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Microsoft stumbles in handheld market
©New York Times
© St. Petersburg Times, published January 10, 2000
You wouldn't expect to find a better spokesman for the Philips Nino than Blake Patterson. If you visit the Philips Electronics Web site, you see a prominent link to a site built by Patterson, a 27-year-old Web designer from Alexandria, Va. Philips points to Patterson as a dedicated user of the Nino, the company's palm-size computer. Predictably, Patterson's site is a veritable shrine to the Nino.
The only problem is that Patterson has not used a Nino, or, for that matter, any device running Windows CE, the simplified version of Microsoft's Windows operating system, for more than six months. Last summer, he soured on CE altogether and after a brief but happy fling with a Palm organizer, became a fervent early convert to the new Visor from Handspring, a start-up that has licensed the Palm operating system. Patterson, who once was paid by Philips to write about the Nino, has not touched his Nino fan page since 1998 and it now hangs, petrified, in cyberspace (nino.philips.com/community).
Meanwhile, Patterson is busy building a new Web site that is devoted to miscellaneous handheld gadgets. "I don't think I'll have much positive to say about CE, if I address it at all," he said.
As it turned out, Philips wasn't far behind Patterson. Last summer, the company decided to drop the Nino from its product line, citing disappointing market growth. The company is still selling the Ninos in stock, Philips spokesman Marty Gordon said, which is why the Nino Web page is still up.
When Microsoft first announced Windows CE three years ago (CE does not stand for anything), hardware manufacturers such as Philips were quick to start producing handheld devices to compete against the popular Palm organizer, which has its own operating system, called the Palm OS. Industry analysts' projections were so rosy they implied that Palm Computing should run for cover.
But a very different picture has emerged since then. According to NPD Intelect Market Tracking, a research firm in Port Washington, N.Y., personal digital assistants running CE account for just 15 percent of the PDAs sold; 75 percent run the Palm OS. "It's not growing at all," said Nazia Khaliq, an account manager at NPD Intelect.
Microsoft may be the software giant, but when it comes to Windows CE, it certainly has not stifled competition or gained control of the market. In fact, in the portion of the CE market that consists of handheld organizers, the giant is stumbling.
In November, as Microsoft chairman Bill Gates was at the Comdex trade show showing off a small new $200 CE-based Internet access device called the MSN Web Companion, another corner of the show was humming with the news that Sony and Palm Computing had signed a deal to work on a new generation of handheld devices using the Palm OS. Soon afterward, Everex confirmed rumors that it would discontinue its CE devices because of slow sales.
Palm's sales, in the meantime, continue to grow, and, with the exception of some serious shipping glitches, Handspring is off to a promising start with its relatively inexpensive Visor.
But as Microsoft is quick to point out, Windows CE is not just for organizers. It is making its way into a variety of products, including digital set-top boxes, game consoles, cell phones, Internet appliances, cars and even automated gasoline pumps. If such products are taken into account, said Rogers Weed, director of Windows CE marketing at Microsoft, sales of CE licenses to various manufacturers are up more than 50 percent for the year, compared with sales at this time last year.
But for pocket-size and larger handhelds, something has not clicked for Windows CE. What is the problem? The answers from both analysts and consumers vary widely, but include explanations like these: The price is too high. Microsoft misjudged Palm's momentum. Compared with the relatively simple Palm OS, the CE interface is too difficult to use. The devices are too bulky. The quality is poor. The feature-laden devices promise too much and deliver too little.
Tom Rhinelander, an analyst at Forrester Research, boiled it down to this: CE is too rudimentary to act as a suitable substitute for a real computer and too complicated to run on a PDA.
"What Microsoft tried to do was take the entire PC experience and cram it down into a tiny little screen," Rhinelander said. "Their theory was that people knew and understood Windows and there would be value in retaining the look and feel, and that was absolutely false."
Chris Shipley, publisher of DemoLetter, an industry newsletter, agreed: "I don't think you want a Windows computing experience in a palm-size device. You want to look up addresses. You don't want a Start button."
