Microsoft to bump Apple into sync-hole?

Apple Computer is refining a strategy for connecting cell phones and other portable devices to its Macintosh systems in an effort to boost sales.

But a rival endeavor from Microsoft, expected to be unveiled early next year, could dim the company's hopes, analysts said.

Cupertino, Calif.-based Apple is nearing the end of a long testing cycle for iSync, its software for synchronizing information between Macs, Bluetooth-enabled cell phones, personal digital assistants or the company's iPod music player.

The software, due for release early next year and currently available in a beta version, lets consumers and business users input data once and replicate it to many different devices.

That's why synchronization software is shaping up as a key battleground for Apple and Microsoft. As consumers shift spending away from PCs to more portable devices, such as cell phones or digital music players, controlling the key element for synchronizing data on these devices with computers is becoming increasingly important, say analysts.

Although no projections for the value of the synchronization software market are available, analysts said control of the market could be hugely profitable.

"As end-user client devices proliferate, users may have an array of gadgets," said Jupiter Research analyst Michael Gartenberg. "Since most users will have the bulk of their data--both personal and business--on their PCs, controlling the synchronization of that data will help determine the overall success of future devices and services."

For Apple, synchronization software could become an important hook that might persuade consumers or businesses to choose Macs over PCs. Apple has seen its share of the overall operating system market slide in recent years as Linux gains popularity. IDC estimates that the market share for Mac OS dropped to 3.1 percent in 2001 from 4.6 percent two years earlier. Windows, in contrast, has more than 90 percent market share.

"Certainly by...2005, possibly by the end of 2003, Linux will pass Mac OS as the No. 2 operating environment," said IDC analyst Dan Kusnetzky.

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Apple hopes its iSync software can slow, or even reverse, its market share erosion. Apple did not specify exactly when the service would be available. Sources said it's unlikely that it will debut at next month's Macworld Expo in San Francisco.

"I don't think people understand that how (the cell phone) works with the computer could be a reason for choosing a platform," said Phil Schiller, the Apple executive in charge of worldwide marketing.

Analysts see Apple currently in the lead for such synchronization services.

"By controlling sync to devices, Apple is now the gatekeeper of a critical part of the technology needed to enable the future advances in mobile computing as we move into the post PC world," Gartenberg said. "This means that Apple can add support for devices like Pocket PCs if it chooses and redefines the relationship with device vendors that want to be a part of the core OS sync experience."

The Microsoft issue
The big question mark for Apple is whether Microsoft intends to put its considerable resources behind its own synchronization software effort.

Microsoft is expected to announce, as early as March, during its Mobility Developer Conference, refinements to its synchronization software, called ActiveSync. But it remains unclear when the company might increase marketing and development efforts behind its synchronization strategy.

A Microsoft representative said the company had no immediate plans to incorporate ActiveSync into its Windows operating system. Such a move would most likely mean that Microsoft would automatically control the vast majority of the sync software market. While Microsoft says it has not decided on its plan, analysts said that adding ActiveSync to Windows is a real possibility, should the market heat up.

"Microsoft is considering making ActiveSync a part of the operating system, which would be consistent with the company's past strategy of bundling 'mature' technologies into Windows," Gartenberg said.

Directions on Microsoft analyst Robert Helm said he hadn't "heard anything specific" about such a move. Still, bundling ActiveSync into Windows with the next service pack would be a quick way to respond to Apple's plans for iSync.

"ActiveSync is definitely Microsoft's strategic synchronization protocol today, but that could change a lot over the next three to four years," Helm said.

Clearly, Microsoft is taking this area more seriously. But the company's approach differs in several respects from Apple's. For one thing, the software titan has largely focused on synchronization of corporate data, which has helped Pocket PC steal some momentum from Palm in the personal digital assistant market.

However, Microsoft's synchronization approach uses proprietary protocols, which could slow its acceptance among third-party developers and corporate information services departments, analysts said. Right now, Apple's iSync supports several synchronization protocols, but "SyncXML is the emerging standard," and the one Apple most aggressively supports, said Joe Hyashi, the company's director of applications worldwide product marketing.

Microsoft's more proprietary approach could greatly benefit Windows, since consumers would need the latest version of the operating system in order to obtain ActiveSync. That plan would be similar to Microsoft's approach to the media player market, where Windows XP includes a more feature-packed version of its Media Player software. But the company's plan is not set in stone, making it difficult for Apple and other competitors to see where Microsoft is headed.

"Looking further out, it's not clear that ActiveSync is the Microsoft synchronization protocol," Directions on Microsoft's Helm said. "The company actually has several synchronization protocols it's supporting today: ActiveSync, SQL Server replication...(and) Outlook."

Apple's in more than one basket
Another advantage for Apple could be that Microsoft has largely limited its focus to handhelds and cell phones running the company's Pocket PC software. Apple, in contrast, is looking at a broader array of devices.

Apple's early synchronization strategy largely focuses on cell phones, which the company sees quickly displacing personal digital assistants as repositories for contact and calendaring information.

"We believe this (cell phone and iSync strategy) replaces the PDA," Apple's Schiller said. "The cell phone becomes your PDA."

Apple is hedging its bets on cell phones as the wireless handset industry recovers from its worst year. But analysts see rapid growth on the horizon, particularly as carriers deploy more advanced networks, and manufacturers add more features to devices. IDC expects handset sales to rise from 391 million this year to 606 million by 2006.

Another reason to focus on cell phones for synchronization with PCs is that consumers and businesses typically replace cell phones more quickly than PCs. On top of that, manufacturers are rapidly adding newer, PC-like features to phones.

"The next big thing happening on the cell phone is the digital picture stuff," Schiller said.

But synchronization is about more than cell phones, particularly as consumers add digital cameras, camcorders and music players to the growing list of devices they connect to computers.

Apple clearly is considering these other categories, starting with its iPod digital music player. Already, the company has successfully positioned the Mac as a hub for connecting digital devices.

"As personal computers can synchronize more data types beyond calendar and contacts--as the iPod synchronizes music--we will see more devices proliferate," Jupiter Research's Gartenberg said. "For example, a future DVR (digital video recorder), might not record anything directly, but sync the TV shows to your TV for home viewing or to your handheld for the road. All of which can be translated in profits for whoever controls the access points of the data sync."