Ericsson deal only tip of the wireless iceberg

In the not-so-distant future, cell phone users will access the Internet, corporate databases, e-commerce sites and email accounts from their smart phones. And if these new phones really do turn out to be the true convergence devices the computing industry has been breathlessly predicting for the last few years, huge opportunities will emerge.

Not only are consumers going to need fancier phones, gadgets and portable operating systems, but corporations and e-commerce Web sites will likely have to beef up their computing operations to serve them. Software and hardware makers will profit, but so will content providers, telecommunications carriers and IT (information technology) consultants.

So far, the first round of alliances and relationships to create products has been completed, leaving a landscape that looks remarkably familiar: Palm Computing and its allies vs. Microsoft and its camp.

Unlike the handheld computers wars that preceded it, though, this period will likely be marked by fuzzier and more complex relationships, as the players will grapple with a broader array of concerns and partners.

Microsoft's first competitive product in this arena is Mobile Explorer, announced today. Designed as a bundle of services, applications and back-end software that will enable cell phone manufacturers and service providers to offer a number of wireless Internet options, Mobile Explorer will be used by Ericsson in upcoming cell phones.

It could be the start of something big, analysts said.

"Microsoft wants to continue to control your environment, the way they always have done," said David Weilmuenster, director of platform strategy and planning for Palm Computing. "If [Mobile Explorer] really isn't OS agnostic--and to get the full functionality you have to get the full Windows CE of the Mobile Explorer--we're right back to Microsoft trying to capture the entire value proposition from one end to the other."

Licensees can pick and choose which products they will use from the bundle, which includes Microsoft Exchange Server, the Back Office applications and MSN Mobile services, as well as Windows CE as the underlying operating system.

"I think it's early to understand how things are moving forward," said Phil Holden, a product manager at Microsoft, adding that Microsoft's advantage over potential competitors is that its offerings include compatibility and access to corporate information stored using Microsoft software.

"Clearly, there's an opportunity there in terms of volume, if you look at the number of cell phones being purchased," Holden said. "And we see the general trend of having the ability to access Internet content on the cell phone."

Palm, for its part, is licensing its operating system and application environment to companies such as Nokia and Sony for use in all manner of wireless and wired devices. Although Palm has been lauded for its simple user interface, the company has some ground to make up in offering comparable enterprise software options, analysts say.

"Palm's strategy is to engage in alliance partners, of which we have a list longer than your arm, to provide solutions and data access that go beyond Exchange and with third parties that provide back-end connections with Exchange and Palm in the mobile market place," said Weilmuenster.

"Our partners, such as Nokia and Sony, will be able to exploit all of these solutions, because they will [be] based on the open platform, the Palm platform, so the solutions will be available on Nokia-branded products, Sony-branded products, Palm-branded products, etc.," Weilmuenster added.

Part of the rush to these deals comes from a fear that the handheld market is morphing into a segment of the cell phone industry.

"They see that there is a terminus point for the PDA market," said Will Nelson, editor of smaller.com, an online resource and e-commerce site for gadgets and devices. "They're obviously looking to see who the next buyer is. Well, it's the person who has a cell phone."

Which companies will become the dominant players in this market remains unresolved. On one hand, cell phone customers have historically been less focused on operating-system benefits and have instead concentrated on pricing plans and service range, giving the edge to the cell phone makers and carriers. "Most people who use a phone want to just use the phone and don't want to poke around a graphical user interface," Nelson said.

But on the other hand, adding data access to the mix means a segment of customers will likely begin to think of the overall computing picture.

"People will pay more attention, when buying phones, to the Internet access," said Elliot Hamilton an analyst with the Strategis Group, a market researcher covering the wireless market. "I think there is going to be much more awareness about how one system operates than another does. It's a little too early to announce a victor, and there may never be one."

Adoption of this technology is expected to occur fairly rapidly, although the predictions vary. Users of browser-enabled mobile phones will soar from 1.1 million this year to 79.4 million in 2003, while Internet-capable PDA users are expected to increase from 5.2 million to 12 million in the same period, according to Jupiter Communications.

Meanwhile, In-Stat Group adds that enterprise wireless data users--that is, people who use cellular technology for getting data rather than for talking--will reach 9 million in 2003. Nokia earlier this week said cell phone users will hit one billion by the end of 2002.

The picture gets even more complex when changes to back-end systems are considered. IBM is already rushing forward to incorporate wireless technology into its "pervasive computing" strategy, an all-encompassing strategy to provide corporate users with any sort of technology they might need.

IBM earlier announced that it will begin to work with Nokia and application developers. Wireless developers will also be encouraged to port products to Monterrey, an upcoming operating system for servers based around Intel's Merced chip. Big Blue struck a deal with Sprint for wireless service earlier this month.

IBM's plan isn't to profit from cell phones, but rather from the servers and services that will go into filling phones with data. "You need to make sure you have the infrastructure. You need to build that larger piece that does the smart connection between devices," said Jon Prial, director of marketing for IBM's pervasive computing unit.

Compaq is engaged in similar plans. In fact, so is Microsoft. Executives have said that the company's plans for handheld devices largely exist to drive demand for Windows 2000.

News.com's Michael Kanellos contributed to this report