December 30, 1999 5:20 PM PST

Handheld mania revs up

Although 1999 saw major advances in portable technologies, most agree that next year is when the device market will really take off. Of course, everyone said that last year, too.

This year marked the emergence of all kinds of handheld devices, including wireless devices with Internet access, a package that could become fairly common in the future.

But the future is not here yet. Although millions of Palm and Windows CE organizers shipped, and although portable MP3 players from Diamond and Creative Labs created a buzz as the hot new products of 1999, these technologies have not even begun to reach their commercial potential. Instead, 1999 will be looked back on as the starting point for several PC-independent technologies, including Internet cell phones, handheld computing and portable digital music.

More than anything else this year, devices and gadgets made the transition from a niche market for affluent male geeks to a potentially viable example of the future of computing.

"If anything, this was a lay-the-foundation kind of year," said Van Baker, an analyst with Dataquest. "Next year we'll see more of a blossoming of products and services."

Next year will invariably see the continued momentum of wireless Internet access, with products like the wireless Palm VII, which offers limited Internet content and messaging, and two-way interactive pagers like RIM's Blackberry paving a path toward the future of communication.

"Will [wireless] capture broad attention? Yes. Within one or two years? Probably not," said Matt Sargent, of Sargent Consulting. "I don't think the market has really started yet. But I do believe these devices will be pervasive within U.S. households within a three-year time span."

Despite ongoing attempts to interest consumers in combination devices--such as cell phones with organizer functions, like the PDQ, or wireless devices such as the Palm VII--most analysts polled, including Sargent, believe that the market is heading toward stratification, not convergence. As many a mobile pundit has noted, the only convergence product that has ever succeeded is the radio alarm clock.

In fact, smart phones, or cell phones that offer limited Internet-based data as well as typical phone functions, failed to meet earlier forecasts this year. In 1999, 774,000 smart phones were shipped worldwide--39.3 percent less than earlier predictions from International Data Corp.

"I don't think we're anywhere near the point where there will be a satisfactory all-in-one device," said Will Nelson, an editor at Smaller.com. "But we will see single devices doing more."

Portable digital music players also failed to live up to hype. Devices were hamstrung by record-label bickering about copyright protection, high prices of players, slow cultural adoption, and consumer confusion about how to buy or download music. The clarion call, again, is next year.

"You're going to have a tough 1999: The year in technology time getting people away from CDs. That's a format that the mass market understands," said Steve Baker, a retail analyst with PC Data.

Nelson concurred. "The problem with all digital music, but particularly with the PDAs, is it's just not as easy to do as making a tape; it's just not there yet," he said.

Still, there is a substantial momentum toward some sort of conversion. One example of this type of flexible thinking was Handspring's first product, the Visor. Introduced this fall, the inaugural product from the start-up was much anticipated because of the pedigree of its co-founders, Donna Dubinsky and Jeff Hawkins, who also started Palm Computing.

After licensing the Palm operating system, Dubinsky and Hawkins released what is essentially a Palm clone with an expansion slot, dubbed the Springboard. The Visor can be upgraded to an MP3 player, digital camera, pager or cell phone using different Springboard modules, much like a Mr. Potato Head can be altered by a switch of the eyes or feet.

Few Springboard modules are out yet, however, and the company has struggled to keep up with demand for the Visor through its direct sales model, suffering outages of its Web site and customer service complaints in its first few months of shipping.

Still, Visor and its upgrade capabilities did not go unnoticed. Coupled with the success of Casio's Cassiopeia E-105 device, which features MP3 and digital imaging capabilities, the release of the Visor brought a renewed focus on extending handheld computing features past the typical organizer functions.

"I'm in agreement with Handspring that people want to do more with their devices," said Rogers Weed, the head of marketing for Microsoft's mobile appliances group. "The question is, do they want to just do one more thing at a time?"

Microsoft, with its Windows CE operating system, has long advocated that consumers want near-PC functionality on their handhelds. This is in direct opposition to chief competitor Palm's long-term strategy of offering fewer functions, but in a simple way that generally works.

Until recently, it appeared that Microsoft was fighting a losing battle in clinging to this thinking, but a few events indicate that the software maker may finally be bringing the industry, if not consumers, around to its point of view.

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Most telling is Palm's own strategy shift this year from a pure hardware maker to a software provider, licensing its software and operating system not only to Sony and Handspring, but also to phone maker Nokia and companies like TRG. Microsoft has a similar phone effort going forward with Ericsson.

"In some ways, Palm is going to learn this: It's great to have a platform as a concept," Weed said. "The easy part is doing deals and putting out press releases. The hard part is actually shipping products so what you do is high quality."

Microsoft, of course, is way behind Palm in the hearts of consumers. According to recent research from IDC, Windows CE palm-size devices took less than 10 percent of the market last year with almost all the rest going to Palm devices.

Recently, Microsoft executives confirmed that other-sized Windows CE devices, such as the clamshell and mini-notebook types of products, will no longer be aggressively promoted to consumers. In addition, partners like Philips Electronics and Everex conceded the market and discontinued their palm-size products.

Adding insult to injury, Microsoft tried to gain ground by coming out with handhelds with color displays first, but a shortage of screens severely undercut the effort.

Added Nelson: "Microsoft is limping along, but you never count them out." He pointed to upcoming software releases from Microsoft designed to fix some of the current gripes about Windows CE.

In addition to the software upgrade, 2000 will be a hot year for handhelds: Both Palm and Handspring have initial public offerings planned for early next year.

 

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