Palm Hears Footsteps Creator of hand-held personal organizers
spawns low-cost knockoffs that pursue mass market
San Jose Mercury News - Published Monday, April 19, 1999
A wave of Palm knockoffs are attempting to undercut the industry
leader, hoping to make organizers for the rest of us.
YOU have to hand it to Palm Computing. They took the 15-year-old idea of a personal
digital assistant -- an electronic organizer that fits in your pocket and shares information
with your personal computer -- and made it the gadget every geek had to have.
But as the PDA has become more popular, a wave of Palm knockoffs are attempting to
undercut the industry leader. They hope to make organizers for the rest of us: the mass
market that balks at Palm's price tag of $300 to $500 and shops at Target and Wal-Mart
rather than CompUSA and Fry's.
These knockoffs are already driving down the price of some versions of the Palm. The
company now faces a competitive dilemma whether to make its own $100 device.
More broadly, these lower-cost PDAs -- marketed not as high-tech devices but as the
digital cousin of the paper calendar, address book and to-do list -- are tapping into a new
market segment: one that uses the PC rarely or not at all.
''Palm devices are really high-priced for what I needed. I basically wanted a digital
replacement for my Franklin planner,'' said Karen Depallens of Mountain View, a
manager at a small high-tech firm and trial user of the eDiary, a low-cost echo of the
PalmPilot in development from Palo Alto-based Fuga Corp.
Just as e-mail brought a new wave of users to the PC, Palm knockoffs may provide the
first introduction to ''digital appliances'' for consumers like Depallens -- a group Palm
Computing has yet to reach and a crucial audience for future devices ranging from smart
phones to interactive TV.
PDAs for the masses is a compelling concept -- but it is not an easy sell. It remains to be
seen if these first Palm copies can attract big numbers beyond mobile professionals
simply looking for a cheap substitute.
In fact, the success of Palm Computing, a division of Santa Clara-based 3Com Corp.,
was something of a surprise to Silicon Valley, especially after Apple Computer's
infamous flop in 1994 with its PDA called the Newton.
Beginning with the flagship Palm Pilot in 1996, sales of Palm devices passed 1 million
units in just 18 months and exceeded 3 million in early 1999. By comparison, the Sony
Walkman sold its first million in just under three years.
Palm Computing has retained the lion's share of the high-end mobile professional market
in the face of competitors using Microsoft Corp.'s Windows CE operating system.
International Data Corp. reported that Palm devices held a staggering 78.6 percent
market share in 1998. Windows CE devices took only 15 percent and others the
remaining 6.4 percent.
But the Palm-Windows CE battle is being fought mainly over hardware and software
features, escalating the price and the technical expertise necessary to use the devices even
further from the mass market. They're angling primarily for business users, who want to
do everything from accessing corporate databases and sharing documents with
colleagues to buying a plane ticket and ordering lunch with their PDA.
Sub-$200 copycats
Consumer electronics makers are going the other way. Since the Palm has achieved such
renown, the time is ripe for copycats, said Jill House, a research analyst at IDC. ''Low
price is the next wave as consumer marketers try to hit a sweet spot below $200,'' she
said.
In swift succession, Casio Inc. launched the PocketViewer for $99 in October and Royal
Consumer Business Products, a division of Olivetti Office USA, introduced the DaVinci
-- also priced at $99 -- in early December. And later this year, Fuga will release its
eDiary priced at approximately $149.
These companies are betting that some earlier failures in this space -- lower-cost PDAs
from Texas Instruments and Sharp Electronics -- simply hit the market before the Palm
craze was in full swing.
All three bear an obvious resemblance to the Palm devices, in form and features. But
none works as well as the PalmPilot does today, with its easy connection to a personal
computer and its thousands of add-on applications.
''When you are number one, everyone is biting at your backside,'' said Robin Abrams,
who took over as president of Palm Computing in February. ''But so far part of the
population sees incredible value and price performance in the Palm. Some knockoffs
exist, but our customers are incredibly discriminating.''
One-function devices
One key technological difference is that the cheaper imitations are essentially
single-function appliances, where either the manufacturer controls development of any
additional applications or there is no outside software development.
In contrast, Palm Computing and its licensees have more than 3,000 independent
software developers creating applications for Palm devices, a group the company has
cultivated over three years.
In this way, both Palm and Windows CE devices are more like portable PCs -- their
features can be augmented by the individual user.
''Without an operating system, you can't easily add value to the hardware. There is no
ecosystem to develop the product further,'' said Donna Dubinsky, the co-creator of the
PalmPilot and now president of Handspring Inc., a Palo Alto start-up building devices
using the Palm operating system for the consumer market. Handspring will not have a
product available for at least 18 months.
But not everyone needs to do more than what a basic PDA offers. Since few consumers
will miss add-on applications from expense report templates to golf scorecards, Palm
knockoffs can get away with building a narrowly tailored -- and cheaper -- device.
Palm Computing is obviously feeling price pressure. The Palm III was lowered to $299
in February, the first time a current model sold for less than $300. Older versions like
the Palm Professional can now be found for just over $100.
''Price point has a lot to do with expanding the PDA market,'' said Eduardo Guerra, an
analyst with Frost and Sullivan, a technology industry research firm. ''The product is
simple enough to be used by regular people typically in need of a basic
information-capturing device like a calendar or address book.''
Frost and Sullivan projects that PDA sales will top $1 billion in 1999, almost doubling
1998 revenues of $531.3 million, largely because of an increase in consumer purchases
of lower cost devices.
PDAs as data bridge
Beyond the functions of the device itself, whether consumers have a PC has been
another boundary for the expansion of the PDA market. The Palm took off because of
the hassle of having information in two different places -- on paper and on the PC.
''PDAs create a bridge that eliminates the need for a portable paper-based system,'' said
Guerra.
With PCs now reported to be in 50 percent of American homes -- driven in part by a
plunge in PC prices -- that barrier is crumbling.
In fact, the availability of cheap PCs is adversely affecting higher-priced devices like
those from Palm Computing. If a consumer can get a complete desktop system for less
than $600, he or she may balk at spending $500 for the latest Palm device.
To get to the mass market, PDA makers in all price ranges will have to sway a large
portion of potential buyers who are so far not attracted to the gadget. As of June 1998,
the PDA market was more than 92 percent male and largely used by white-collar
professionals.
Royal aims to reach this demographic by selling the DaVinci in discount stores like
Target, where more women generally shop, than in consumer electronics retailers,
typically visited more by men.
Meanwhile, Palm is touting its use among ''soccer moms'' and college students. ''Most
Palm devices are purchased with personal funds,'' Abrams noted.
Ultimately, the success or failure of these efforts will have implications far beyond the
PDA market. If a broad range of consumers begins to rely on these digital devices for
everyday tasks, they may be more likely to buy into what the high-tech industry
envisions as a digital lifestyle, in which dozens of computerized appliances run both
your personal and professional life.
That future can be glimpsed in people like Tessa Cain, a 51-year-old mother of two from
Paso Robles, who said she could not function without her PalmPilot.
''I use it to keep track of things like dentist appointments and stuff for the kids at school
and to take notes as the secretary of a local theater group,'' said Cain, whose husband
and children also have Palm devices.
The lure of capturing more consumers like Cain is extremely attractive, said Dubinsky.
''A lot of people are rushing in. But so far, most have built something that looks like a
Palm device, but isn't quite there.''
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