Microsoft to launch new Palm assault
By Bloomberg News
April 13, 2000, 4:50 p.m. PT
REDMOND, Wash.--Microsoft plans to release a new generation of handheld organizers next week, addressing flaws that caused earlier versions to flop, in an attempt to gain share from market leader Palm.
The palmtop devices, renamed Pocket PCs, are produced by Hewlett-Packard, Compaq Computer and Casio Computer and run on a Windows CE, a smaller version of Microsoft's Windows operating system. Microsoft is betting on features like audio, color and improved battery life to compete with the dominant organizers from Palm. The new devices, set to go on sale on Wednesday, also weigh less and offer a simpler and more stylish design, analysts said.
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Microsoft is counting on the devices to get it back into the market for software to run handheld devices, where Palm has more than eight times Microsoft's market share. That market is expected to grow to about $2 billion in the U.S. in 2003, from $764 million last year, according to IDC.
"These devices are a better iteration than the last ones, and they are a threat to Palm," said Jill House, a senior analyst at IDC.
Palm had about 83 percent of the U.S. market in 1999, while devices running on Windows CE accounted for about 10 percent of sales, IDC said. That's expected to change over the next three years, with Windows CE machines accounting for 40 percent of sales in 2003, compared with 58 percent for Palm, IDC said.
"Both companies have great opportunities to grow their market," House said. "Palm will get a smaller slice, but they both have the opportunity to grow the overall pie."
Earlier versions of Windows CE-based devices were widely criticized for being heavy and badly designed, with poor battery performance and screens that were difficult to read. Philips stopped making its Windows CE device because of poor sales, and other makers, including Everex Systems, haven't made any announcements about new products.
Given the poor sales, House said Microsoft probably hasn't yet recovered the costs of developing the operating system. Hardware makers pay Microsoft for every device sold with Windows CE, she said, so increased sales will move the company closer to making money on the software.
Product improvements also will increase the market share of Compaq, Casio and Hewlett-Packard, which lag Palm in sales of the devices. Palm makes nearly all of the devices that run its software.
The new Pocket PCs, which will be unveiled next week at Grand Central Terminal in New York, feature software including Microsoft Outlook for scheduling and organizing contact information, a version of Microsoft's Internet Explorer for browsing the Web, as well as software for playing music and reading books downloaded from the Internet.
The devices also will have word processing and spreadsheet software and a program for downloading street maps into the organizers. They also come with a slot for plugging in hardware such as modems, digital cameras or extra memory cards.
The new devices still lag behind Palm in some areas, such as the ease of using some hardware and the software for keeping track of contacts and appointments. Still, the improvements are significant enough for Gartner Group to change its recommendation for corporate clients, said Ken Dulaney, vice president of mobile computing at Gartner.
Gartner used to tell business users that Palm was their only option, though now it will begin to recommend Windows CE machines as well. Dulaney said the extra entertainment features in Windows CE will compensate for some of the device's shortcomings for many users.
Microsoft and the device makers have been previewing the Pocket PCs to consumers across the United States since April 6.
Copyright 2000, Bloomberg L.P. All rights reserved.
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