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Microsoft taking dual approach to handhelds

The company is pushing the Pocket PC interface and software programs the hardest, but it quietly continues to license the core of Pocket PC: the Windows CE operating system.

    Although Microsoft touts its Pocket PC as the best software package for handheld computing devices, it is offering another option for computer makers that think they can do better.

    Microsoft encourages computer makers to license the more complete Pocket PC package, which includes the Windows CE operating system, user interface software and slimmed-down applications. But the software maker has quietly continued to license the core of Pocket PC--Windows CE--to companies that want to offer handhelds with their own software.

    The dual strategy could be risky for Microsoft. Overall, the addition to its lineup of a lower-priced operating system option could drive additional license sales to handheld makers. But the strategy could also splinter the market and make full-function, and more expensive, Pocket PC devices less attractive to consumers and hardware makers.

    Last week, Casio announced its Cassiopeia BE-300, a $300 handheld based on Windows CE 3.0. Casio's device comes with its own user interface and Casio-developed programs for storing contacts and browsing the Web. In contrast, Pocket PC-based handhelds use slimmed-down versions of such Microsoft programs as Internet Explorer, Word and Excel.

    IDC analyst Kevin Burden said the move allows Casio to bring to market a device whose price amounts to a single trip to the cash machine vs. Pocket PC-based handhelds, which cost in the neighborhood of $500. The move also allows Microsoft to start piercing the heart of the consumer market, which is highly price sensitive, Burden said.

    However, he warns, such a licensing strategy has several possible dangers for Microsoft. First, such a move could undo the work that the Redmond, Wash.-based company has done to educate consumers on what to expect from a Pocket PC-based device.

    "If this BE-300 does take off, the (risk) is that when you get a Microsoft device, you are not quite sure what it is going to look like," Burden said. "When you allow (computer makers) to do this, you are losing the consistency of the interface."

    CassiopeiaBE300

    Second, if Casio's approach proves popular, Microsoft could see more computer makers opt for the basic Windows CE, which could hurt Microsoft's pocketbook.

    "They get more (Windows) CE licenses, but at a lower cost," Burden said.

    Microsoft would not comment on the cost of licensing either Pocket PC or Windows CE.

    The software giant introduced Pocket PC in spring 2000, as its third attempt to capture the handheld market. Although previous generations of handhelds were based on Windows CE 1.0 and 2.0, Microsoft found more success selling that OS for use in other products. Today, Microsoft pitches Windows CE for a variety of devices, from gas pumps to Internet appliances to factory-automation equipment.

    Regardless, Microsoft still runs a distant second to Palm in the market for handheld computer operating systems. Palm's OS was found in 86 percent of all handhelds sold in the U.S. retail market in May, according to NPD Intelect.

    Casio is not the first handheld maker that has decided to use Microsoft's operating system but has tried to offer lower-cost models. Hewlett-Packard and Compaq Computer have stuck with Pocket PC but have turned to less costly displays and less memory to offer cheaper handhelds.

    However, if they see an opportunity to further cut costs, other handheld makers could introduce models that use Windows CE sans the Pocket PC programs.

    "If they see the opportunity to strip out software parts to make it even cheaper they (could) do that," Burden said. "The possibility is there."

    Microsoft maintains it is happy to offer both options and said it expects to see more Pocket PCs and more handhelds that use only the Windows CE core. Pocket PC offers a complete package of software designed for particular chips and screen sizes, while the basic Windows CE core can run on a host of devices with different shapes and processors, noted Microsoft product manager Ed Suwanjindar.

    "We're pretty thrilled either way, so long as it is still running Microsoft's operating system," Suwanjindar said.

    Burden noted that Microsoft is not the first handheld industry player to tweak its strategy to focus on offering lower-cost options. After Handspring found a niche with its low-end Visor and Visor Deluxe, which use the Palm operating system, Palm itself began aggressively targeting entry-level models, Burden said.

    For Casio, Burden added, the move makes sense. The company already had handhelds with its own operating system that sell for around $100 and several Pocket PC-based handhelds starting at $500. With the BE-300, Casio can offer a device that has the Microsoft brand and technology but costs considerably less than a similarly equipped Pocket PC.

    Burden said it is Casio's way of saying: "We know there is a sweet spot with pricing and we know it is not $500."