliance. The proper mix of functions—contact information, telephone communications, mobile access to Web pages or services—that will win the affection of the market is fog-bound. All that anyone can agree on is that the overall category will be big. "It's probably the hottest market in the IT field," says Gary R Schultz, US director of product marketing in Casio's Mobile Information Products division. "The projections are [that mobile Internet devices] will outsell desktops 10-to-1 in the near future."

Wider view

The realities of the Internet-appliance space could explain why Palm and Microsoft haven't squared off more directly in their marketing (with the exception of Microsoft's short-lived "Can your Palm do that?" campaign). Both companies have bigger worries—the future of popular computing. Palm, Microsoft, and the other hardware companies using their operating systems are chasing the Internet-appliance market because such devices potentially represent the future of computing.

There are two basic types of PDA users, says Mike Flom, CEO of Portable Internet, which produces interactive city guides for wireless devices. "There are people who use the stuff as organizers," he says, including most current users in this group. "Then there are the early adopters who see it as a handheld-computing platform. They are buying add-on programs, memory cards, cameras, and GPS units. As the price points have dropped, what you'll see is more movement of palmtops as a computing platform, sometimes server-connected with a modem, sometimes not."

So the handheld stands a chance of becoming a new type of client device, and the companies allied with both the Pocket PC OS and the Palm OS are trying to learn how they might get their fair share—or more than fair share—of a market that is far from unified. If need is the driving force, the mobile worker would seem a good fit. "I'd say 80 percent of the reason why people carry their laptop when they travel is to check their email back at their office," says Lisa Best, product manager for Handspring, manufacturer of the Palm OS-based Visor PDAs. Handspring is creating add-on modules, for its SpringBoard expansion slot, that will give its handhelds the same functions for which most users carry notebook PCs. "There's going to be a way where you can give a presentation using your handheld as the driver," Best adds.

Certainly the hardware development has supported that approach. "The evolution [of handhelds] is very much like the early days of the PC," says Portable Internet's Flom. "The first applications were very crude games and pretty crude spreadsheets. It wasn't until GUIs came out, with Windows and Mac stuff, and they went into color at reasonable price points, that people started using more sophisticated functionality. The modems went up to the current rate in a few years, but the price point actually dropped. If that didn't happen, the Internet never would have happened."

Such changes have begun to occur in the handheld space. Units with black-and-white screens now fall in the $200 range. Color devices go for under $500. For an extra $100 to $150, a user can pick up a wired or wireless modem. "The constraints are actually very, very similar to the PC," Flom adds. "Consumers are looking for a certain price point with a certain level of functionality."

Under the radar

As the PC did before them, PDAs are entering corporations under the nose of IT departments. "We're seeing a big push," says Schultz. "People buying it at retail are taking it to work and deploying it in the enterprise." Just two years ago, according to Schultz, corporate technology groups were reluctant to support the devices. But as PDAs pour into companies with employees trying to find smaller and lighter ways of gaining access to email, IT departments are having to relax their opposition. This pressure will only continue as vendors find ways to support Microsoft PowerPoint and other presentation programs.

Then there will be integration with telephony, allowing business users to have everything they need at hand. "The Pocket PC guys want to become [NTT DoCoMo] iMode," says IDC's Giusto, referring to the popular mobile-data service in Japan. "Symbian [for example] really sees that their golden nugget is the cell phone, but they're doing these other platforms as well, because they want to go mass market. And the mass market is cell phones in Europe."

Integration of telephones and PDAs seems to be occurring in two major ways, differing by the relative balance of functions. In one case, the emphasis is on the PDA, with telephony as the addition. Handspring, for example, offers a module that turns its PDA into a GSM cell phone, and TouchStar Technologies is building a wireless voice-and-data module for Casio's Cassiopeia EG-800 Pocket PC. Some observers argue that the public won't be willing to carry the growing size of these devices, but Schultz disagrees. "They're bulky compared to maybe a Palm V," he says, "but they're not bulky when you compare them to a 10-pound notebook," which people have been lugging around for years.


“I’d say that we’re all working toward the same goal, and that is bringing the handheld market to a broader audience.”
Lisa Best, Handspring

The other approach is to emphasize the phone, adding on the PDA functions. Verizon Wireless has already begun to sell Kyocera's Smartphone, which uses the Palm OS to double as a PDA, and which will download full HTML Web pages. In February, Microsoft previewed its smart-phone platform, code-named Stinger and based on Windows CE 3.0. Samsung Electronics and Sendo have announced support. Because of the CE foundation, phones based on Stinger will come with versions of Outlook and Internet Explorer.

As PDAs move toward the phone market, the barriers to entry for other vendors begin to drop. LG InfoComm, for example, is building a phone that Sprint PCS brands as its TP3000. In addition to extensive telephony features, the device has organizer functions and synchronizes with Microsoft Outlook, eliminating one of the advantages previously enjoyed by the PDAs. Retailing for $400, the unit is price-competitive with buying a separate PDA and cell phone. Sprint may be subsidizing the hardware cost, as is common with cellular carriers, but that makes little difference to buyers and simply underlines the degree of competition that exists.

