Jack Schofield tries his hand at palm reading to assess the likely winners and losers in a cut-throat hand-held computer market
After a shaky start, pen-based computing is booming, led by the success of 3Com’s PalmPilot – an electronic organiser that fits into a shirt pocket or handbag – and competition is hotting up. Psion introduced a stylus and a touch-sensitive screen with its Series 5 handheld, without abandoning the keyboard, and at least three manufacturers are about to launch palm-sized Pilot-like machines based on a new version of Microsoft’s Windows CE (consumer electronics) operating system.
What happens next is anyone’s guess. The most likely alternatives are that the market will coalesce around a dominant operating system – as mainframes did around IBM’s MVS, minicomputers around Unix and personal computers around Microsoft Windows – or each of the products will be successful in developing its own niche.
Either way, the arrival of palm-sized CE machines like Philips’s Nino 300 will involve 3Com’s Palm Computing subsidiary in a battle. It’ll be the kind of war Psion, Britain’s leading manufacturer of handheld organisers, has been fighting since the first wave of Windows CE-based handhelds arrived from companies like Casio, Compaq, Hewlett-Packard and Philips.
The impact was visible in Psion’s annual financial results, announced last month: turnover increased by only 14%, compared with 37% in 1997, and profits fell by 29%. “The net effect [of Windows CE] is that we don’t believe we will have as strong growth as we would like to see,” said Psion’s founder and chair David Potter, though he may be wrong.
Psion has just cut the price of its Series 5, and a company representative says: “Sales have gone way up as a result.” He adds: “The original production difficulties are behind us, we’re running the biggest advertising campaign we’ve ever launched, and sales are at the highest level since the product was launched. Things are looking good.”
Neville Street, general manager of Palm Computing’s operations in Europe, is also bullish: European sales doubled last year and the company has sold a million Pilots worldwide in 18 months. “We’ve known Microsoft was coming and we haven’t been sitting on our hands,” he says. “We have some killer products just round the corner.”
The first of these, the Palm III, had its worldwide debut last month, and has also been adopted by the world’s largest computer company, IBM. Unfortunately, all this conflicts with Microsoft’s master plan for world domination. This involves replacing the DOS/Windows software that runs most of the world’s personal computers with two new operating systems that are processor-independent (that is, they don’t depend on Intel chips).
The first, Windows NT, is aimed at corporate servers, workstations and desktop computers while the second, Windows CE, will cover the low end.
“With Windows CE, we are engaged with the same long-term outlook as when we started with Windows NT 10 years ago,” says Paul Maritz, Microsoft’s group vice- president in charge of platforms and applications. “We’ve been building this platform since 1993, and it now involves every part of Microsoft.”
But what for Psion and Palm Computing may be fights to the death are for Microsoft merely skirmishes in the global war for the operating system market. Handheld and palmtop computers are just two “platforms” for Windows CE. Later this year, CE will also appear in television set-top boxes and WebTV systems made by Philips and Sony; in network computers called Windows-Based Terminals (WBTs) from Network Computing Devices, Boundless and others; in notebook-sized portable computers from NEC, Hitachi and HP; and in voice- controlled AutoPC systems that will read out your e-mail while you drive to work.
And that’s just the start. At March’s Windows CE conference in San Jos, California – attended by more than 2 000 software developers – Microsoft started to outline its plans for CE-based games consoles, and a “hardened” version for embedded systems, such as cash machines, supermarket tills and machine tools.
This doesn’t necessarily mean that Psion and Palm are doomed. The advantages of Microsoft’s approach are that it provides economies of scale for manufacturers, and it lets programmers use familiar PC tools to build applications quickly. However, it involves compromises that manufacturers of integrated systems don’t have to make. As they develop both hardware and software, Psion and Palm can produce better integrated and more functional designs.
These advantages are the fruit of long experience. Street points out that Palm’s founder and chief technology officer, Jeff Hawkins, spent years developing pen-based systems like the A4-sized GridPad before founding Palm Computing in 1992; Colly Myers, group managing director of Psion, says the Series 5 is the result of years of development effort.
Nonetheless, both companies are well aware what happened to Apple. In the 1980s, its Macintosh computer was the better product but, trying to protect sales of its own high-priced hardware, Apple refused to license its software to anyone else. Microsoft kept improving Windows, licensed it widely, and eventually came to dominate the market. Windows NT, following the same route, is now showing dramatic growth, and Microsoft can afford to invest in CE until it meets the market’s needs.
Psion has started licensing Epoc32, the Series 5’s operating system: the first “clone”, a Geofox handheld, was launched last year, and Philips is using Epoc32 in Synergy, a planned pen-operated computer that clips to a portable phone.
Street says Palm Computing has a lot of former Apple staff, including company president Donna Dubinsky. “They’re very clear over the mistakes Apple made, and they’re trying not to make them,” he says. But Palm isn’t following the Microsoft model either. “Unlike Microsoft, we’re trying to pick one of the leaders in each of the areas where we want to play, so we don’t have much overlap in the coverage. We could license Compaq and IBM,” says Street, “but then they’d fight each other …”
Exactly. That’s why Microsoft licensed Windows CE to the great rivals, Sharp and Casio, and why IBM may live to regret taking on Compaq with a rebadged Palm III instead of developing its own CE-based machine. Customers benefit from product wars that drive down prices, and Microsoft, the greatest warlord of them all, benefits from supplying ammunition to both sides.