Symbian, Microsoft Try to Slap Palm Around

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Event Summary

Microsoft is preparing to ship their revamped Windows CE product line, the "new" PocketPC, in an attempt to capture handheld device market share from PalmOS, the current leader. The new devices are slated to ship sometime in April, and will run Pocket Word (PWord), Pocket Excel (PExcel), and Pocket Explorer, as well as sport a new graphical interface (code-named Rapier). Although Microsoft "does not comment on unannounced products", it reportedly has said that Hewlett-Packard, Casio, and Compaq will all produce PocketPC devices.

In a separate announcement, the Symbian consortium announced the late-2000 availability of its "Quartz" platform. Quartz reportedly will provide Palm or CE-like functionality, but will be a zero-charge upgrade to suitably-equipped digital handsets. Functionality is expected to include telephony, streaming multimedia, Web browsing, and Palm-like computing. In addition, Symbian plans to provide "quarter VGA" (i.e., 320 pixel x 240 pixel) color display functionality. The devices double up as a conventional cell phone by plugging in a headset, or wirelessly using a Bluetooth headset or ear clip. Bluetooth will even allow the device to be left in a jacket pocket or briefcase, with voice activation triggering the call.

Market Impact

While not a death-knell for Palm devices, this certainly isn't great news for them. Although Palm presently holds an approximate 80% market share for the handheld and PDA market, no one expects Microsoft to give up.

This latest product set may not do to Palm what Internet Explorer did to Netscape, but every time MS adds functionality at a low price, Palm will feel the heat. At some point, price/performance will surpass brand loyalty as a reason for buying a PDA. Of course, at $199 for a stripped down PocketPC (i.e., no PWord or PExcel ), it is not yet a "price" sell. Pricing on the PocketPC Professional (where you do get PWord and PExcel) is not set at this time. Perhaps MS will tell the market that the added features in the Professional are actually part of the OS, and therefore will cost no more.

The Quartz announcement is potentially more troublesome for Palm and Handspring (maker of a lower-priced Palm-based handheld). For those customers with the appropriate hardware, a zero-cost upgrade to something they already carry around all the time is pretty attractive. As feature-packed telephones (er, I mean "digital handsets") proliferate, the market for this functionality will increase. Although the market for a separate PDA will not disappear, consumers will question whether they need an additional device when one will do all jobs. We expect this functionality will find its greatest initial adoption among business users such as a company's external sales force.

Palm has started to work on its wireless offering, we think they should keep pushing in that area. We think Palm (and perhaps Handspring) should look at dropping prices to increase market share. We do not believe demand for PDAs is inelastic, so striking now before PocketPC can gain a foothold might be wise. And as far as loyalty to Palm: plenty of people were loyal to Netscape, and WordPerfect, and VMS, and so on.

User Recommendations

The newly-minted PocketPC pre-announcement sounds good, but customers should wait 2-3 months before rushing out to buy one. Customers should also verify that no translation software is needed to go from desktop Word/Excel to PWord/PExcel - currently that situation is not clearly defined. One potential upside is the quantity of hardware vendors signing up for PocketPC devices. Although we give Microsoft credit for not giving up, we sometimes wish we could find a market where Microsoft is not trying to crush the competition.

We find the Quartz possibilities intriguing. It is still too early to see if Symbian will live up to the hype, but if it gets 80% of the way there, the mini-Grail of "convergence" will be one step closer. Although we see high upside potential for sales forces, we can see this model being extended to any environment with a highly mobile workforce, especially that with a high knowledge-worker percentage. Customers should not place large bets on Quartz until it is shown to be as good as the hype.

Current Palm users might try to exert pressure on Palm Computing and Handspring to have a "Quartz-like" offering (i.e., with lots of features) in advance of Quartz's arrival. The Palm VII has wireless capabilities, but it appears that Quartz will go beyond that.

In addition, Palm might consider bundling free/low-cost Word and Excel translators with their products. Customers can purchase various third-party Excel and Word viewers, and Palm Desktop can run, or at least work with Excel, but customers may decide they want more.

The original Palm Pilot was highly focused, with the main point being that it was not "all things to all people". Since time and market forces have changed that mission, Palm will now need to keep up with feature-filled devices. Even if PocketPCs have no more functionality than Palm, MS marketing/PR will push them hard.

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