April 10, 2000 5:55 PM PDT

Handhelds may be free in future

In three years, the majority of handheld computers may be subsidized by service contracts, as cell phones and many inexpensive PCs are now, according to a new report.

Wireless Internet access through digital devices from Palm, Handspring and Microsoft, along with Web-enabled cell phones, will skyrocket in popularity over the next three years, according to Ken Dulaney, vice president at Gartner Group. With that popularity will come old-fashioned marketing techniques. Prices will drop significantly on products, with many of the devices given away for free in exchange for signing long-term service contracts.

The predictions reflect the growing interest in accessing the Internet and online services from devices other than desktop PCs. This trend has resulted in major PC companies, consumer electronics firms and handheld makers jumping in the Internet appliance market, all angling for a portion of the future market.

"Just like the free PCs, you'll see the same thing happen here," Dulaney said from the company's spring symposium in San Diego. "The biggest reason why it hasn't happened already is that the Internet isn't yet embedded in these devices, and the applications haven't been developed yet."

Although most free PC deals sputtered after initial hype died down, Dulaney believes the model is better suited to the personal digital assistant (PDA) world, which more closely resembles the cell phone market. Besides that, PDAs remain cheaper to build than computers. Start-up companies that last year tried to give away PCs for free later admitted cash flow issues proved onerous. Computers cost more than what they could recover on service contracts or advertising and e-commerce side deals.

The emergence of free PDAs isn't the only event likely to shake up the handheld world: Gartner Group is projecting that long-time market leader Palm is likely to lose a significant portion of its lead over competitors such as Microsoft and the Symbian group.

For the last several years, Palm has dominated the market for handheld devices, maintaining more than 70 percent market share. The company's success has spurred Handspring and Microsoft, along with cell phone makers, to angle for a piece of the exploding market. Wireless pager company RIM is expected to throw its hat into the ring tomorrow, with the announcement of a wireless PDA.

"One of the big things is that it will become a much more level playing field between Symbian, Microsoft and Palm," Dulaney said. "Each has its own place. There will be no one dominant player anymore.

That market shakeout will have its roots in Palm's missteps over the last few months, including the lackluster design of the Palm IIIc, combined with positive reaction to the changes Microsoft has made to its Pocket PC software, due out next week.

"I just don't think the folks at Palm have a strong enough vision to continue moving the platform," Dulaney said, predicting that by 2002 Microsoft will have 30 percent of the market, while Palm will drop from 80 percent this year to 45 percent.

The typical PDA in 2003 will resemble the high-end products on the market today, according to Dulaney. The $500 devices will include a color display, long-range wireless messaging and speech recognition, among other features.

At the same time, that popularity will drive too many variations into the market for companies to adequately support and service employees' devices.

The popularity of these types of devices will prove a headache for corporate IS departments. Palm and Windows CE have long targeted enterprise customers, touting the benefits of employees connecting remotely to corporate databases of information via their handheld computers. And according to Dulaney, the influx of new products, designs and technologies will add 10 percent in technical support costs.

 

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