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The Handheld Wars
The Handheld Wars

As the market for PDAs and mobile phones grows, companies roll out their new models and marketing strategies, understanding that success or failure lies with the whims of consumers. Most times, if offered the choice between two devices with different levels of technology, the market will go with the best technology. But there are other examples where consumers continually choose the poorer technology over the more advanced.

In the '80s, the competition between Betamax and VHS ended in VHS systems, with inferior technology, controlling the entire market (except for television studios, which still use Betamax for its superior recording quality). Does the battle in the market for PDAs and mobile phones compare to the Betamax and VHS competition?

Palm vs Pocket PC
Let's take a look at the battle for the PDA market in the U.S. There's a secret to controlling any market - create it. Palm produced the first Pocket Digital Assistant (PDA) in 1995. Instead of looking for a way to scale down computers and make them mobile, Palm saw their device as something different - a personal organizer.

They focused on four functions for the user, which they called Personal Information Management (PIM) functions: The Date Book, Address Book, To Do List, and Memo Pad. By June 1999 they controlled 75% of the emerging market, creating a name brand in the U.S. as strong as Scotch tape or Kleenex.

On the other hand, Microsoft couldn't have had a worse entry into the PDA field. The backlash against their monolithic corporation was growing just as they introduced the Windows CE operating system for mobile computers and PDAs. Critics scorned the shrunken version of the regular Windows operating system, calling it too difficult, too slow, and too complex, and even damning its start menu.

Arguably the greater problem lay in Microsoft's arrogance, in believing their Windows system was perfect for every type of computer. It's not. True, the functionality of the Windows-based system offered better business software, but the public was unappreciative. Hardware manufacturers either dropped their PDA lines (as with Phillips' Nino line) or produced an unpopular hybrid minicomputer (i.e., HP Jornado 800 and  NEC Mobile Pro) or made PDAs that were as ugly and heavy as early '80s walkmen (like Cassio Cassiopeia's E-150).

By 1999 Microsoft's Windows CE devices quarter of the market was shrinking. To compete with Palm, Compaq's latest Pocket PC, the H3150, was dumbed to a gray interface and half the memory, so it would compare to Palm's functionality and price.

Bruce Kasrel, analyst for the GartnerGroup, explains, "There is certainly an issue of lead time. Palm came out first, and the initial pocket PC devices that followed weren't nearly as functional, sexy, and form fitting. Look how large the modems are for the Pocket PC."

Microsoft's PDA product line was so unpopular that when the company announced their Windows CE 3.0 version in 2000 they dropped the Windows CE name entirely and called it their Pocket PC line. Still, they had lost precious time and reputation. The market had been so eaten up by Palm that Pocket PCs were now the underdog, technically advanced, but fighting for sales, like Apple or Betamax.

Ed Suwanjindar, product manager of the Mobile Devices Division at Microsoft, says, "Palm did a good job creating the market for a simple PIM device. However, we've found that many customers now want more than basic PIM functionality - they want to take their desktop functionality with them on a device and use it for listening to music, playing games, remotely accessing their e-mail with attachments, and using the Internet. The Pocket PC offers a much faster, wider choice of wireless connectivity options, and access to the entire Web in full color."

The most important difference between the two technologies is that the Pocket PC can surf the actual Web. Other wireless devices - handhelds to smartphones to PDAs - can either surf the wireless Web (which is optimized for the small phone screen by limiting both data and graphics) or surf the real Web (by stripping out graphics and all complex functionality, and leaving the bare text). That is, if the sites actually convert at all.

The second revolutionary offering by the Pocket PC family is the ability to download video, making it the first wireless device to do so. On November 13, 2000, at the COMDEX conference in Las Vegas, Microsoft announced that Pocket PC owners were the only PDA customers who could get high-speed mobile access, over the Ricochet 128Kbps network, providing third-generation (3G) network speeds today. With that high-speed access, Pocket PCs can stream Windows Media audio and video for the first time. Palm offers neither video nor Web surfing, yet it controls 67.5% of the market.

In 2000, 9.3 million PDAs were shipped. IDC projects a growth to 33-million units shipping by 2004. The market is young, and Palm is trying to extend their control by moving from their basic gray screen and PIM functions. In October 1999, they introduced their VII line with limited wireless capabilities. Their 130,000 registered developers have produced 7,000 software applications, ranging from Pacman and Donkey Kong Jr. to Lotus Notes, fax abilities, and book downloads of the sci-fi master H.G. Wells. Palm's hardware add-ons include cameras, MP3 players and GPS systems, all in compact versions.

