Sony Dumps Clie: Winners and Losers

So Sonys bagging the popular Clie line in the United States. At first glance, it seems like a terrible setback for Sonys small computer plans, and equally bad for PalmSource. But a closer look reveals that Sonys not getting out of the market for tiny computers—its just changing horses midstream. Heres a look at the big winners and losers, and what it means for you.

Loser: PalmSource

Anyway you cut it, this is a terrible blow to the folks behind the Palm operating system. The company has been assiduously courting OEMs and using Sony as an example of whats possible with the platform. Indeed, the Sony Clie devices were always the strongest Palm OS PDAs on the market—at least until the Tapwave Zodiac came out. Its not just a loss of prestige, either—Sony accounted for almost 15 percent of PalmSources revenue last quarter. Ouch.

Loser: Microsoft

Why would Microsoft be a loser here? One of the companys biggest competitors is abandoning the market, which should leave more for Big Green. Microsoft should pick up some market share, yes, but the Sony move indicates a decline in the standalone PDA market overall. This is less about Sonys relative strength in handheld computers, and more about a fundamental shift away from single-function pocket computers to PDA/phone combinations. And Microsoft and its partners, at least based on my tests of a recent smart phone, havent figured out how to make attractive and lightweight hybrids. In the end, Microsoft will get more, but itll just be more table scraps.

Winner: Ericsson

Sonys partnership with Ericsson has to be one of the biggest winners here. Ericsson was losing market share fast in the competitive handset arena until the two giants merged forces. And as phones and PDAs merge—its happening faster than you might think—this is a big boost for the combined company. So far Ive been underwhelmed by the companys flagship hybrid, the P900. Overpriced, fragile and expensive, it gets very little right. But Sony must have had confidence in products under development. This is very clearly a bet on phone-centric pocket computers, and away from the PDA-centered model.

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Next page: Focus on multimedia.

Page Two

Winner: Playstation

Just a few weeks ago, Sony unwrapped its new PlayStation Portable, or PSP. A true multimedia device, it combines a music and movie player with what is essentially a handheld version of the PlayStation 1.

Sony had tried to turn the Clie into a media-centric device, and the music and movie components of the handheld were first rate. But ultimately the platform lacked the horsepower and functionality to deliver media in your palm. In addition, Sony didnt control the operating system, which made it more difficult to develop a unique product. The new PSP, though, solves all of those problems: it handles all the media-centric things that the Palm couldnt; its Sonys own invention; and it also plays games.

Im still skeptical—its new rotating media format smacks of another quasi-proprietary memory stick debacle, and battery life looks to be a problem. But its all Sony, it builds on the wildly successful PlayStation franchise, and it looks pretty cool. Think of it as a Tapwave Zodiac, Sony-style.

Loser: Apple

Why would Apple be a loser? They dont make handhelds, nor do they make phones. But I think Apples stunning success with the iPod is actually one of the key reasons Sony is killing off the Clie. Apple learned a long time ago that the PDA market was a great place to lose money and focus. Its not about handheld computers after all—its about media in your pocket. And the company that invented the Walkman should have known better. And now they will.

What It Means to You

Now that the Clies dead (at least, in the United States), expect Sony to refocus its portable business on phone hybrids with Sony Ericsson, and portable media and game devices with the PSP. If youre a Clie user, not to worry—Sony will still support the product. If you really want a Palm OS handheld, wait a month or two—youll be able to buy a great Clie at fire-sale prices. I still dont recommend the Sony Ericsson phone/PDA hybrids yet, but just wait until later this year or next year. The new products had better be stellar to justify the Clie move. If youre looking for a portable media player that adds video, Im not sure the PSP will do it, but Im even less bullish about Microsofts upcoming Portable Media Centers. Thats another market that bodes waiting and watching, not jumping. At least, not right now.

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