PALMTOPS - Palm it off

Apple's retreat from the palmtop market has left the field open for the next generation of PC-based PDAs. But who will gain control of this volatile niche?

A week after Apple closed down its handheld PC business, developers the next generation of PC-based PDAs. But who will gain control of this volatile niche? in the US staged a protest. They picketed Apple's Cupertino headquarters, and served tea and Fig Newton biscuits. But to no avail. Apple did not take the hint. After six loss-making years with the Newton, Apple had finally given up on it.

Well, not quite. Although Apple will no longer develop the Newton, it plans to relaunch the eMate, a member of the Newton family, as an education-only product. The key difference is the eMate will not have the proprietary operating system that turned the Newton into such a costly technological blind alley for Apple - it will be compatible with existing Macintosh operating systems.

Apple developed its flagship PDA, the Newton MessagePad, outside of its mainstream Mac business. The problem it never overcame was the machine's incompatible operating system. And the early handwriting trials did nothing to boost the Newton's credibility.

Apple has lost $2 billion in the past two years, so two operating systems was an unaffordable luxury, particularly when it would have involved a head-to-head fight with Microsoft - again. Apple is having a difficult enough time competing on the desktop side, without a second front opening up.

'You can't say that the Newton was a failure,' insists a representative from Apple. 'It did create a whole new category of handheld devices.'

Ironically for Apple, its decision to withdraw - almost - from manufacturing handhelds is not so much a sign of falling demand - which Apple itself did pretty much create - but of the potential market for handheld PCs, particularly the current crop of palmtops.

According to industry analysts, the removal of the Apple PDA is a sign of the fearsome opposition gathering in this market, including the entry of companies such as Microsoft and 3Com and, higher up, Compaq and Hewlett-Packard. Perhaps the fate of the Newton is not symptomatic of this market sector as a whole. Research company IDC expects worldwide growth for the palmtop market to be 28 per cent over the next year.

The good news is that many of these devices are becoming increasingly sophisticated and, like mini-clients, are able to link into business enterprise.

Vendors such as Oracle are now busy developing scaled-down software that integrates with existing systems. Potentially, this will change the handheld PC's image from being viewed as a slightly upmarket calculator to a serious business item.

But it wasn't dealers that were hit hardest by Apple pulling the plug on the Newton. It has never been a great seller for Apple dealers - more a labour of love for a hard-core group. The problem with handheld PCs, particularly those that need to 'learn' handwriting, is they are very personal things that require a great deal of effort to configure properly.

It takes a certain kind of customer to put that effort in - particularly when the rewards are so small.

Those who were clobbered by Apple's decision were a small band of dedicated, mostly US-based, independent Apple developers, who believed everything Apple had told them. They kept working with the Newton long after most of the outside world had quit (this included Apple's interim CEO Steve Jobs; the Newton was devised by former Apple CEO John Sculley). US developers such as Llamagraphics were forced to slash pricing on their Newton tools as the market started disappearing. But UK dealers were less likely to be caught out. They remembered the pen-based and handheld computing crash of 1993/1994 when a number of dealers such as Supplyline Direct in Twickenham went down owing hundreds of thousands of pounds.

Among specialist education dealers, agents for Xemplar will be able to sell the eMate - similar to the MessagePad but with a proper keyboard - when it launches in 1999. Xemplar is the joint education sales company set up by Apple and Acorn. 'It's not strictly true to say the eMate is dead,' says an Xemplar representative. 'The current eMate will be two years old anyway, and you'd expect a new version to come out then.' Xemplar says it will continue to support existing eMate education customers until the new release.

This still does not answer the question of why Apple abandoned the Newton, rather than spinning the business off as a separate company. IDC US analyst Diana Hwang claims Apple made a mistake. She says: 'If it had let it spin off, I think it would have done fine.' Sources claim that former Apple boss Gil Amelio wanted to do that, but Jobs was less keen.

The main reason seems to have been the desire to keep a stake in the education market, which it achieved by not selling off the PDA division and retaining control of its eMate technology. But Apple has decided to leave the potentially lucrative handheld market to in-comers who have watched and learned from its mistakes.

