PDA Wars: Round Two

For most of last year, many observers were prepared to crown Microsoft the king of the PDA market. Palm was struggling, both financially and strategically. Research In Motion had carved out an impressive niche, but wasn't achieving the kind of market share that would worry Redmond. Symbian seemed irrelevant, unable to persuade even its owners to commit many production devices to the platform. Meanwhile, Compaq's iPaq was winning all kinds of accolades, especially from business users.

Many thought the PDA market would inevitably be a replay of the desktop market, with Palm in the role of Apple, and that it was only a matter of time before the Pocket PC became the "safe" choice of businesses, sweeping aside all other platforms. Giga disagreed with this prognosis; the market dynamics of the PDA market are much more complex than those of the desktop. Rather than a replay of Windows versus Apple, Giga sees an emerging market that looks a lot more like a replay of .Net versus Java 2 Enterprise Edition, mixed with a replay of Exchange versus Domino. From that perspective, there's still everything to play for--and, in fact, no guarantee that any single "winner" must emerge.

There's no doubt that the Pocket PC has had tremendous momentum in the enterprise during the past 12 months. Although still well behind Palm in market share, Giga's "mindshare" surveys showed the Pocket PC on a par or even ahead. In the past, these surveys have been strong predictors of future market share, especially as companies grow increasingly influential in determining PDA choices, whether directly through purchase decisions or indirectly through support and synchronization policies. Although it would take a long time for the Pocket PC to overhaul Palm's huge advantage in installed base, powerful devices with bright color screens, built-in support for Office documents, and easy integration with Exchange meant that the tide was certainly running in the direction of the Pocket PC.

However, events have conspired to slow the Pocket PC's momentum and give Palm the opportunity to right its ship. First, the economic slowdown. While recession hurt everybody in the PDA market, including Palm, a renewed focus on value (particularly from enterprise buyers) favored Palm's lower-cost devices.

Second, the HP-Compaq merger. Between them, Hewlett-Packard and Compaq account for the lion's share of Pocket PC sales, especially in the enterprise. For some companies, the uncertainty over which brand would continue after the merger (assuming it goes through) has been enough reason to take a second look at Palm. Even as the economy improves, the Pocket PC's ability to dominate the market will remain hindered by the absence of a truly low-price entry-level device, although Giga expects to see the drift to Pocket PC continue as the economy recovers.

Turnaround Time
Meanwhile, Palm is in the midst of a turnaround. A year ago, the company seemed adrift, unsure of how to take its "first-mover" advantage to the next level in the face of the onslaught from the Pocket PC. With its latest devices, it has shown that it knows it needs to do more to match the Pocket PC's appeal to mobile professionals. The most recent Palm devices ship with software for editing Microsoft Office documents, for example.

The new i705's integrated wireless capability also goes a long way toward stemming losses to RIM's BlackBerry. One critical reviewer of the i705 wrote that this device was "all about wireless E-mail," and on that criteria the i705 was a poor second to the RIM. This perspective misses the point. While the i705 is still not as slick an E-mail device as the BlackBerry, it doesn't need to be, because the i705 has one key feature that BlackBerry doesn't: It runs the thousands of available Palm applications. The question should not be, "Is the i705 a better E-mail device than the BlackBerry?" but rather, "Is the i705 a good enough E-mail tool?" For many users who might previously have carried both a BlackBerry and a Palm, or given up entirely the other Palm advantages to carry only a BlackBerry, the answer to that question is yes. For companies that want to manage fewer devices, the i705 will also be attractive once the server for enterprise E-mail integration ships, although former BlackBerry users might grumble..

The critical moment for Palm comes later this year, when its new operating system ships. The new operating system will allow Palm to exploit the same ARM chips that have become standard in other PDAs, as well as simultaneously run much more powerful applications, including multimedia and communications. Palm's goal at this point must be to do as much as it can to sustain its installed-base advantage until the new generation of devices restores technological parity. Its latest devices and newly enterprise-aware strategy suggest that it has done enough to ensure that the battle is far from over.

Meanwhile, neither RIM nor Symbian is sitting still. RIM is in the midst of rolling out its own next-generation device, which exploits the newest General Packet Radio Service networks. It's gambling on Java, specifically J2ME MIDP, to bring it the application catalog that today represents Palm's greatest market advantage. Symbian has just released its 7.0 operating system, and, while it's easy to be cynical about Symbian based on the lack of commitment by even its own handset maker co-owners to previous releases, both Nokia and Sony Ericsson have launched high-end devices on the latest release and are promising to take another run at the U.S. market later this year. There are even rumors that Motorola, another Symbian co-owner, will bring out a device this time around, as well as promises from other Symbian licensees.

It's Integration That Matters
Many people see the Pocket PC as the "safe choice" for enterprise buyers on the assumption that eventually, Microsoft will dominate just as it does on the desktop, and this certainly is a perception that Microsoft would love to foster. However, enterprise buying criteria for PDAs don't automatically favor the device with the closest ties to the desktop. Characteristics of the device itself, such as display quality, size, weight, and especially battery life, are important, of course, but for companies, integration is increasingly important.

Critically, as buying power shifts from individual buyers to corporate buyers, it's integration with the server, rather than the desktop, that matters most--and Microsoft is far from dominant on the server. For companies that want to provide employees with mobile or wireless E-mail access, it's integration with Exchange and Domino on the server, not Outlook or Notes on the client, that counts, and RIM in particular has proven that Microsoft doesn't necessarily have the advantage in that regard. For enterprise applications that use PDAs as remote clients, it's necessary to invoke business logic in J2EE application servers and .Net servers, synchronize with relational databases, integrate with enterprise resource planning and customer-relationship management systems, and access legacy systems of all kinds and even, in the future, Web services.

While Microsoft may well have an advantage in integrating its own stack, it has no inherent advantage in connecting to the broad array of back ends found in most companies. For the enterprise, the quality of the middleware is ultimately going to be more important than the quality of the client operating system, and for both Palm and Microsoft (not to mention RIM and Symbian) that battle has barely begun.

Carl Zetie is the VP of Giga Information Group