It was easy to see why Microsoft chose Home, a giant nightclub in London's Leicester Square, for the worldwide launch of its latest product. The personal computer is changing from utilitarian workhorse to fashion accessory, and the PocketPC software is Microsoft's attempt to catch that trend.
But the confident swagger at Home belied an awkward truth. Microsoft, the world's biggest software company, is attacking the market for handheld devices from the position of underdog. Most handheld computers are made by Palm, the recently floated arm of 3Com, the US computer networking company, or Psion, a smaller British group.
Microsoft has twice before tried and failed to break into this market. It should have been easy - after all, Microsoft software runs more than nine in 10 of all desktop computers in the world. Its problem was size. Whereas Palm and Psion created compact software which would run easily on small machines, Microsoft tried to shrink its Windows software from the desktop to the hand. Users found the slimmed-down Windows too slow, and opted for PalmPilots and Psions instead.
With its third attempt, Microsoft has radically redesigned its software to fit on handheld devices, an investment that cost $100 million (€108 million). That may seem a lot of effort for a market which, according to Dataquest, a market researcher, will comprise only 8 million units this year, less than one-tenth of the number of desktop PCs which will be sold. But, by Microsoft's own admission, it is vital that the PocketPC pays off. The reason is to be found in another development which has been preoccupying the technology world: the auction in the UK for the licences to operate next-generation mobile phone services. That auction, now on hold, will decide which companies get to offer their customers services such as Internet access and video over mobile phones. Analysts predict that from 2002, when these mobile services become available, the quantity of such devices will vastly increase, overtaking the number of desktop computers. Most people will have either a hybrid machine, half-phone, half-computer, to surf the Internet or work while on the move, or a so-called "smart phone", limited to voice calls and Internet access.
Sales of desktop machines could soon start to look tiny in comparison. Microsoft would then face a double whammy: while the demand for mobile devices soars, that for PCs will fall off. In reporting its latest financial results, Microsoft warned that a slowdown in desktop PC sales would hit its earnings growth. Dataquest expects PC sales to increase by only 14 per cent in 2002, compared with a growth rate of more than 20 per cent in previous years. It is essential to Microsoft, therefore, that its software is used to run both the more advanced computer/phone hybrids and the simpler smart phones. "The PocketPC is critical to us," says Mr Greg Levin, director of Microsoft in Europe. "We have put as much work into this as any other area of our business." Will it be third time lucky for Microsoft with the PocketPC? After all, Windows itself took three attempts to get it right in the early 1990s. Microsoft has taken a lead from Palm in making the software understand handwriting, eliminating the need for a cramped keyboard. Users say it is markedly superior to its predecessors - faster, more reliable and easier to use. That compactness will be crucial for any software designed to run in the small space available on a smart phone. Another of Microsoft's aces is that it has redesigned its market-leading Office software to run on the PocketPC. More than eight out of 10 large companies use Microsoft Office, a suite of software applications including a word processor, a spreadsheet for accounts, e-mail and an electronic address book. For the larger Internet access devices of the future, people might prefer to stick with the software they know than learning new software on a Palm or Psion.
Even so, no one should underestimate Palm and Psion, both years ahead of Microsoft in technological development. Psion in particular has moved quickly to form alliances with mobile phone manufacturers: it formed Symbian, a project with Ericsson, Nokia and Motorola to create smart phone software. Microsoft has already forged a similar alliance with Ericsson and no one should forget Bill Gates's determination to defeat pioneers. A few years ago, most Internet surfers used Netscape software to browse the web. When Microsoft made its own browser, Internet Explorer, Netscape's market share halved. Ultimately, the US courts found the software giant guilty of monopoly abuse. Within four years, one in three of us is predicted to access the Internet regularly from a mobile device. Behind the razzmatazz, last week's launch of PocketPC reflected a high-stakes gamble on the future of computing.
