Marketing Computers, February, 1995
TWENTY YEARS AGO, Alan Kay, then at Xerox, now an Apple Fellow, dreamed of a portable hand-held computer called the Dynabook. Kay's vision eventually came into the world in August 1993 in the form of Apple's Newton. The public was led to believe that the Newton was Kay's vision sprung-to-life; the reality, as everyone now knows, was a flawed product, a major corporate retreat and a public relations fiasco. The grand promises of the "personal digital assistant" (or PDA) made by Apple were withdrawn, and consumer expectations returned to a more realistic level-one which does not justify spending several hundred dollars on what is essentially an electronic notepad. Apple sold just 80,000 Newtons that year, as opposed to the expected millions.
At the time, the Newton's fate prompted many observers to write off the PDA concept entirely But in the months since, it's become apparent that the Newton disaster was really just a setback, albeit an expensive one. Today, the lessons of the Newton are starting to pay off both for Apple and other PDA manufacturers. It appears that the digital assistant is already moving from troubled infancy to promising adolescence.
Some two years after the Newton's initial release, the PDA market has begun to take recognizable form, dividing into four general sectors. These are, in order of success: vertical market applications, personal information management, mobile communications, and, the latest manifestation, as gateway to the cybernetic marketplace. True, while PDA manufacturers appreciate the hard lessons they've learned, all still hunger for the Holy Grail of the general consumer. Each is still searching for the magic combination of price and functionality that will spur the breakthrough. But in the interim, these devices are being targeted primarily to whom marketers like to call "mobile professionals," a group made up of about 25 million people of which 17%, according to Sharp's research, already travel with laptop computers.
Of course, this demographic already has a set of very useful mobile tools in place-xellular phone, pager, paper date book, hotel fax, voice mail, and sometimes a human assistant back at the office. Convincing them to consider a PDA as more than a gadget or novelty has not been easy.
Part of the problem is that no one has a clear picture of what a PDA is, or ought to be. Every marketer will give a different answer to the same questions, as they jockey to differentiate their product from the rest of the pack. Devices with keyboards are not PDAs, say some. Handwriting recognition is essential, say others. In the process, they've accomplished little but create confusion for everyone else.
If you take a rigorous definition of the PDA as a device navigated with a pen which supports handwriting recognition, then total sales since the unveiling of Newton 18 months ago are in the 160,000 unit range, according to Tim Bajarin, president of Creative Strategies in Santa Clara, Calif, and a close follower of the PDA market. For Bajarin, the key characteristics of a PDA-- principally pen support--are found in devices like the Newton and Sony's Magic Link. "Of those," he explains, "Apple sold 120,000."
Devices with built-in keyboards, such as the new Sharp Zaurus are what Bajarin prefers to call "ultra-subnotebooks," hand-held computers that weigh less than 2.5 pounds and rely on keyboards for input. If the definition of PDA is broadened to include hand-held computers like the Zaurus, then (again, according to Bajarin), "the market grows to 350,000 units." Add in electronic schedulers like the Sharp Wizard, which feature keyboards but typically fall the smell test as real mini-computers, and the market grows again, to 1.5 million. "It all depends on your definition," says Bajarin. And with definition comes product viability: a market of 160,000 buyers is hardly a market at all. But 1.5 million? Pretty soon, you're talking about real money. Whatever the definition, manufacturers like AT&T (maker of EO), Casio, Hewlett Packard, Sharp, Bell South & IBM (partners on Simon), Sony, Psion, Apple, and Motorola all now believe that consumers want some kind of portable device for two basic needs: personal information management and mobile communications.
