PC makers warned of handheld attack
news.com
By Stephanie Miles
Staff Writer, CNET News.com
March 3, 1999, 1:25 p.m. PT
SAN FRANCISCO--Internet appliances and handheld
devices are emerging as viable and inexpensive
alternatives to traditional desktop computing, several
analysts warned yesterday, which could cut into the
market for PCs.
Analysts speaking at International Data Corporation's
Directions conference here yesterday hammered home the
idea that the way consumers and businesses access the
Internet and conduct basic computing chores will change
dramatically as consumer electronics and start-up firms
begin aggressively pushing set-top Internet boxes, screen
phones, low-priced handhelds, and home networking
equipment.
PC sales, particularly in the low end of the market, will
continue to grow, but PC makers will need to focus on
adding services and value to compete against low-priced
devices capable of basic computing functions.
Many PC vendors are already looking for new revenue
streams, such as Gateway with its YourWare program, said
Bruce Stephens, a PC analyst. Dell today expanded its
online offerings with a new Internet store.
"Products equal revenue, but services equal profits,"
Stephens said, calling Internet services "the new battle
ground."
Of course, the device makers have their work cut out for
themselves as well.
To effectively compete with PCs, Internet devices should
focus on specific targeted applications and markets, said
Sean Kaldor, IDC vice president of developing markets and
technologies, instead of integrating too many functions into
one product. Television set-top box providers must focus on
enhanced television viewing, rather than offering full-fledged
Web browsing.
"On TV, watching television is the killer app," he said,
pointing to interactive yellow pages and address books as
the "killer app," for screen phones.
Disputing the notion that consumers are reluctant to use the
television interactively, Kaldor pointed to electronic
programming guides as an example of entry-level two-way
services already popular among viewers.
As an e-commerce platform, television also offers an
immediacy that traditional retail and even online commerce
via the PC do not offer, he said. For certain products like
music, video, and broadcast content on demand,
e-commerce over the television offers "instant gratification,"
although he conceded that the platform is not ideal for true
Web surfing.
There is a huge opportunity for
consumer electronics
manufacturers amid the
transition "from analog to
digital," according to Kevin
Hause, another IDC analyst,
who spoke about next
generation consumer devices.
"For as much opportunity as
there is, there is an equal
amount of uncertainty," Hause
said. "Expect a spectrum of
devices, not one integrated
product."
Unlike PCs, which until recently commanded relatively high
profit margins, consumer Internet devices will have to be
priced under $400 to appeal to consumers who typically have
an $800 budget for appliances and technology. Hause noted
that VCRs did not begin to take off in sales until prices came
down to this range.
The upside is that the Internet encourages creative
business models which allow for incremental
revenues. Additionally, consumer electronics
companies are already well schooled in the
importance of simple designs and easy-to-understand
instructions manuals, an area PC makers have not
yet learned to emulate. In a telling example, Hause
noted that the WebTV user manual is 10 pages long,
while an instructions booklet for a PC add-on part is
over 100 pages long.
Consumers rarely need a "Device for Dummies book,"
Hause said, referring to IDG's popular line of how-to
books. "That would be a bad sign."
Screen phones are another little-known, but growing
area, he said. These phones, which offer limited
Internet access and address books, are hindered by a
lack of infrastructure and few end-to-end solutions.
Still, screen phone shipments outdid WebTV
shipments last year, he said.
Handhelds on the rise
While newfangled devices like screen phones and
set-top boxes are a couple of years away from mass
acceptance, handhelds are already a popular
alternative to desktop computing. But there is also
much more market stratification in the mobile space
than in the desktop world, said IDC's mobile analyst
Randy Giusto.
Enterprise customers favor stability in corporate
notebook lines as they allocate most of their
technology budgets to Year 2000 readiness, while
smaller companies demand expanded Web support
and individual mobile professionals look for innovative
and cool designs, he explained.
"Certain areas of [the handheld] market are
exploding," Giusto said, pointing to palm-size devices
like 3Com's PalmPilot. Palm-sized devices are poised
for even larger growth as enterprises and small to
medium-sized businesses sales take off. The
PalmPilot is a unique case, Giusto noted, gaining
entry to the enterprise through back-door sales to
individuals, much like a Trojan horse.
Mobile vendors need to focus on non-traditional
markets for growth, Giusto advised, such as vertical
markets, consumers, and the education markets.
Although historically there has been a hefty price
premium for mobile devices, Giusto noted that there
has been some significant price compression
affecting both notebooks and handhelds. The
highest-end notebooks are now priced below $5,000,
but low-end notebooks have bottomed-out at $1,300,
as an oversupply of components like LCDs has
slowed low-end price drops.
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