The battle for the hearts and minds of mass handheld PC users is being fought out between the PalmPilot, developed by USR and now controlled by 3Com, and the PalmPC, which runs Windows CE. The two rival systems have been playing technological leapfrog - with the 3Com PalmPilot currently in the lead. At Cebit in March, 3Com beefed up the PalmPilot with the release of Pilot III. Promised improvements include more memory, a brighter screen that no longer requires a battery-heavy backlight, and an infra-red transmitter to beam information to another machine. Street pricing on the Pilot III is #299, with a portable modem - priced at #129 - allowing the Pilot to connect to a mobile phone.

Present Pilot users can upgrade to III-level by replacing the existing processor with a slot-in card.

The early release of the PalmPilot gives it a boost over its close rival - 3Com has had the US to itself for two years. But Microsoft's PalmPC is expected to have more features. These include voice-recognition software and, unlike, the Palm Pilot, the user won't need to learn a number of non-standard keys for text entry. The PalmPC, which has been previewing in the UK, is a 6oz, slimline 'digital jotter', priced from #200. It ships with double the memory configuration of the Pilot - 2Mb Ram as opposed to 1Mb.

The Microsoft PalmPC runs a scaled-down version of its Windows CE operating system, which it already licensed to vendors including Compaq and HP.

But the Palm Pilot is much smaller. The units are being developed by Philips Mobile Computing Group, Casio and LG Electronics. Other vendors committed to the form include Samsung and a number of other Far Eastern consumer electronics manufacturers. The 3Com Pilot will be sold more on its ease of use, say analysts, and the PalmPC on its features - which will also include a cradle that will link it to a PC. 'It's a matter of personal preference - which one a user would prefer,' says IDC analyst Dan Kusnetzky.

But the real excitement lies in the applications software. Oracle is developing a version of its Lite database for the 3Com Pilot, and for devices which run Windows CE. IBM has already shipped software which will synchronise Lotus Notes with the PalmPilot. These are the ingredients for success - or at least for more success than Apple had with the Newton.

The other battleground is between Sun and Microsoft - in other words, Java and Windows CE. Sun is planning future handheld devices, running Java manufactured by companies such as Psion and Nokia.

Microsoft seems to be in the commanding position, particularly if it can introduce true scalability between the handheld devices and Windows running on the desktop. But it isn't just a question of cramming in the features. One analyst said the PalmPC might actually be uncomfortably complex and buggy - two potential problems ironically similar to the Newton's.

'It's called the kitchen sink approach,' says the analyst. 'Why should you buy a handheld that is really a crippled notebook?' It's a question that both Compaq and HP should be asking.

So, at one level is the 'handwriting tablet' market with pricing at around #300. At another are Windows CE-based 'sub-notebooks', starting at #700.

But according to Psion, neither of these is a true palmtop PC - using the criteria that it must have a keyboard and be able to fit into the user's pocket. Psion reckons it will be able to plug the gap with its own Series 5 model, a sub-#500 unit which runs a 32-bit operating system and is upgradable to 8Mb Ram.

'There is not just one market for palmtops,' says a representative from Psion. 'There are a number of markets and we are perfectly placed.' He says Psion has been fortunate in not competing directly with Microsoft.

The early versions of Windows CE, he says, did compete with Psion - but since then they have added more bulk to the operating system, and the size of the units that run them. 'Windows CE started life as a consumer-based operating system,' he says 'But it has moved away from that towards the corporate desktop.'

The representative claims Psion has less need to link into existing back-office applications. Instead, if it is being used by a business, it will run specific applications for it, whereas the strategy with Microsoft is to link up its systems. The other place Microsoft is competing is at the low end against 3Com. He says: '3Com is in for a very rough time once it comes head to head with Microsoft.' It's a view that many in the industry would share.

But Martin Clarke, sales director at Lapland, says the high-end Windows CE-based machines are driving the market for dealers. 'As yet there isn't the volume to really impact on notebook sales,' he says. 'As the price comes down, volumes will increase alongside, rather than at the expense of, conventional notebooks.' He says the driving force is the extension of Windows into the mobile sphere and that it will create problems for any manufacturers lacking that capability.

The danger for Psion lies in getting squeezed between these two different market sectors - but equally there is a chance it will fragment still further.

There is no typical customer and no one has yet designed a PC that appeals to everyone. Sales are set to increase at a reasonable rate, but for dealers this is a still a volatile niche market - as Apple knows only too well.