But agreement on goals hasn't necessarily translated on agreement when it comes to technology. For many manufacturers, the long-term strategy for breaking into the consumer market is no more complicated than wait-and- see. Behaving like turtles, they'll watch the hares sprint by, often down the wrong path, and then cautiously try to make a better choice. The turtles take a sanguine look at the state of technology and specialize in what works now. These manufacturers, embodied by Hewlett Packard, Sharp, Casio and Psion, are industry followers in terms of design and experimentation, fine-tuning their products based on the risk-taking leaders. Driven mostly by lowered expectations in the wake of Newton, they are carving out a relatively risk- averse path, grounded firmly in the established personal information management (or PIM) business.
The Personal Information Manager
In fact, the PIM is the core function currently driving sales to mobile professionals. According to David Elder, president of Psion in Concord, Mass., his strategy is to "convince the consumer that we offer supreme value for what is already deliverable and what works today." That commitment is echoed by the other manufacturers. Bruce Mandel, marketing manager for Casio's Z-7000 explains that "our device, even though it is communications enabled, is still a super high-end organizer." Pushing familiarity one step further, Scott Campbell, product marketing manager for Sharp's Zaurus claims that "We are PIM experts and we are expanding from the PIM into the communications area... We do not see users justifying the product strictly for communications. We see them saying, If I'm going to pay $ 500 for this box, it better do something for me today, right now.'"
While this marketing strategy isn't very glamorous, it is winning this leg of the race. Sharp, Hewlett-Packard, Casio and Psion (in that order) are the industry leaders when it comes to selling electronic organizers. By adopting this lower-risk strategy profits are mostly made from the sale of hardware, as opposed to applications (Apple's goal) or communications (AT&T's now- defunct EO).
If the PIM market is relatively well-established, the appeal of the PDA as a wireless communicator is still in its formative stages. AT&T and its ill-fated EO Personal Communicator made came clear that wireless communication was ahead of its time. EO closed down in July of last year, having sold under 10,000 units.
Kevin Compton worked on marketing the EO for AT&T, and he believes it failed because it was big (2.2 pounds), expensive ($ 1,999) and relatively difficult to use. According to Compton, AT&T "wanted a device that would straddle the telephone and computer. The EO fell more on the computer side. It turns out what people really wanted was an intelligent cellphone."
This belief that what people really want is wireless communications may be true, but to date the infrastructure in the United States for wireless communications does not support seamless transmissions. Still, people like Bajarin argue communications is actually the "killer application" that will propel the PDA into the big leagues.
The Intelligent Cellphone
Understandably, those who agree with this vision tend to be the corporate hares, the experimenters.
When IBM and Bell South partnered to create he Simon, best described as an "intelligent cellphone," they corrected EO's error of leaning too heavily on the computer side of the spectrum. Unfortunately, Simon may have overcompensated by going too far towards the cellphone. Released in August 1994 (priced at $ 599), the Simon is shaped just like a portable phone with a small screen running along the handset. Where Simon truly differs from the other PDAs currently on the market is that its wireless communication does work right out of the box (assuming you activate your account) both for data and voice.
Still, sales of Simon are reportedly sluggish (neither Bell South or IBM will release sales figures) and one possible reason is that since Simon is so similar to a cellphone with a very small working area, it is difficult to use for PIM. Inputting information is cumbersome because there is no handwriting recognition or keyboard; instead, users peck at a virtual keyboard on the screen which can only show a few keys at a time. Once the utility of the PIM is removed from the potential buyer's mind, what is left is voice and data transmission--something which stripped-down cellphones and pagers do quite well for a fraction of the cost. So it appears that the market is still waiting for a PDA that offers a full range of seamless voice and data transmission with a PIM all for a reasonable price (popular wisdom puts that magic price point at around $ 500).
The Wireless Communicator
Motorola, with its Newton-based Mareo PDA, may come close to that vision. Released last month, the Marco is essentially a Newton with one big plus: nationwide wireless communication for data. Motorola is a leader in wireless communication, and has the advantage of being able to connect Marco to their ARDIS pager network. Using ARDIS, which covers 80% of where Americans live, users can send and receive e-mail and faxes. They can subscribe to wireless information services, receiving stock quotes and news onscreen. Monthly communications fees range from $ 39 to $ 139 a month.
