In Search of Shangri-La

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Reminiscent of the MacOS versus Windows wars of the 1980’s, a market showdown is brewing between Microsoft’s Windows CE and Palm Computing’s Palm OS. And like that cold-war battle of the recent past, Microsoft finds itself once again in the role of come-from-behind kid.

At least, for now.

What does this face-off ultimately mean for consumers? Whether they know it or not, most consumers have a similar dream with a similar destination–a handheld Shangri-La, of sorts. And one thing’s for sure: Microsoft and Palm are leading consumers on entirely different product paths to get them there.

So just what is this Shangri-La, and what paths are these two combatants taking to reach it? Well, for starters, let’s explore the three cornerstones of Shangri-La.

First, there’s functionality. By this we mean things like a color display, a fast processor, good handwriting recognition, stereo sound, wireless email and Internet access, and a full portfolio of standard applications. Unfortunately, no device has all of these features just yet. Second, there’s a small package, not to be confused with a, um, small package. For handheld computers this means one thing, a device that easily slips into your shirt pocket. Only the Palm V really meets this criterion, though others, like the Casio E-15 and the Aero 1520, come awfully close. And third, there’s reasonably priced, which translates to less than $500, the threshold for handhelds. Most–not all–devices meet this price point.

Obviously, no device can do all of this at this time.

So who will be the first to reach the promised land? Well, that’s where Microsoft’s and Palm Computing’s paths diverge.

Microsoft, admittedly, bet the farm on functionality, gambling that Moore’s Law would ultimately kick in and make size and price non-issues. Microsoft envisioned these devices as small computers, while Palm Computing saw them as electronic organizers. Big difference. Palm Computing, meanwhile, put its money on the package, insisting that, above all else, size matters. But Palm is keenly aware that eventually it must play in the functionality sandbox.

So it’s quite apparent that both parties must alter their paths to reach Shangri-La. And while noted business-cheerleader Tom Peters says, “You can’t shrink yourself to greatness,” that is exactly what Microsoft is counting on for the future of Windows CE. Word is, Microsoft will trim its next release of Windows CE, code-named Rapier. And at least two of its manufacturing partners, Casio and Compaq, have already released thinner models.

Palm Computing, on the other hand, has begun exploring ways to expand the functionality of its Palm OS. And Handspring, a Palm licensee, will begin shipping Palm-clones with enhanced capabilities later this month.

All in all, it’s a coin toss. Will Palm Computing be able to add functionality before Microsoft and its manufacturing partners reduce size?

For that, let’s look at computing history. Have you seen the slim, new NEC Z1 and Gateway Profile desktop computers? How about the super-thin notebook computers from Sony and Sharp? Obviously, there’s a noteworthy history of computers that run Microsoft operating systems becoming smaller in size, yet increasingly more powerful.

On the flip side, has an operating system ever grown significantly in functionality? Sure. But it often takes a completely new OS, like NT or Windows 95, to actually do it. And, there’s the rub. Has Palm Computing ever done this in the past? No.

That’s one of the main reasons (the other being the growth curve of the business market versus the growth curve of the consumer market) why many industry analysts, including Brighthand, are predicting that Windows CE will eventually overtake Palm OS in the marketplace.

Tell us three years from now if we were wrong.

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