The Secret to Success of PalmOnes Zire

With 3 million sales of the handhelds in three months, the company is thinking smart by centering on the consumer market and keeping it simple, analyst Rob Enderle writes.

PalmOne Inc. announced Thursday that it has sold 3 million Zire handheld computers in the three months since the companys launch, in a time when handheld sales in general were flat.

Whats more impressive is that 70 percent of the sales were to new users and 50 percent were to women—in a market that has been nearly 90 percent male. Only Apple Computer Inc.s iPod has had better sales figures.

PalmOne owns 40 percent of the global handheld market, nearly twice Hewlett-Packard Co.s second-place share of 22 percent. And if you aggregate the market share of all of the Zire models, the product line has a 30 percent share of the U.S. handheld computing market, making it the dominant handheld brand.

/zimages/5/28571.gifPalmOne shares soared last month after news that the companys loss unexpectedly narrowed in the latest quarter. Click here to read more.

What makes the Zire line different? It was created specifically for the consumer market, not for corporate accounts (which were having a problem justifying handheld computers anyway).

Individuals continue to be the primary source of buying decisions in this market. In addition, the consumer continues to buy aggressively. Look at the Apple iPod: In a market that grew a whopping 87 percent (the PC market grew at less than 20 percent for comparison), iPod sales grew 900 percent. If you build the right product and market it effectively, the consumers will buy. I personally believe that if PalmOne could approach Apples marketing quality and budget, it could also approach iPods growth numbers.

Comparing the Zire line to the Apple iPod yields a number of similarities. Both products are simple in design and even simpler in interface. And both products do a nice job with music files as well. But the Zire does more—including better games and PDA functions, pictures and video—and is in many cases less expensive than the iPod.

Neither product needs a dock; both will use a single cable for both data sync and charging. Most of the products I currently carry use such a single-cable solution: my MSN Direct watch, Good Technologies PDA, Motorola smart phone and iPod. The phone and the PDA can actually use the same cable, and the Zire (if I had one) uses this same USB cable. Personally, I favor products like this; and it appears (based on the sales reported by Motorola, Apple and now PalmOne) that you do as well.

If I were setting corporate specifications, Id begin requiring this of all mobile phones and handheld computers. Inventory would be much less challenging, the cost of replacing power bricks would be insignificant (you can charge from a desktop or laptop PC), and docking problems would be reduced.

With corporate sales remaining relatively flat, and with consumer sales still on the upswing, it still makes sense outside of vertical applications to make the handheld computer an individual choice that is loosely supported by corporate IT, rather than a standardized corporate tool. That means the Zire will continue to find its way into business applications.

That probably wont change until someone such as PalmOne or Microsoft Mobile ships a product that is a better replacement for the Good Technologies or RIM two-way e-mail devices—or until we have a smart phone that can fully displace the PDA and cell phone.

/zimages/5/28571.gifEnderle says a smart-phone prototype by MyOrigo of Finland could obsolete both the Motorola MP x200 and PalmOnes Treo 600. Click here to read more.

The PalmOne Treo is closest to that right now, but nowhere near where it needs to be to reach that potential. And theres a substantial question of whether its possible for the Treo to ever get there.

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

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