Microsoft's vision: PDA for the common man

Cheap, cheerful and increasingly hard to make money in - that's how Microsoft sees the mobile device market in coming years.

At the moment, you can count the significant handheld players on your fingers without having to put your iPaq down. Compaq, HP, Nokia, Palm and Sony between them have over 70 per cent of the European hardware market.

As the mobile phone and handheld computer markets converge, however, Microsoft is looking to make them look as much like the desktop business as possible. That means lots of manufacturers selling product on low margin and one company calling the shots - a company that happens to be headed by a Mr William Gates.

The publication of reference designs for the Microsoft Smartphone platform, codenamed Stinger, at the 3GSM World Congress in Cannes last week was the first in a series of moves to cut the cost of entry for new players to the smart phone market.

There are already 22 manufacturers building or planning to build devices using Microsoft's PocketPC operating system. Microsoft is committed to increasing that number and helping as many of them as possible to build smart phones, too.

Increasingly, the phones won't be sold by hardware companies like Compaq and HP but by other companies such as mobile operators and perhaps even consumer brands.

Ed Suwanjindar, product manager at Microsoft, told silicon.com: "The day is not far off when you will see the Coke phone, or the Nike phone. I'm very bullish on opening this market to new entrants."

The first device in this vain is the xda, which Microsoft executives in Cannes were all waxing lyrical about. A PDA with GPRS always-on wireless internet access and a Microsoft operating system, it's commissioned and designed by mmO2, the operator which owns BT Cellnet. It's built in Taiwan by HTC, the company that also manufactures the iPaq for Compaq.

The cheaper it is to enter the market, the cheaper it is to take market share away from the current market leader in the phone space, Nokia, which is the biggest player in the Symbian operating system consortium and very unlikely to join the tribe of Microsoft vendors.

Says Microsoft's Suwanjindar: "Nokia has been enjoying those high margins for too long."

The trouble with low margins is that they don't make for a profitable business. Not only does Nokia enjoy high margins, it also sells in massive volumes on a global basis. The xda, which is presumably only going to be sold to mmO2 subscribers, is never likely to sell in big volumes, or even make mmO2 any money.

So what future for current players, most obviously HP and Compaq, in this low-margin, multi-vendor future? For Suwanjindar, people will pay a premium for brand-name PDAs for the same reason they pay a premium for desktop PCs from manufacturers like Dell - they trust the brand and they want the customer support.

That's certainly the way HP sees it. It has launched its first PocketPC phone edition device, the Jornada 928 Wireless Digital Assistant.

HP has boosted its share in the PDA market in recent months by being the first manufacturer to launch products using Microsoft's PocketPC 2002, and if the mobile networks get their marketing in order, they may well repeat the trick with the GPRS-enabled Jornada 928.

Long term, however, HP's Jurgen Anthoni sees the majority of Jornadas selling to businesses as part of a package with HP servers and systems integration services.

At the high-end of the market, it's a strategy that may work. However, if the lower end of the market does go down the route Microsoft wants, they may find it hard to make money. A few of them will be looking at the current mature PC market, Microsoft's profit margins and those of PC manufacturers, and worrying.