"There's a need for expansion, but we don't rush to market without a really robust solution that won't hack into the memory or battery," says Tim Twerdahl, product manager at Palm. "For example, we have a multimedia expansion board that's the size of a postage stamp. You can slide it into the Palm V pocket enabler without forcing a bulkier product on the consumer. That couldn't be done two years ago."

Perhaps Palm's greatest advantage is battery life, which is not measured in the eight-hour span of a Pocket PC, but in months. Their biggest asset, however, is still their name. When people buy an organizer they buy a Palm Pilot.

Will They Become Betamax and VHS?
In the wireless field, Palm is not so much "antitechnology" as it is minimalist. Their devices are Mondrians whereas the Pocket PC is the PDA version of the Sistine Chapel. For tech-heads it's hard to fathom Palm's continued focus on the four basic PIM functions.

Robin Hearn, senior analyst at Ovum, argues against Palm's continued dominance. "Compaq's iPaq is really a top level line," he says. "Palm's market dominance is definitely under threat and will drop in the next couple of years. Palm will achieve a smaller market share of a growing industry, meaning they could lose 20% market share.

"But still," he admits, "with the growth of the market, Palm could achieve a 150% sales growth during the same time."

Palm's share has already dropped from 74.8% in 1999 to 67.5% today (due more to the 16% share for Handspring's Visor, which uses the Palm operating system, than to Microsoft's upswing, but it does show that people are looking at different PDAs).

Palm users may not drop Palm when making a purchase and start using the Pocket PC, but new customers will certainly weigh the differences in technology. This growth will be seen primarily in the business market, which Microsoft has been focusing on.

"They won't be stealing any customers," says Kevin Burden, analyst at IDC. "But the market, especially the enterprises market, will be growing, and companies are now looking at these devices as tools for business. Pocket PC definitely has the advantage here, with all of Microsoft's corporate relations."

Nokia vs Ericsson
The fight between Palm and Pocket PC is a competition between name brand recognition and a more sophisticated technology. The battle for dominance between Ericsson and Nokia over mobile phones is somewhat different.

There isn't a clear philosophical difference between the two companies, but their competition is more like best friends who challenge each other. Both Nokia and Ericsson are founding members of many of the wireless forums, from WAP to Bluetooth, from MeT to SyncML to LIF. Both companies are interested in pushing their technology, not looking for a minimalist approach. During 2000, Ericsson appeared to have a slight technical edge. They invented Bluetooth technology, and on June 5, 2000, they introduced the first phone with Bluetooth capabilities.

On June 26, 2000, Nokia followed suit with their 6210. (Bluetooth is a computer chip with a miniature antenna attached that relays messages between other Bluetooth devices wirelessly. This means that five Bluetooth-enabled IBM WorkPads could use a single Ericsson 6210 as a modem hub.) On November 14, 2000, Ericsson launched the first smartphone, the R380, but Nokia countered again with the 9210 on November 21. Both add a PDA's organizing abilities to a mobile phone. Ericsson has the world's highest R&D ratio of any company (15% of total costs), but Nokia is right behind them technologically and maintains a higher market share.

2000 must have been a frustrating year at Ericsson. "We have the best quality phones today in the U.S.," declares Sandeep Chennakeshu, vice president of product management at Ericsson, "We have the best-in-class for 'talk-time' and close to best-in-class for 'stand-by time.' We're a leader in voice quality. We put our phones through the most rigorous of tests."

But technical advantage does not always help gain customers, as we've learned from Microsoft. In 2000, Nokia sold 128 million handsets worldwide, and controlled 44.6% of the U.S. market. Ericsson sold 43.3 million phones worldwide, and slipped out of the top five headset manufacturers in the U.S. On January 26, 2001, Ericsson announced they were no longer going to produce their low-end handsets, instead outsourcing them to Flextronics. It was a big blow.

Keith Nowak, spokesperson for Nokia, makes no particular claims that Nokia is technically superior to any other handheld manufacturer. "Although there are many reasons for Nokia's success in the handset market," he says, "at least two things stand out: design and market segmentation.

Looks Can Be Everything
"From the design side, Nokia has pioneered such innovations as bringing color to mobile phones, and giving customers the opportunity to change their phone's cover to make it truly personal. Nokia was bringing curves and style to a product that we recognized early on as being as much a fashion accessory as a productivity tool. When we talk about segmentation, Nokia means designing products for specific market niches."

Nokia's phones do look sharper. Although to a tech-enthusiast, changing phone covers seems a superficial advantage, the design of a cell phone relates to the personal look for the user, and that translates into an advantage for Nokia.

