Then there were two

by Reads (60,707)

Twenty years ago a small group of engineers at Apple began dreaming up the next revolutionary device. It wasn’t the first time they’d embarked on a mission such as that. They’d done it nearly a decade before with the Macintosh, a device that made it easy for the common man to harness the power of a computer. But Mac sales were quickly drying up, thanks in part to competition from a host of new PCs running a competing operating system from Microsoft called Windows, and they needed something new, something futuristic to eventually replace it as Apple’s breadwinner. Something no one had considered.

The Legend of Newton

What they came up with was the Newton, a multi-purpose handheld computer that then Apple-CEO John Sculley predicted would kick-start a $3 trillion “personal digital assistant” market by the turn of the century. Although Casio and Tandy would eventually beat it to market with a device of their own, called the Zoomer, Apple, and its Newton, is credited with pioneering the PDA industry.

However, a good idea is just that, a good idea, and Apple had difficulties executing that idea. It may have been able to forever change the way we interface with computers — from entering complex commands to pointing-and-clicking on pictures — with the Macintosh, but the Newton’s handwriting recognition system was a tragic failure. Also, the device was too big and cost too much. More importantly, Sculley and Apple had overestimated the size of the market. Eventually, after sinking more than a half-billion dollars into it and selling less than 300,000 units in four and a half years, Apple killed the Newton.

Ironically, five years later Apple released its iPod handheld digital music player, a single-purpose device that has become a runaway best-seller.

Along comes Palm…and Microsoft

As the Newton floundered, a much less ambitious device from another California-based company, tiny Palm Computing, Inc., was flourishing. Less-expensive and with less features than the Newton, the PalmPilot became the fastest selling consumer electronics device in history. It didn’t aim to do as much as the other PDAs on the market, but what it did it did well. And it was small, lightweight and relatively inexpensive as well.

Palm and its PalmPilot soon became the darlings of the technology industry.

But success is often short-lived, and hot on Palm’s heels was Microsoft. It convinced several major PC makers, including Hewlett-Packard, Casio and Compaq, that there was something to this whole PDA thing, and that they should build them (and use Microsoft’s PDA operating system in them, of course). It took Microsoft a few years, and several iterations of its software, to make a significant dent in Palm’s dominance, but by 2004 Pocket PC handhelds using its OS had caught up to Palm OS-based handhelds in sales.

Palm saw this coming early on and knew it had one option: license its operating system to other manufacturers as well. (Something Apple did not do with its Mac OS and that many industry experts credit with being the main reason Windows crushed it in the marketplace.) Palm soon realized the catch-22 of this strategy. By enabling others, including Handspring and Sony, to produce Palm-like PDAs, its own hardware marketshare would drop. (Which is exactly why Apple did not follow that course and why Palm eventually turned down Toshiba’s request for a Palm OS license.) However, as long as the overall handheld market grew at a fast pace, this was no problem. But when worldwide sales began to soften in late 2001, Palm was in trouble.

Still, there was no turning back. Palm had to continue to broadly license its OS and also had to compete on the hardware side, where profits were being squeezed by market competition. Palm eventually split into two companies, hardware maker palmOne (which includes acquiree Handspring) and OS maker PalmSource in 2003.

The state of the industry

Now it appears that consumer demand has shifted to smart cellphones, or communicators, that combine the features of a cellphone with that of a PDA. Meanwhile, the traditional PDA market, set in motion by the introduction of the Newton in the early 1990’s and fueled by the success of the PalmPilot in the late 1990’s, has matured into a flat rather than a growth market.

The logical response to this condition has been an ongoing consolidation of the traditional PDA market, with attrition (such as the exit of Sony and possibly Toshiba) being the primary manner in which this consolidation has been taking place. (Although we’ve also seen the disappearance of players like Handspring and Compaq through acquisitions.) That’s right, market consolidation is not something that’s eventually going to happen, it’s something that’s already happened right before our eyes.

HP and palmOne The “Big Three” Pocket PC manufacturers of just a few years ago — HP, Compaq and Casio — has dwindled down to one, HP. And the “Big Three” on the Palm OS side — Palm, Handspring and Sony — is now down to palmOne.

Sure, Dell is still in the game, as are a number of others, including TapWave, Garmin, and Symbol. But most of these will simply be niche players (if they survive at all) rather than traditional PDA manufacturers. (Dell’s niche will be direct corporate sales.) The growth, as echoed by many industry analysts, will most likely continue to be in the smartphone and communicator areas, as well as single-purpose devices like GPS devices, digital cameras and digital music players, such as the iPod.

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