Last week, we started to compare Palm (Nasdaq: PALM) and Handspring (Nasdaq: HAND) for our ongoing high-growth company study.
Following the column, several readers sent e-mails sharing thoughts like, "Hey, the Pocket PC is finally becoming a viable alternative to handhelds, and it is being shipped by Compaq (NYSE: CPQ), Hewlett-Packard (NYSE: HWP), Casio, and many others. In my opinion, moving data between the Pocket PC applications and a Windows desktop is easier than in the Palm environment."
Other Fools wrote to say, "What about Research In Motion (Nasdaq: RIMM)? It offers real-time, always-on e-mail with its Blackberry pager service that it sells to corporations."
Overall, it makes sense that the most convenient products will eventually win much of the small "PC device" battle. It could turn out to be Palms, Pocket PCs, Internet-enabled wireless phones, or something that hasn't been created yet (Brian Graney is tinkering in his basement with a rat-powered wireless "smart tablet").
With history as a guide, I believe that convenience often wins out over superior technology. It is the company that finds simple services that people will want -- and then markets them effectively! -- that usually gets high market share, such as AOL Time Warner (NYSE: AOL). Palm Computing has an early majority of the hand-held market, but compared to the size of the cellular phone market, handhelds are still a small phenomenon.
Enough variety to go around
I spoke with Keith Pelczarski (TMF Czar) last week. Keith has been studying the evolution of the wireless world for a handful of years. His thoughts confirm what I suspected: Everything is so young and rapidly changing that it's impossible to predict which companies, let alone which platforms, might come out on top.
I personally believe that the general handheld, wireless information, small PC device market could remain highly segmented even over the long term, with a variety of products and solutions serving enough different customer interests to keep many different products afloat.
No matter what, one large group of people will want organizers, such Palm Pilots and Visors, and other groups will demand more powerful Pocket PCs. Still other mobs will be happy with two-way paging, and swarms of people will be satisfied with whatever their wireless phones deliver. When customer demand is so varied, the potential for one killer platform, or one killer product, is diminished.
Phones may prove the most convenient
Wireless phones have a userbase that measures in the hundreds of millions. Since 1995, approximately 1.1 billion wireless phones have been sold around the world. Reportedly, nearly 1 in 3 Americans carries one, and in Europe the percentage of phone owners is even greater. (In fact, Keith has read studies showing that fewer teenagers are smoking cigarettes now because their wireless phones make them feel like adults. In the past, they smoked to feel "grown up" and "cool.")
The same social status has not been ascribed to palm devices, which instead still have some stigma ("geek!") attached to them. The larger point, however, is that it is difficult to compete with a userbase in the hundreds of millions. Convincing people that they need a palm device is much more difficult than it is for phone companies to add more information services to their phones. Plus, marketing phones is easier: the value proposition is clear. So, despite their current shortcomings, phones are in the best position for winning the wireless information delivery war.
This is a change in opinion from what I said last week, when I argued that phones were too small and clunky to serve up much information. The key question, Keith argued, is how much information will people want to access? Given what people do most on the Internet (e-mail and instant messaging), for most users, an improved phone interface will probably do the trick.
Uncertainty is the leader today
Despite the large lead of the Palm Operating System, it is far from certain that it will win the war. The operating system doesn't have the "lock-in" qualities that Microsoft (Nasdaq: MSFT) had with its PC software. Namely, people aren't paying meaningful sums of money on expensive software related to the Palm O/S, so there isn't yet a financial lock-in. Something better could come around. Sustainable advantages have not been shown. The Nokia (NYSE: NOK) Palm phone, for instance, already uses a different operating system than the Palm O/S.
For long-term investors who need to invest year-after-year for 16-years, there is too much uncertainty in this industry for us to make an investment choice with confidence. Therefore, we need to wave good-bye to both Palm and Handspring, as well as the any other companies in the wide-flung fray that encompasses small PC and wireless devices.
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Jeff Fischer owns a Palm V but is casually considering a Visor. However, he doesn't feel any need for wireless Internet access. He doesn't own any stocks mentioned in this column, except for AOL Time Warner. The Motley Fool is investors writing for investors.
