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Microsoft jumps back into sub-notebooks

After a two-year pause and uninspiring sales, the company is reviving its Windows CE sub-notebook line, which will relaunch tomorrow as the Handheld PC 2000.

    After a two-year pause and uninspiring sales, Microsoft is reviving its Windows CE sub-notebook line, which will relaunch tomorrow as the Handheld PC 2000.

    Microsoft said it will announce tomorrow at the DemoMobile 2000 event in Pasadena, Calif., the release of its Handheld PC 2000, the updated version of its long-suffering Handheld PC Pro line. Just as with the Pocket PC, the Handheld PC 2000 is Microsoft's brand name for both the underlying operating system and the entire product line that will be released by Hewlett-Packard, NEC and MainStreet Networks.

    The first of the new sub-notebooks--smaller, lighter versions of regular notebook computers--will be available in the next few weeks from online retailers and computer stores like CompUSA, the company said.

    HPC 2000 is the first major software release for the Handheld PC line in two years, according to Microsoft.

    The company said this week's launch is part of what will be a regular, 18- to 24-month release cycle for the Windows CE-based devices. But the low-profile debut of the new HPC 2000, especially when contrasted to the hype surrounding Microsoft's April release of its Pocket PC personal digital assistant (PDA), raises questions about why Microsoft is devoting resources to the relaunch of a product that never sold in large volume in the first place.

    Microsoft as much as conceded defeat in the consumer market late last year, when it announced that the products had been relegated to vertical market status and would be de-emphasized in favor of the re-branded Pocket PC handheld. The new HPC products will still be targeted at specific industries, including the financial services, insurance, health care and education sectors, rather than at individual consumers, Microsoft said.

    The devices are designed similarly to full-fledged laptops but are smaller, less powerful and can only run programs written for Windows CE. Their selling points include their size, longer battery life and faster start-up than regular laptops.

    The original HPCs stalled as retail products but have since thrived in these niche markets, analysts say. The devices, which arrived just before the consumer market embraced scaled-down Internet appliances and tablets, were considered too expensive by customers who perceived them to be dumbed-down notebooks. The craze for PDAs hit soon after, forcing Microsoft to focus the thrust of its device efforts on its struggling Windows CE-based PDA line.

    Priced between $799 and $999, the products were a victim of poor timing and high prices, said David Thor, a mobile device analyst with ResearchPortal.com. As PC and notebook prices dropped sharply in 1997 and 1998, the sub-$1,000 mini-notebooks were overlooked in favor of PDAs and full-scale notebooks.

    "The key factor was the pricing. Those things came out just under $1,000 as PC prices fell hard," Thor said, adding that Microsoft's initial mass-market strategy burned many manufacturers, like Philips Electronics, which has since exited the market.

    Microsoft says it is committed to the HPC 2000 as a product marketed directly to specific companies within the health care, financial or education industries.

    Further, the new products may play a significant role in the company's ".Net" initiative, which envisions a network of PCs, devices and appliances connected to each other via the Internet and powered by higher-end servers and Web sites running on Windows 2000.

    "This is consistent with other things Microsoft is doing," said Doug Dedo, group product manager of the Microsoft mobile devices division. "Part of the .Net strategy is information available everywhere on every device. This is one of the device categories we've been working on since 1996."

    Said Matt Sargent, an analyst with retail-market researcher ARS: "The HPC doesn't have dominant share of the overall market, but they have done very well within industry niches. Microsoft's interest in the handheld market is to gain access to the corporate side of it, and they see these as a window to that."

    If successful in smaller markets, the HPC 2000 may again be targeted at a broader market, Thor said. "The moon and the stars are finally coming into alignment for network computing," he added, explaining that these products could eventually become a major part of the .Net strategy. "Microsoft's greater design is the broader market."

    The fourth version of the HPC software is largely an incremental update, Dedo said, with the exception of enhanced integration with the Windows thin client technology, which allows the devices to run as "dumb terminals" that access data stored on a desktop computer.

    "If someone is only using the PIM (personal information management) functionality, they're not going to see any major changes in that application space," Dedo said. About 25 percent of HPC customers use the devices as thin clients, he said.

    Other than the thin-client support, HPC 2000 includes an improved Web browser and more multimedia support, including Windows Media Player. HP, NEC and MainStreet Networks, which acquired Vadem's Clio device, will release new products supporting the new software.

    The new HP Jornada 720, an updated version of the Jornada 690, will be the first HPC 2000 available, according to Microsoft. The Jornada 720 will cost $999.

    Unlike it did with the April launch of Windows CE's sibling, the Pocket PC, Microsoft is taking a decidedly lower profile with the launch of the HPC 2000. The HPC 2000 will be unveiled at industry trade shows this fall and will be supported by a "mid-seven-figure" advertising budget in health care and other industry trade publications, the company said. Pocket PC was unveiled at Grand Central Station and supported by a major advertising push, including print ads in major business publications.

    "What we're planning to do is have a presence at different vertical shows to raise awareness," Dedo said. "We're going to participate at events like these to reach specific audiences."