Microsoft launches Web-based phone

Microsoft today launched an Internet-enabled telephone called Hermes, based on its Windows CE operating system and initially to be produced by Matsushita Electric Industrial's Panasonic, Philips, Acer, and others.

The next-generation phones will meld a traditional receiver with a display and smallish keyboard, and will be aimed both at consumers without PCs and those who have a PC but want more convenient access to Internet-based services, Microsoft said. Email and full Internet browsing are a few of the services planned in conjunction with address book and caller ID functions.

Microsoft is working with other telephone companies and Internet service providers to set up more partnerships that produce Hermes products and services. The first devices are expected to be on the market early next year. Microsoft already offers a cordless phone that hooks up directly to a PC, although the device isn't a full fledged Web-phone.

The Redmond, Washington, software giant's push into the phone market coincides with similar announcements from a variety of other companies angling for a stake in emerging markets for digital information appliances. The convergence of the once-distinct consumer electronics and PC industries comes as phone companies upgrade networks to digital technology, enabling them to move voice and data communications over one path to a single device.

Observers say the key to future growth for such technology is adding new capabilities to devices people are already familiar with, such as phones and televisions.

Also at CeBit, Alcatel announced that France Telecom, Cegetel, and Belgacom are among operators using its Java-based WebTouch phone in trial operations. Commercial availability of the device in Europe and the United States, which had been delayed because of software glitches, is now scheduled for early September.

Separately, Sun Microsystems won a place for its Java technology in Internet-enabled cellular phones and wireless services, announcing deals with NTT Docomo, a Japanese wireless services company with 23 million subscribers, and Symbian, a company that's working on next-generation software for smart phones and hand-held devices.

Initial products will be able to get information such as train schedules, stock quotes, or basic maps, said Curtis Sasaki of Sun's consumer and embedded division. Eventually, Sun foresees teenagers downloading Java games and people conducting banking transactions.

The Symbian announcement represents a symbolic victory for Sun over rival Microsoft, which could basically be locked out of phones from the three largest cell phone makers, say analysts. Overall, Microsoft's Windows CE--its operating system for smaller devices--has suffered from an image problem in terms of its technical capabilities, said Daya Nadamuni, technical software analyst with Dataquest, and has not made much headway in the market for cell phones.

Deals highlight convergence of old, new technologies
That's not to say Microsoft hasn't been trying. The company has been one of the more aggressive companies to push its brand name into markets beyond the PC desktop, having done everything from Internet set-top boxes to TV remote controls. Also today, it announced a deal to use its software technology in cell phones.

"The idea that you can be in your kitchen or in your living room and have it all in one place and do very simple messaging or calendaring is a very appealing proposition," Jonathan Roberts, Microsoft's group director of market development for Windows CE, told Bloomberg.

At an estimated $300 to $500, however, manufacturers may still have a hard time convincing people to buy a Web-enabled phone instead of a cheap, full-fledged PCs.

Microsoft Europe Product Manager Greg Levin said Microsoft expected to sell around 40,000 devices in the first year. Many large and small companies still don't have computers, Levin argued, showing there is demand for these smaller and cheaper devices.

Microsoft, in fact, is quite optimistic about the potential of such devices.

"We do think that there will potentially be 800 million or a billion sales of these devices and we think that we are very well positioned to provide those," he said, noting that the the installed base of Windows PCs is "probably approaching 200 million or more."

"That's a huge infrastructure that can be leveraged," said Levin.

Reuters contributed to this report.