Editor's note: This column is part of a two-day series on handheld devices, running May 6 and May 7. An overview details TSC's coverage.
SAN FRANCISCO -- The monolith from Redmond, Wash., is something of an ill-bred party guest.
typically is late to the party but ends up taking control of the music. This has been the pattern established in the personal computer market through its
operating system and on the Internet through its
browser. Now comes the information appliance market.
after four years of research through its
division. The electronic organizer recorded U.S. sales of 1 million in only 18 months. When Microsoft introduced the idea of launching the
operating system in 1996 for non-PC devices, many users complained of Microsoft's bloated software, which was cumbersome and slow to run. Those early versions have since been streamlined and are hitting the market just as the demand for small but powerful information appliances -- from electronic organizers to handheld mini-computers -- is taking off.
International Data Corp.
forecasts the information appliance market will swell to more than $15.3 billion in 2002 from $2.2 billion in 1998. IDC believes the market for all handheld gadgets and gizmos will grow to 6.5 million units worldwide this year from 4.5 million last year.
Windows CE sales could add as much as $1 billion a year to Microsoft's revenue within the next two years, says Neil Herman, analyst at
Salomon Smith Barney
. He estimates that will be about 5% of Microsoft's total revenue within two years. In fiscal 1998, Microsoft had $14.8 billion in revenue. Not bad, since Windows CE contributes practically nothing to Microsoft's revenues now, says Phil Holden, Microsoft Windows CE product manager.
"We believe all Windows CE-related revenue will become material to Microsoft's revenue within a year or so," Herman told investors in a conference call last month after attending the
computer conference in Hanover, Germany. Salomon Smith Barney is not an underwriter for Microsoft.
IDC analyst Jill House agrees. "Windows CE will see more significant sales going forward as better grades of the product are released," she says.
Because Microsoft has many vendors selling Windows CE-based devices, House expects Microsoft to snag market share from Palm's operating system, which held a staggering 79% market share last year in the U.S. Microsoft's inroads are actually aided by Palm's success, since the PalmPilot's proliferation has prompted companies like
to offer knockoffs. These machines will be using Windows CE. By 2002, House predicts Windows CE will garner 39% of the worldwide handheld market, including those devices with keyboards, compared with 3Com's 29%.
To counter future Windows CE's encroachment, 3Com has started licensing its proprietary operating system so approved manufacturers can create Palm clones. But so far, 3Com has only garnered a handful of those deals, whereas Microsoft has more than 30 licensing agreements, says Lily Li, Microsoft Windows CE product manager.
"It's interesting because
3Com is taking the same approach
did," Li says. "When Apple started having a lot of problems years ago, it tried to do the same thing and allow clones."
Microsoft is also aiming to enter the corporate market, to broaden the reach of its Windows CE OS, specifically infiltrating the health-care and manufacturing industries in the next year or so, Holden says.
Microsoft has already enlisted some major names like
to develop Windows CE-based products in manufacturing, an area that requires more functionality than what 3Com's Palm Pilot has to offer.
Holden says people want to be wirelessly connected to their databases as they walk through factories. "They want to be connected to the order entry system, business analysis, the database, and the Internet with no new wires," he says.
In health care,
, which focuses on medical software, is using Windows CE as a base to develop NetTrial CE-Diary, which lets patients record their daily health conditions. Provenda was asked by pharmaceutical company
to develop software to help it gather data from migraine patients.
"Physicians are very mobile and need smaller devices," Holden says. With mobile devices, doctors will be able to visit patients outside the office and hospital but have ready access to all their files.
Microsoft is again championing the notion that you don't have to be first to the party. As long as you control the room.