Another, related criticism is that both the palm-size devices and the slightly larger handhelds, which usually come with a small keyboard, are too packed with capabilities -- that the novelty of downloading video clips and watching them on a tiny screen wears off quickly.
That isn't to say consumers have given up trying to like CE devices. Michael Anderson, an engineer in Marlborough, Mass., who confesses to a weakness for gadgets, has been buying CE devices since they came on the market, searching for the perfect one. With each new device, his hopes rise, then quickly fall again.
Anderson's experience with CE devices over the years has been a bit like being enticed by a travel brochure into buying a vacation in paradise, only to arrive and find the hotel bad and the food worse.
Most recently, Anderson bought a Hewlett-Packard Jornada 680, one of the company's latest offerings in the CE line.
"I really thought the 680 was going to be it," Anderson said. "From the spec sheet, it should be the most amazing thing ever." The specifications sheet lists an internal 56,000 bit-per-second modem, 16 megabytes of internal memory, Internet e-mail support, a 6.5-inch color screen, a keyboard large enough to type on, built-in voice recording and a 133-megahertz processor (compared with a 16-megahertz chip on the Palm).
But after using the Jornada for a few days, Anderson again grew frustrated. In spite of the faster processor on the Jornada, he said, his more efficient Palm V was faster. "It's a great example of where something should be the most amazing thing ever, but it's still not all that fast and the apps are underpowered."
The CE apps, or applications, Anderson is referring to are pint-size versions of Windows-based programs like Excel, Word and PowerPoint. Not only do they fall short of doing all that a full-blown Windows program can do, but the small screen renders many of their features useless, Anderson said.
Josh Bernoff, an analyst at Forrester Research, said, "Once you've got a screen that's small enough that you can't really run Windows, you ask yourself, what is this for?"
Not everyone feels that way. Many people swear by their Casiopeias, their Hewlett-Packard Jornadas and their Compaq Aeros. Aaron Driver, a supervisor for the California Transportation Department in San Francisco, recently bought a Nino, which he uses to keep track of daily appointments and contacts and for e-mail while on the go. Driver said he and a friend who uses a Palm agreed that the Nino was easier to use.
Gary Rado, president of Casio in Dover, N.J., said customer demand for the newest Casiopeias far outstripped supply. The company has nearly 10 percent of the market for handhelds, he said. One of the reasons the Casiopeia is so popular, he said, is its crisp color screen. "A lot of people are downloading video and film clips," Rado said. He agreed that people's enthusiasm for doing so might wear off but said their enthusiasm for the screen would not. "People like the vibrant display," he said.
Weed, at Microsoft, acknowledged that sales of CE pocket-size devices had been less than robust. But he pointed out that sales numbers like those gathered by NPD Intelect took into account only retail sales. Many more CE devices are sold directly to businesses, some for specialized applications.
Microsoft has no intention of conceding any of the market for pocket-size computers and larger handhelds. "If you look at the people in the game in a serious way, they're all continuing to innovate," Weed said. Compaq, Casio and Hewlett-Packard have all made smaller, easier-to-use devices with better color displays, digital music support and faster processors, he said.
"I don't think we've seen the end of it by any measure," said Shipley of DemoLetter. But if manufacturers like Philips are going to take a second look at CE, she said, "I do think it has to be a much different implementation."
Diana Hwang, an analyst at International Data Corp., agreed. "I don't think Microsoft would give up the handheld space unless they just really can't do it," she said. "Microsoft always comes back. Their challenge is the next generation of CE."
The development of that next generation, Weed said, is well under way at Microsoft. Sometime next year, he said, an updated version of CE will start showing up in new handheld products. Weed refused to elaborate because, he said, he does not want to discourage people from buying products currently on the market.
Rado, of Casio, said his company had no intention of abandoning CE. On the contrary, Rado said, Casio is busy developing a new device based on Rapier, Microsoft's code name for the updated version of the CE operating system. "When Rapier is ready to go, we'll have our models available," he said.
Patterson, the disillusioned No. 1 Nino fan, may have defected permanently. But the persistent promise of a smaller, slicker, faster, easier, lighter CE device helps explain why people like Anderson keep coming back for more.
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