Nokia has made the most of their marketing strategies, advertising their products in a wide variety of media in the U.S., including TV, print, and outdoor. They've also gained considerable exposure by partnering with carriers who feature Nokia products in their advertisements. That's why Jamie Lee Curtis used a Nokia phone for a VoiceStream commercial on Super Bowl Sunday, and why Nokia phones are used in AT&T advertising. In Europe their best marketing strategy was to place a Nokia phone in the movie, The Matrix, linking their device with the futuristic, cool atmosphere of the film.

But it wasn't just style that gave Nokia their market share. Robin Hearn, at Ovum, points out that Ericsson's early display capabilities hurt their sales. "In Europe," he says, "Ericsson didn't really have their act together at the start. The early Ericsson SMS phones only displayed one line of text compared with Nokia's four lines, which made it impossible to read a message from my girlfriend." In other words Bluetooth is nice, but a lime green phone with a message from your sweetie is the one you're going to buy.

Like Microsoft's early technical problems, getting the basic usability right has hurt Ericsson, especially in Europe, where zipping short messages back and forth is so popular. To extend our best friend metaphor, Ericsson is the nerd: better grades, but less street smarts.

Ericsson admits they did not take into consideration the extent to which mobile phones have become more than communication devices. Ericsson's Chennakeshu says, "In the first round we've been delivered a small knock-out punch. We had to realize that a cell phone has to have substance and style. Look for us as we roll out of GPRS testing. Ericsson will be the first to offer SMS over a GSM network in the U.S. Take the example of fancier cars. When you buy your first car it's often cheap, but for your second, you want something nice, and you're a little more educated about what you want. Once we have the technology rock solid, we can do other things. Marketing agencies can help us do it."

Will Nokia vs Ericsson be a VHS vs Beta?
Fashion is fickle. No matter how tech-savvy the new generation is, do consumers care more about Bluetooth abilities, or having the cooler-looking gadget? Even business people understand that a handset is viewed as an extension of a personality, as much as a power tie or a pair of Italian shoes.

Ovum's Hearn says, "As for the Betamax-VHS comparison, I don't think that will happen in the Palm world. There will be a mutual shakeout in PDAs. But in the phone market you can see it. Everyone wants a Nokia phone, especially the phone they used in The Matrix, even though the technology isn't as advanced and it has a poor battery life. But it's got the look that people want. Phones could bow to the pressure of fashion and the population could become fixated on a certain brand."

If Ericsson can't leverage their slight technical advantage over Nokia into increased sales, then they're in further market trouble. Their clunky designs haven't exactly lit up the design world. This year they have two good chances to gain a larger share of the market.

The best chance will be this summer when Angelina Jolie plays Lara Croft in the movie The Tomb Raider, wielding the shock-proof Ericsson R310 model. (Perhaps Nokia and Ericsson can split the youth market, with boys buying the Matrix model and girls purchasing the Lara Croft phone.)

Ericsson's other shot will be their introduction of the first GSM phones in the U.S., featuring SMS capabilities, which have been such a hit in Europe and Asia.

The Smartphone Wildcard
The last question remaining is how smartphones will shake up both the PDA and the handheld markets. Not only are Nokia and Ericsson adding PDA functionality to their phones, but Palm and Microsoft are adding voice capabilities to their PDAs. On September 25, 2000, Palm and Motorola announced a joint venture to produce a smartphone, and at the 3GSM World Congress at Cannes on February 26, 2001, Microsoft unveiled their impressive "Stinger" smartphone.

Already the smartphone market is beginning to shake out. Psion, who along with Nokia and Ericsson financially backed Symbian to develop a universal smartphone language, is scrapping smartphone plans. This signals that perhaps Nokia and Ericsson's universal smartphone language won't be universal.

Kevin Burden, an analyst at IDC, doesn't believe that these smartphones will really affect either market. "They'll only put a ripple in the market, not shake it up," he promises.

In My Opinion...
I disagree. The Stinger and Nokia's 9210 are beautiful devices with full-color graphics and extended abilities to wirelessly communicate. These are the iMacs of the wireless industry, stunning enough to draw consumers into the market.

Back in the summer of 2000, Phil Holden, of Microsoft, showed me the early mock-up of the Stinger that lab technicians at Microsoft had put together, and I was sold. These smartphones will probably confirm the analysis of the mobile phone and PDA market. Along with smartphones Microsoft will finally start to capture some of the PDA market, and as long as Nokia maintains the coolest-looking mobile phones in the market they'll maintain their market share.

About C.J. Kennedy
After spending the '90s working at a copper mine in Australia, managing
a coffee shop, founding a literary journal, and teaching in the South Bronx,
C.J. Kennedy has been covering the wireless industry in
the new millennium. He is the senior staff writer at, and
has covered the wireless industry for Wireless Devnet, M-Business,,
and The Industry Standard.

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