Pocket PC, Palm OS Battle Heats Up

Once left for dead, Microsoft's Windows CE platform--now in its guise as the Pocket PC--is steadily gaining on market leader Palm OS with strong European sales and an ever-expanding library of applications. But the Palm OS isn't exactly in trouble; companies such as Palm, Handspring, and Sony are unleashing new devices that continue to plumb the OS's ease of use and simplicity. Still, with Microsoft set to win big in its antitrust case appeal, the last thing Palm and company needs is an unfettered Microsoft turning its full attention to one of the few markets that has eluded the company.

The key to Microsoft's quiet successes so far has been the corporate market, where interoperability with the dominant desktop platform, Windows, is key. The Pocket PC has made big gains in the United States, jumping from 6 percent to 10 percent of the market during the past year, while the Palm OS's market share fell from 65 percent to 60 percent. But the Pocket PC has made even bigger gains in Europe: According to a market analysis firm in England, Microsoft's OS now accounts for 31 percent of the European market, up from 18 percent just 3 months ago. And the Palm OS has fallen from 59 percent to 55 percent. The parallels with the browser wars of 3 years ago--when market leader Netscape watched its 80 percent market share quickly dwindle and then die--are hard to miss. That's not to say that the Palm OS faces Netscape's fate; indeed, the market for these devices is big enough to support many companies. But any idea of a single device dominating the handheld PC market is quickly disappearing.

This year, analysts expect the gap to close even further, despite the arrival of new Palm OS-based devices from Palm, Handspring, and Sony. Much of this change has to do with the success of Compaq's iPAQ, a powerful, full-color device that's been in short supply. Compaq is finally revving up production of the popular device, and the company has introduced two new models--a lower-cost version without the color screen and a high-end version with double the memory capacity--to round out its product line. The European handheld market also is somewhat different from the US market. Until fairly recently, the Psion line of handhelds was very popular in Europe, especially with corporations. These devices never really made a dent in the US market, but in Europe, the Compaq iPAQ and other Pocket PCs, not handhelds based on the Palm OS, are filling that gap.

Another factor contributing to the shifting market is the rapid spread of these OSs to new kinds of devices. After striking out with small laptop-like devices, Microsoft shifted Windows CE's focus to palm-sized devices and, more recently, cell phones. Microsoft's Stinger project will combine the power of a Pocket PC with the next generation of cell phones, the first of
which are due later this year. Other companies are working on similar phones; earlier this year, Qualcomm showed off a Palm-based unit at the Consumer Electronics Show (CES).