InformationWeek: The Business Value of Technology

November 13, 2000

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A Market Left To Its Own Devices

Hardware adapts as data elbows in on wireless voice, but what's the shape of things to come?

By Mary E. Thyfault

More on wireless hardware:

Wireless Devices Present New Security Challenges(10/23/00) TechWeb Finance: Nokia Dodges Wireless Downturn(10/30/00) TechWeb: Handspring Adds Color Display To Visor PDAs(10/16/00)

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t's going to be big. It's going to be wireless. And it's coming fast. Ask industry experts about the wireless hardware market and most will agree on these points. But ask them to talk specifics--what kind of device will become the pre-eminent tool or which of the dozens of manufacturers will emerge as the market leader--and the likely answer is: It's all up for grabs.

One thing for sure is that wireless will be more than just voice. Internet connectivity, file access, and mobile commerce is where it's at. Cahners In-Stat says that more than 1.5 billion handsets, personal digital assistants, and Internet appliances worldwide will be equipped with wireless Internet capabilities by the end of 2004.

Cell phones now represent the majority of wireless devices that can access the Internet. "What's going to happen is you're going to see a new class of cell phones, as opposed to handheld computers becoming cell phones," says Tim Scannell, an industry analyst with Mobile Insights. With an installed base of 6 million to 7 million phones and 1 billion by 2005, potential revenue is greatest for handset manufacturers, Scannell says.

But cell phones do have drawbacks. "Just punching in information on the phone, we've got the potential for a new disability called touch-tone finger," says Kim Spenchian, senior VP and CIO of MGM Studios in Santa Monica, Calif., who's issuing Internet-enabled phones to MGM's sales force so they can access business data.

Today's cell phones aren't ideal for the Net. They have limited memory and processing capabilities as well as small screens. And, without a keyboard for typing messages, users have to punch in letters on a numeric keypad.

PDAs represent the next generation of devices for wireless Internet access. These handheld devices provide more processing power and have larger screens. The downside? PDAs are just now adding voice capabilities.

There's also a crop of new handhelds with keypads and displays that effectively convey text messages, such as Research In Motion Ltd.'s BlackBerry. Because these devices are "always on," they're ideal for E-mail and other Internet-based communication.

Finally, devices such as pagers, handheld PCs, and specialized wireless devices are meeting the needs of niche markets, such as tracking packages during delivery.

With so many different devices, the question remains: Will one style or form win out over another? The answer, analysts say, is maybe. "The whole marketplace is due for a lot of change, but I don't have a good idea of what it will change to," says Warren Wilson, a senior analyst at Summit Strategies. Wilson and others predict different styles of wireless devices will merge to make better use of data and voice services.

That could mean that the projected 1.4 billion users will be able to buy all-in-one devices, but some say chances are many users will still want specialty tools. "Most business people will want to carry a couple of different devices or be able to switch back and forth among devices, depending on what they're doing and what time of day," Wilson says.

The wireless market has been plagued with a mishmash of proprietary and industry-adopted standards. But growing support for the Wireless Application Protocol, Java 2 Mobile Edition, and other standards should help. Another significant development is the third-generation wireless networks expected the next year or two that will provide wireless data throughput of up to 384 Kbps.

Standards are expected to provide a clear path for device manufacturers and application developers to create a more attractive wireless Internet. They will no longer be required to develop applications and products on a per-device basis and can focus on what will work for, and is needed by, the market as a whole. --Matthew G. Nelson

Handspring: Competing With Its Past

The tale of Handspring Inc. and the three entrepreneurs who founded it in 1998 is a perfect example of a story that's becoming more common in the high-tech market. Handspring's flagship product is in the unenviable position of competing with the very product that the company's founders created eight years ago.

Handspring makes the Visor, a PDA with calendar and contacts features, games, numerous other applications, and several accessories. There's little debate that the Visor, with its touch-pad screen and familiar shape, strongly resembles the Palm.

The close association makes sense. In January 1992, Donna Dubinsky and Jeff Hawkins created the Palm system and the Palm Computing Co. The company spent a year and a half developing the Palm, but eventually ran out of money and was scooped up by U.S. Robotics in the fall of 1995. The first Palm Pilot shipped in April 1996. 3Com Corp. bought U.S. Robotics in the summer of 1997.

The original Palm group worked with 3Com to spin off a separate company, but when that failed, founders Dubinsky and Hawkins, along with Ed Colligan and five other employees, left to start Handspring, says Colligan, co-founder and senior VP of sales and marketing for Handspring.

Handspring began shipping its Visor product line in October 1999. The company sold an impressive 75,000 devices in just three months, says Mike McGuire, an analyst with Gartner Group. This year, Handspring is expected to sell about 1 million Visor units, says Sam May, a senior research analyst at U.S. Bancorp Piper Jaffray.

The most visible difference between the Visor and the Palm is the Visor's Springboard expansion port, which lets users attach hardware such as a modem, camera, voice recorder, or an MP3 recorder. Last month. Handspring also began shipping a cellular-phone adapter.

The operating system is one of Visor's greatest selling points. Handspring licenses Palm OS the operating system--the same one that the founders of Handspring helped create--from 3Com. The irony isn't lost on Colligan. "It's a little strange to be paying someone for that when you developed it," he says.

But the popularity of the Palm OS gives Handspring a distinct advantage. "They're trying to lev-erage the Palm economy in terms of the number of developers writing Palm apps and extend that to the hardware manufacturers with the Springboard modules," McGuire says.

So far, that strategy has produced 20 modules, mostly from third-party providers such as Xircom Corp., and another 120 are in development. Moreover, there are more than 5,400 developers creating applications for the system. Handspring, too, wants to extend Visor's capabilities. Last year, the company spent $10 million on research and development, says Colligan.

While not yet profitable, the company reported revenue of $70.5 million for the first quarter of fiscal year 2001, ended Sept. 30, an increase of 36% over the previous quarter. It reported a net loss of $8 million; total operating expenses for the quarter were $32.6 million, or 46% of revenue.

Illustration by Brian Raszka

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