The Death of the Handheld Computer

Vendors made three strikes when handheld computing came up to bat; is it game-over for the market?

Whatever happened to the handheld computer market? A segment that seemed to have limitless potential just a few years ago now seems to be flirting with irrelevance.

Right now, there are too many vendors in the space. Dell is driving the margins out of the segment; laptop computer prices are dropping to within a few hundred dollars of high-priced handhelds; and converged devices (cell phone/handheld computer) have generally proven to be a joke on those who bought them.

The choice seems clear: Either the market for these devices needs to expand, or some vendors will have to exit. Some (like Philips) have left, and Handspring was recently acquired by PalmOne.

Three major mistakes stunted handheld computings growth. The first is standards (or the lack thereof); the second, excessive focus on technology instead of user needs; and the third, a dearth of marketing focused on the segment itself, not the devices.

Lack of standards: The welter of handheld specifications on the market is a study in contrasts with the standardization that fueled the rise of the desktop PC in the 1980s. That market gained momentum thanks to early establishment by IBM Corp. of cross-vendor standards—the hardware version of open source. Anyone could build against a set of specifications that included card slots, power supplies and peripherals. As long as these specifications were met, you could play with the big boys.

Currently, there are almost no common standards among handheld computers. There are two strong software camps: Microsoft, which has been struggling of late, and a strengthening PalmSource. The hardware picture is even more fragmented: Besides a standard headphone jack, there are almost no common ports for power or peripherals.

Thats a big problem for devices explicitly designed to sync up with other systems. Indeed, synchronization headaches have prompted some IT organizations to banish rather than embrace handhelds.

Bluetooth and 802.11 wireless technologies have been portrayed as a way out of the connectivity conundrum; up until the recent Broadcom chip announcement, however, 802.11b chips sucked too much power from the devices, and Bluetooth was a standard in name only. (So far, Bluetooth has been one of the biggest market disappointments in the history of this industry, easily eclipsing the growing pains of USB and Ethernet. Many of the devices are still incredibly hard to set up, dont work cross-vendor, and have substantial reliability issues.)

User needs: The handheld market seems determined to repeat a common mistake of the tech industry: the desire to focus on a competitor or a technology to the exclusion of customers needs.

Consider Sony, which undercut its wonderful handheld computer with nonstandard storage technology: Sonys own Memory Stick rather than SD, the accepted standard. Furthermore, it carries such a high price that Sony has been bleeding market share.

Dell, by contrast, focused on one immediate customer need: a low price. Its PDA came in at a class-killing price hundreds of dollars less than comparable products. With no consensus on what features defined a winning handheld product, price became the market driver; within a few weeks of entering the market, Dell had claimed perhaps as much as 40 percent.

In its efforts to focus on the customer, Palm actually redefined itself. The company stopped developing its own converged handheld computer and bought Handspring (which was failing in the market) for its soon-to-be-released 600. This model is the only one that even comes close to what customers seem to want in a handheld computer: a single device that can communicate voice and data while providing a full range of computing features.

RIM also grasped the need for connectivity among handheld users; the company still has the only product that comes close to meeting that need in North America. However, other vendors have been slow to reach the same level of coverage because of the slow proliferation of next-generation wireless phone technologies, such as Edge, 1xRtt and GPRS.

Lack of segment marketing: When a market segment such as handheld computing is still maturing, customers need to learn about what it can do for them. Inundated by product marketing alone, potential buyers become confused about which features are important and may conclude that it isnt worth the effort.

To grow a segment rapidly—or recover a failing segment—often takes an industrywide effort. A central group should be funded to drive demand to this class of hardware.

When Palm was practically the only game in town, efforts of this sort were de facto centralized, and handheld computers spread quickly. The entry of other players has blurred this segment focus and deterred customers from upgrading.

Meanwhile, two emerging types of hardware could render the current handheld wars moot. Desktop blade computing could consolidate the market by linking premium handheld devices solidly to blade manufacturers. Alternatively, a new generation of modular computers that rival handheld sizes but offer full Windows XP capability could eliminate all but the lowest-cost handheld models.

The call to action for handheld computer makers: Hang together, or hang separately.

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Rob Enderle is the principal analyst for the Enderle Group, a company specializing in emerging personal technology.