Microsoft Attacks Handheld Market, Again

Electronic News, April 24, 2000 by Arik Hesseldahl

As a huge detachment of reporters gathered at New York's Grand Central Station for an announcement from Microsoft Corp. last Wednesday, no one took much notice of the music playing over large stereo speakers surrounding the podium where Steve Ballmer, Microsoft president and chief executive officer, was about to speak.

That is until a Microsoft employee came out from behind a curtain to stop the music by pulling the plug from a tiny handheld computer mounted on a tripod in front of the podium. The music, a mix of jazz classics, was digital MP3 files playing on the handheld, piped to the speakers.

A minute later, a color animation depicting Ballmer and a character called "The Suck Up Guy" played over a pair of big screen TV monitors, this also from a handheld PC.

This was Microsoft's not-so-subtle way of introducing Pocket PC, the company's latest weapon in its campaign to gain control of the handheld PC market currently dominated by 3Com Corp.'s Palm Computing unit and Palm clone-maker Handspring Inc.'s Visor.

A rule of thumb about Microsoft is that it needs three revisions to a product in order to get it right. So it was with Windows and Internet Explorer. With this third revision to the Windows CE embedded operating system, the "CE" has been notably dropped from the product name, in favor of "Pocket PC." But just the same, it is still Windows CE, but with some new functions thrown in.

And four hardware makers have joined the fray under the Microsoft banner: Compaq Computer Corp., Hewlett-Packard Co., Casio Computer Co. Ltd., and Symbol Technologies Inc. HP's Jornada products are shipping immediately, with products from Casio and Compaq expected to ship by June. Symbol's PPT 2700 is a ruggedized version of the device that includes bar-code scanning capabilities. Symbol said Wednesday that it already has supply deals with car rental giant Avis and Starwood hotels for its device.

Manufacturers have selected a wide range of embedded processors for the handhelds. Compaq's products, one called iPaq, the other called Aero, will use a 206MHz Intel StrongARM and a 70MHz MIPS processor from NEC Electroncs Inc., respectively. HP is using Hitachi Corp.'s 133MHz SH3 processor in both its Jornada models. Symbol and Casio have also gone with NEC parts. Casio opted for a 131MHz VR4121, while Symbol selected a VR4181 running at 66MHz.

Randy Guisto, vice president of mobile and desktop system research at International Data Corp. (IDC) in Framingham, Mass., said other hardware makers are likely to take a wait-and-see approach over the next three months before embarking on Pocket PC projects with Microsoft.

"If the performance is still there and the buzz is still there, you may see new products from other vendors," Guisto said.

In his remarks, Microsoft's Ballmer referred to such applications as "Web pads," a concept often associated with National Semiconductor Corp.'s Geode processor. In a separate announcement, National and Vestel USA Inc. announced a partnership to develop a Web-pad device. Rather than a Microsoft operating system, National's reference design for the Web pad uses a real-time operating system called QNX from QNX Software Systems Inc.

Meanwhile, embedded processor vendors are likely watching to see how big the market for the new devices may be. Previous versions of Windows CE devices have resulted in less than overwhelming sales and market share numbers, while the Palm platform, which uses only Motorola Dragonball embedded processors, has steadily gained.

Tom Halfhill, embedded processor analyst with Cahners MicroDesign Resources, Sebastopol, Calif., said the proprietary nature of the Palm platform could turn out to be a disadvantage over the long run, should the Microsoft platform catch on with the market. Much of the Palm's OS code is written in the Dragonball parts' native assembly language, and is therefore difficult to port to other processors, he said. That limits the opportunity for a Palm OS licensee to make a device that looks much different from a Palm Pilot.

"With these CE devices running on several different processors, there's more of a chance for differentiation on things like performance or different form factors," Halfhill said.

But consumer tastes in the handheld arena have so far tended to value simplicity over extended functionality, in much the inverse of the way that the PC market has gone, where increasing feature sets have become a requirement, Halfhill said. As of 1999, the Palm platform held an 84 percent market share over the 10 percent held by Windows CE devices. And Palm users tend to be a devoted, brand-loyal market.

To that end, the fact that a Pocket PC can play MP3 files and that a Palm OS can do so only with an expansion device (Handspring has said it will ship several third-party MP3 expansion modules later this year), may not make much difference in the consumer mind.

But wired and wireless connectivity might. Microsoft touted such connectivity features as Ethernet, analog modem, cellular digital packet data, IEEE 802.11 and Bluetooth capabilities as near-future options for the devices, and has integrated its networking features across the full range of Microsoft software applications. Palm supports wireless connections in its high-end Palm VII model and as an accessory to the Palm V, while Handspring also offers a handful of expansion modules for various wired and wireless connections. Both platforms are aiming for sales to so-called "road warrior" mobile professionals.