‘It’s definitely more PC than Pocket’

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LONDON (Reuters) – If United States handheld computer and software maker Palm ever had any doubts about the strength of its competition, last week’s blitz by Microsoft to launch its rival Pocket PC 2002 software did away with them. Microsoft blew thousands of dollars to show off the software with a splash simultaneously in London and San Francisco. The vodka flowed in six different flavors, but analysts were most knocked out by the new product. “It was impressive,” said analyst Jan Sythoff at research group Frost & Sullivan. He particularly liked the fact that Pocket PC 2002 enables companies to link mobile devices and corporate computers in the same secure systems. In stark contrast, Palm countered a few days later with a gathering in a cramped top-floor room in a London office, where a handful of reporters sat through long PowerPoint presentations in which Palm claimed it could do everything Microsoft promised, eventually. At the launch of Pocket PC 2002, which at its core is the third version of its four-year old handheld computer software, Microsoft never even mentioned market leader Palm. Microsoft has a modest 20-percent share compared with Palm’s 56 percent. Industry analysts say Microsoft has new-found momentum, helped by new software and 15 new and improved devices by partners Compaq, Hewlett-Packard, Toshiba and Casio “The new Pocket PC will help Microsoft gain market share,” said Chris Jones at research group Canalys, which tracks the mobile computing market. Palm has only three hardware makers in its corner — tiny Handspring, International Business Machines and Japan’s Sony Corp. Research group IDC expects Pocket PC will climb to a market share of over 30 percent next year. The market itself is set to treble in the next four years to $6.6 billion, or over 60 million units, IDC estimates. Over the past six years Palm has single-handedly created a market for screen-only computers, but now it has to fend off criticism it cannot equal some of Pocket PC’s new features. What grabbed analysts’ attention was Pocket PC’s ability to build a virtual private network (VPN) over the wireless Internet connected with corporate computers, which lets staff securely access company e-mail and Web pages. “That’s probably the big enhancement,” analyst Jones said. Palm said it is currently testing its own VPN application, but could not say when it would be available. “It’s very early to make a formal announcement,” said Mike Weatherley, Palm’s European president. Big vs. small Microsoft showcased how its software, which dominates corporate computer networks, lets employees on the road manipulate icons on their desktop computer at work using a tiny personal digital assistant (PDA). Palm has taken the “size matters” philosophy, arguing that such powerful applications divert attention from the basics that sell PDAs, such as modest size, light weight, easy diary entries, energy efficiency and price. A typical color screen handheld computer with Pocket PC 2002 would start at around 600 euros ($546.90), compared with top-line Palm products between $430 and $500. “Microsoft needs a lot of horsepower to have a basic performance,” Weatherly added. Moreover, Pocket PCs that are bulky, heavy, expensive, and battery-draining will not win the consumer’s heart, Palm hopes. “Microsoft has piled a lot of features in the new Pocket PC, but it is not easy to use,” said Laurence Clavere, Palm’s director of International Marketing. “It is definitely more PC than Pocket,” Weatherley added. But some analysts disagreed, acknowledging Pocket PCs are heavier and more expensive, but saying people’s needs are changing. They want access to their corporate e-mail and the Web wherever they are. Microsoft plays that trend with bigger screens and secure wireless connections, Jones said. One size only Nevertheless, Weatherly is onto something when he draws an analogy with the PC, several analysts remarked. “All the Pocket PC models look the same, whether they are from Compaq, Toshiba, Casio or Hewlett-Packard,” said analyst Kim Mui at IDC. The desire by Microsoft to have a “one-size fits all” product, emphasized at its flashy presentation, is a potential pitfall for manufacturers, who will have little opportunity to stand out from the competition, Frost & Sullivan’s Sythoff said. “How are they going to compete? On price? That would be the PC market all over again. Good for Microsoft, bad for the manufacturers,” Sythoff added. This is already creating opportunities for Palm software, because Handspring is due to launch a downsized PDA which doubles as a cell phone. It will also receive corporate e-mail, just like the hugely popular and less-complicated Blackberry from Canada’s Research in Motion. A Handspring announcement is expected this week. And yet another player is emerging with a radically different approach from Microsoft’s, using its own mix of software. Finland’s Nokia, the world’s largest cell phone maker, has a line-up of “really weird stuff,” according to independent sources allowed access to the products. Nokia identifies four or five different groups of people, each with very different desires, and the company looks at PDAs, cell phones and “everything in between,” the sources said. “Nokia will shake up the market next year, but initially in Europe,” one analyst said, who declined to be named.

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