A couple of years ago, Windows CE was little more than a joke compared with the Palm operating system. With sales from traditional PCs set to fall, though, Microsoft saw a pressing need to move into the PDA market.  Several versions of the OS later, it’s certainly no joke. Recent figures for the first quarter of 2002 show that in Europe alone shipments of Pocket PC-based mobile devices from Compaq, Casio and HP together exceeded those of Palm (just). By value, Compaq’s iPaq revenue alone of E92m comfortably exceeded Palm’s at E77m. Although not in the driving seat yet, Microsoft has clearly done a lot to catch up on Palm. A particular area of Palm strength is still the vast compatible applications suite made available through third party developers. Microsoft is concentrating in this area too. As in other markets, Microsoft’s key ability is not getting its software right first time, but being able to cycle through several attempts quickly until it does get it right.

Now the company has its sights set on the smart phone market – a smart phone being a cell phone that includes PDA functions and can run applications. Its Stinger project, to build a Windows-based next generation smart phone, was previewed a few months ago and is now just being launched in Europe under the name Smartphone 2002, using the new Pocket PC Phone Edition. It has suitably large ambitions for this market too. While the PDA market represents sales of about 12 million units worldwide annually (and rising rapidly), the cell phone market represents about 400 million units – and is also set to rise rapidly as 2.5G rolls out. Microsoft’s stated aim is to capture an initial 25% of this (100 million units) within the next few years – it was to have been by 2003 but this looks a little unlikely now from a standing start in mid-2002. From this the company would earn about $10 for each phone in software licence fees – a $1 billion business.

Since this initial target represents a larger market share than any of the current cell phone suppliers apart from Nokia, and bearing in mind the company’s previous, successful battles against the likes of WordPerfect and Netscape, what chance do the traditional cell phone suppliers have in beating off this new challenge? Indeed do they want to beat it off or are they simply going to live with it, becoming licensees of the software and just building the smart phones? 

Symbian – off to a flying stroll

As far as Microsoft is concerned, Britain’s Symbian is its main competitor in achieving its aim. Formed in mid 1998 to provide a single operating system for all smart phones, Symbian’s OS (Epoc) is based on that used in Psion’s own market leading (at the time) handheld computers. Its shareholders then were Psion, Nokia, Ericsson and Motorola – the three cell phone market leaders plus the European handheld PC leader. Since then Matsushita – the owner of the Panasonic brand – joined the group in 1999.

In spite of this A-list of shareholders, though, Symbian has been remarkably slow to get moving. Its first product in 1999 was Ericsson’s R380 smart phone with version 5.  Its much improved version 6, though, didn’t become available until November 2000, some two and a half years after Symbian was formed. This version was (finally) well-received as a high quality package, but the number of products based on it to hit the market was distinctly underwhelming. The most significant was Nokia’s Communicator 9210 (previous Communicators used Geos). Meanwhile, Motorola broke off its Odin development with Psion in late 2000 that would have put Symbian into its Accompli range of smart phones. Although the Symbian OS is also used in Motorola’s DragonBall MX1 processor for smart phones, the same processor is also now certified for the Palm OS. Then Psion itself announced in early 2001 that it was exiting from the handheld PC and smart phone markets. Ericsson too announced it was getting out of handset manufacture, subsequently forming a joint venture with Sony.

Signs of impending doom?

With Symbian strolling along with effectively no marketing plan and few products based on it seeing the light of day, the spectre of a rampant Microsoft gaining ownership of the cell phone market has had a powerful effect on some of the players – Nokia in particular. Originally seeming to be content to wait for Symbian developments to happen whenever, the company has recently become a lot more proactive. Symbian too has recently moved to a more marketing focus, from being pretty much entirely engineering led.

Symbian itself offers just the operating system, albeit a particularly powerful and energy-efficient one that crucially supports Java, making it ideal for advanced services on small, mobile devices. Microsoft’s Pocket PC, though, offers a range of standard applications as well. While Epoc, from the Psion handheld, had several key software developers on its books like IBM/Lotus, Oracle, Sybase and RealNetworks, applications for Symbian were relatively thin on the ground. Last November, Nokia therefore cast itself in a new light as licensor of its own software by releasing its Series 60 package for other handset manufacturers to license as a basis for creating their own smart phones, based on the Symbian OS but in addition offering its own user interface and applications.

This has already had an impact. Siemens, the fourth or fifth largest cell phone maker depending on the quarter (currently playing ducks and drakes with Korea’s Samsung) joined as a shareholder earlier this year and has now taken a licence for Series 60. In a blow to Microsoft, Samsung as well – which signed up to Microsoft’s software early on and has been set to become the major manufacturer supporting the package – has also now signed up for Series 60 and will now manufacture products based on both OS platforms - to ensure it ultimately backs a winner. Nokia itself has launched its new 7650 smart phone based on a new version 7 of the OS. Sony and Ericsson (or Ericssony according to wags) have started to get their joint venture act together with the recent launch of its stylish, pen-based smart phone the P800, also based on the new version 7. Motorola too is rumoured to have a version 7-based smart phone codenamed Paragon currently in development.        

Getting to market

Initially, Microsoft tried to team up with the cell phone suppliers and seemed to be getting somewhere when it reached agreement with Nokia. This was to put Microsoft applications on top of Symbian, but this approach has ultimately proved to be a non-starter. As a result, the software company has yet to land a major handset partner for Stinger, forcing it to rely on Asian phone manufacturers with low market share instead. The deal with Samsung looked like it would change all this, but they are now firmly betting on all horses, having already signed up for Palm OS some time ago and now also for Series 60.

It’s had better luck with the mobile operators. Some of these may now be wary of Nokia’s strengthening position in the mobile market. Already the handset market leader, the company has now also shot to the top position in the cellular infrastructure business. So far, Microsoft has gained the backing of mmO2, Vodafone, Germany’s T-Mobile and Spain’s Telefonica Movile. Most of these, and others, will sell their own mobile phones, produced by Chinese electronics factories and based on a design from Microsoft and its semiconductor partners – in particular Intel. Wireless PDAs are already appearing to this formula, for example mmO2’s launch of xda – a wireless PDA made by HCT in Taiwan (which also manufactures Compaq’s iPaq). Smart phones will follow, particularly in time for this Christmas.

Microsoft’s strength also lies in its strong position in the enterprise software market. Those companies wanting to link their smart phones and PDAs to Microsoft back-office systems may find the company’s approach particularly appealing.

In truth, it may all come down to price. Smart phones need to be lighter on applications than laptops and PDAs and need to be at much lower prices to become ubiquitous. It’s too soon to say who will be the clear winner and who the loser in this latest industry battle. We should know by next January though. 

 © e-principles 2002

Robin Duke-Woolley

Any comments on this article? Please send them to : Editor@e-principles.com