Unlike Simon, Marco cannot handle voice communication. However, it is far more adept at handling wireless data (it would be very difficult to read a newsfeed or fax on Simon's screen). Another advantage is Marco's operating system: the Newton platform is open to third-party developers, offering far better data management capabilities for transferring information back to desktop computers and LANs than the semi-closed Simon OS.
The processing of information for users on the run may turn out to be the most lucrative business of all. It certainly looks that way to Sony, which is gambling on the need for immediate information with its $ 995 Magic Link device. The Magic Link is Sony's stealth weapon in what is otherwise a very public war for control of the off-ramps and on-ramps of the so-called information highway. Behind this jockeying for position lies a basic consensus: as a consumer-driven market-economy enters cyberspace, standards must be set and an infrastructure established to facilitate commerce. Those who succeed in establishing those protocols first stand to reap a huge windfall later on.
To date, most attention has focused on cable television paths, cellular paths, high-speed ATM network switches and the like. Very little note has been made of the PDA as gateway into this primordial economic zone. Yet, because no existing technology can compete with the PDA, it has a certain allure. Of course, the problem is that there isn't much consumer spending in cyberspace now. But that's an acceptable short-term cost for Sony. The potential reward, on the other hand, is two-fold-sales of hardware and the promotion of content.
What sets the Sony Magic Link, released in September 1994, apart from every other device is not its physical properties, but rather the behind-the-scenes values Sony hopes to bring to Magic Link users. Magic Link is closest to being a potential "assistant" because behind its communications software lies "agenting" technology designed by General Magic of Mountain View, Calif. Agents are best described as the digital representative of the consumer in cyberspace--they can be instructed to buy services or check information, like flight schedules, without your supervision, and act as secretaries filtering incoming mail and faxes.
Governing these agents is a powerful programming language called Telescript. If General Magic and Sony succeed, Telescript will become the universal language of electronic transactions, similar in scope to the TCP/IP protocol that governs Internet data switching. An estimated $ 200 million to $ 300 million in the making (no one will confirm the exact figure), there is no other agenting technology that comes close to offering Telescript's level of functionality.
Sony does its best to play down this part of their strategy, of course, afraid of generating Newton-like levels of hubris and failure. Instead, Brian Sroub, vp of sales and marketing for Magic Link, emphasizes the simpler and familiar aspects of the device. "Not to sound flip, but the biggest thing that distinguishes us from other vendors," Sroub explains, "is that we are shipping a product that is doing what it says it is going to do in terms of communications."
Using a plain-old reliable phone cord Magic Link can send and receive faxes, e-mail, and voice messages. For now the shopping and sorting agents are turned off. But if Sroub is pushed a little further, the long-term vision comes out: "By the end of the century," he says, "as the infrastructure matures and standards are developed, there is going to be a huge revenue opportunity for people who are capable of sending messaging and entertainment through the service... We have lots of cards to play where hardware is in overall support of our software. This is an old strategy for Sony, where we get in on the hardware and then get increasingly involved on the software side."
This is also a typical hare approach, and a lot of turtles are closely following the Sony/General Magic alliance. Bajarin doesn't expect Sony's device to take off with consumers for some time: "The Magic Link in this first iteration will not succeed in the consumer marketplace. I have to say that I don't think Sony is expecting it to do wonderful things in the consumer market. I think they've planned this quite well because their expectations are modest. They're learning what needs to be done for the second and third generation."
David Elder agrees. "Sony is tinkering at the surface. By all means they are going to learn a lot--but they're not going to sell a lot or get their money back for some time. But I think it is a worthy new product. Having the likes of Sony entering the market is a whole shot in the arm for the whole category and we welcome it."