By changing the emphasis on functions, these new crossbreed devices start to move away from a business market to potentially embrace consumers at large. "I'd say that we're all working toward the same goal, and that is bringing the handheld market to a broader audience," Best says. "Everyone now seems to be turning toward consumer and bringing the wireless device to the masses."

Unholy matrimony?

But as the two categories of products come together, it is unclear how cleanly the functions can actually integrate. Requirements clearly conflict. A PDA needs a reasonably large screen, which interferes with the small size so prized by cellular mavens. "Today, I don't see a cell phone coming out where it will be as easy for the person to write Graffiti as well as use the cell-phone part," Haque says. "Not every handheld device will have a phone attachment, and vice versa."

"If I look out five years from now, I still don't see one device solving anyone's needs," says IDC's Giusto. "There's never been an example in this industry of a one-device-fits-all," because of the number of segments in mobile use and business. According to Giusto, the split in integration tracks between phones and PDAs will continue to thrive, with the latter containing more memory and storage and possessing a better ability to manipulate data.

In fact, both Palm and Microsoft have a strong incentive—the dollar sign—to maintain devices that emphasize the PDA. Phones have an obvious advantage in volume shipments, and that would seem an overwhelmingly lucrative market. "But large volumes don't necessarily translate into high margins," Giusto points out. Cellular carriers often keep price tags low via subsidies. Therefore, money is tight and prices have to be as low as possible, which also translates into relatively little money for the OS vendor. Linux, which has started making inroads via embedded versions into mobile devices, has an inherent price advantage and could become a threat.


“The palm is a PIM device; it’s not a mobile Internet device.”
Nahemia Davidson, Jigami

Slim pickings in the phone market will become a bigger problem in another way for hardware designers and OS vendors, as user demands are going to require changes in unit design and even basic architecture for the Internet appliances to be of service. In the view of Transmeta's McKernan, users are beginning to demand multimedia support, a trend that could have an especially strong impact on Palm. "Generally, that means it requires more CPU horsepower than on a Palm," McKernan says. Palm recently announced a plan to give its devices more muscle by moving to a more robust processor platform.


Nahemia Davidson

So far, the number of applications available for the Palm has been one of its major selling points. But even many of the developers behind the software have become frustrated with the platform. "It's like writing for 8-bit microprocessors, which is what you're doing," Flom says.

Some companies have started bypassing the Palm altogether. For example, Jigami supports a variety of platforms, including the Pocket PC, other than Palm's. "The reason is, the operating system is a single-task operating system," says CEO Nahemia Davidson. "The palm is a PIM device; it's not a mobile Internet device." And a new Palm hardware platform and OS that would bring these services would probably also require rewriting existing applications.

On the other hand, although the Pocket PC may have the inherent horsepower, it does have disadvantages. "If you actually give [a device to] someone who has no handheld experience, they'll be able to run with the Palm immediately," says LogonHealth's Haque. That experience has shown a weakness of Windows CE 3.0 when it comes to a broader market. "Pocket PC works similarly to your desktop, but guess what—a lot of the doctors in our user base in healthcare aren't that familiar with PCs," Haque says. Moreover, the OS creates costs from the developer's point of view. "Overall, I'm happy as a Palm developer with their site and resources," Henning says. "They don't charge for as much stuff as Microsoft does."

However, Microsoft still has time to iron out problems with platform power and usability, according to Ali Sebt, vice president of Hitachi Semiconductor America's product business unit, which sells CPUs into the Pocket PC market. "The [mobile Internet] consumer world in the North American market really didn't exist until a year or two years ago," Sebt says. "Only now are we seeing things...that demand 32-bit processors for consumers." Countries like Japan took more quickly to the high-powered devices because of outside forces, such as the high cost of telephone landlines and small living spaces that made PC boxes impractical for many people.

Then again, consumers in Japan and Europe have had better wireless data connectivity than in the US. No matter how good portable Internet appliances are, they are unlikely to gain converts without reliable data connections. "Being able to make content connectivity is the challenge we have today," Sebt says.

No matter what the final outcome in terms of bandwidth, costs, hardware, applications, or convenience, it's a good bet that no vendor will abandon this market. "The stakes are huge for the companies that really hit on that killer device, that killer application," says Wind River's Schacker. "It's talking about recreating the value of Intel, Microsoft, and IBM around the PC."


More
· This month’s Inside the Digital Den (“Pick Pocket,”) looks at the Pocket PC and Palm platforms from the user perspective.
· Next month’s Digital Den article will examine several hybrid phone/PDA devices.




Author information


Contributing Editor Erik Sherman would prefer not to divulge where his handheld loyalties lie.

http://www.commvergemag.com/commverge/issues/2001/200104/04f1.asp