Tomorrow, at the CeBit computer industry trade show in Hannover, Germany, Microsoft will further raise the curtain on some of the improvements it is making to the next generation of its Windows CE operating system for handhelds, dubbed the Pocket PC.
Although the software company does not actually manufacture the devices, the operating system determines what features and functions the hardware can support, so each upgrade is a telling indication of what the computers will actually look like when released.
Also tomorrow, Microsoft will unveil the Pocket Internet Explorer, the first time the company has integrated its own browser into Windows CE.
Yet the software giant is unlikely to face the same antitrust repercussions that followed its decision to integrate its browser into its Windows 98 operating system. Unlike its dominant position in the desktop operating system market, Microsoft only holds one quarter of the market for handheld operating systems, according to market research firm International Data Corp.
Manufactured by major PC makers like Compaq Computer and Hewlett-Packard, as well as consumer electronics companies like Casio, Windows CE devices have struggled to make any inroads against Palm handheld devices.
The handheld leader, which yesterday announced its first device with color displays, has focused on simplicity and ease-of-use over the fancy multimedia features of Microsoft-based devices, a message which has been well received by consumers.
But with the introduction of a color display, as well as expected multimedia and wireless offerings from licensees like Nokia and Sony, Palm is treading on familiar Microsoft territory and stands the risk of repeating some of the mistakes that analysts say have stifled the growth of Microsoft handheld users. These include complaints about short battery life, bulky designs and an operating system that replicates the delays and bugs of desktop Windows as well as the functionality. Palm is especially susceptible to these problems, both analysts and Microsoft say, because its operating system is essentially being retrofitted to support new features.
Microsoft, finding itself in the somewhat unusual position of underdog, is cognizant of its missteps and eager to find the right combination of simplicity and enhanced features to entice new users, according to Brian Shafer, a Microsoft product manager.
But analysts question if the momentum that Palm has built up can be slowed to allow Microsoft some ground, especially as Palm licensees like Handspring gain a toehold in the market.
"We've been saying all along that people want to do more," Shafer said, referring to Microsoft's belief that devices should be as fully functional as possible, rather than pared-down and simple.
Shafer argued that Palm's market share is a result of its existing presence in retail stores, lower price points and market inertia. "Clearly, the market is moving in our direction," he said, referring to Palm's new strategy of creating more multimedia devices.
So far, Microsoft seems confident its revisions will click with customers. At the Consumer Electronics Show in Las Vegas in January, the company showed off improvements to its product, including a new E-Book reader with easy-to-read type, and announced that Windows Media Player will be integrated into the Pocket PC, allowing users to listen to digital music.
"Everything with Windows CE is on hold, while they're waiting for the release of Pocket PC," said Brian Phillips, an analyst with market research firm ARS, arguing that it is far too early to count Microsoft out.
"They're starting to flush out old products from the (retail) channel, gearing up for Pocket PC. When Microsoft announces and rolls out in volume this summer, and you have the color Palm vs. the new version of CE, that's going to be the real test."
This week at CeBit, Microsoft will showcase its Pocket Internet Explorer, which shrinks Web content to fit on the small display of a Pocket PC. Eventually, when Windows CE devices become more focused on wireless Internet access, Pocket IE will help users browse the Web without wires, Microsoft's Shafer said.
Although German networking partner Siemens will likely be showing its wireless device based on Windows CE at CeBit, Microsoft has no plans to introduce any new wireless technology soon, Shafer said. The company has been developing a wireless option for its handheld devices, along the lines of the Palm VII wireless device, but does not want to simply attach a wireless radio to a PDA or vice versa, he said.
"It's still in development," Shafer said. "There will be phones and PIMs (personal information managers). It's not going to be a pure convergence, and we're not getting into the phone business."