The Vertical Markets
When John Sculley announced the Newton concept in May of 1992, he created a tantalizing image of a "knowledge navigator," a kind of smart device that would assist in three areas: capturing, organizing and communicating information. Fifteen months later came Newton, and the snickering has yet to fully die down. However humiliated, Apple did not retreat. Instead, it has continued to support the Newton by working closely with third-party software developers and hardware manufacturers. What lessons did Apple learn from this experience? According to Ken Wirt, the Newton's director of marketing, Apple now targets two markets. One is the much-discussed mobile professional who wanders into a store and chooses to buy a Newton. "The other target for the Newton, which we didn't really expect, is the vertical market, " Wirt explains.
In a vertical market, the PDA is custom-designed to fit a corporation's needs, and the high cost of the devices are offset by increased efficiencies within the client's operations. Although today the individual market is larger for Newton, Wirt expects 1995 sales of the PDA to be evenly split between sales to individuals and vertical markets. "In a vertical market Newton is used for data gathering and access to information at the point of activity," Wirt says.
There are myriad uses for PDAs in corporate settings, from survey filling, sales-call recording, meter reading, inventory tracking, and so on. To exploit this opportunity, Newton works closely with 100 or so value added resellers (VARs), which are companies that specialize in customizing the Newton for specific corporations.
One of them is Digital Ocean, based in Lenaxa, Kan., and founded in 1993. Ocean sells what they call a "ruggedized Newton" dubbed (for better or worse) Tarpon. The device is intended for workers in the field, exposed to the elements and in for rough handling. Ocean is pilot-testing a deployment of Tarpons with Harris Corp., a company that specialized in telephone lineman's equipment. Greg Meyers, director of new business development for Ocean, estimates that each lineman controls %100,000 in telco spending. "Harris thinks they can save 10% of a lineman's time with the Tarpon," Meyers says, "which at an annual rate of a hundred thousand dollars will pay for the equipment in a very short time."
While the price of a customized Newton varies depending on the amount ordered and the complexity of the application needed, Meyers puts the average price at between $ 1,300 and $ 3,000 a device. "If you compare Tarpon with dedicated PDAs, the price is competitive. But the real savings come in when you realize that you are dealing with an open architecture and you can easily find someone to program for you," Meyers says. There are numerous fields with built-in inefficiencies that could potentially pay for the acquisition of PDAs. For example, the medical field is filling fast with PDA-toting nurses and, to a limited extent, doctors. Highly mobile professionals, the average American doctor controls $ 1 million in health care dollars. An estimated 15 percent to 20 percent of that is misspent on more expensive drugs or unnecessary tests. The PDA can be used to alert the doctor or nurse of less expensive alternatives moments before the critical decision is made. With potential savings like these, it is easy to see why PDA manufacturers have discovered a new market in medicine. And since health care accounts for one-seventh of our economy, it is hardly a niche market. Start-up companies like Medi-Systems in Tarrytown, N.Y., are convincing HMOs to bulk-buy PDAs with customized software.
Unlike consumers, corporations buy many devices at once, upgrade frequently, and demand service and support for customized applications-- which can serve as an additional revenue stream for the PDA manufacturer. It is precisely these economics that saved the Newton from oblivion. The Newton's survival and growth is essentially a story of shifting ambitions (from horizontal to vertical) and today 300 out of Newton's 380 applications are for vertical markets.
Despite the early promises and the continuing visions of a universal consumer communications device., it is through specialization that the PDA succeeded best. The idea that there can be one universal hand-held box that will please everyone may be wrong. Instead, what will probably matter most is who establishes the standards governing communications. Sculley envisioned the PDA as a digital assistant in physical form, encased in plastic in your hand. Yet with the emergence of agenting technology, the personal digital assistant may take virtual form, popping out of cyberspace to interact with its owner at various points--desktop, palmtop, laptop--caring little about the hardware "gateway" into cyberspace. The plastic box then becomes little more than an appliance where the best price wins, one no different than pagers or cellphones today, and the PDA fulfills its promise, not as a tactile device in the hand, but as a a fleeting bundle of bits.