When you see a product that is small, neat, and attractively designed, chances are it was made in Japan. And among mobile information appliances - smart handheld devices such as personal digital assistants (PDAs) - Japanese manufacturers have been aggressively introducing new products and expanding the population of users. The current champion among Japanese smart handheld devices is Sharp's Zaurus PDA. This year, however, Zaurus faces tough new competition from Windows CE devices, and only time will tell whether it can defend its title against a tough challenge. Windows CE, meanwhile, is not just challenging the PDA market but infiltrating into other markets as well.

By definition, a smart handheld device is any information device smaller than a subnotebook/mininotebook computer that allows easy electronic communication, data transfer, and information management. Current market subcategories include handheld "companions" (keyboard-based PC companions, personal companions such as 3Com's Palm Pilot and Windows CE palm-size PCs, and PDAs like Sharp's Zaurus), mobile smartphones (cellular/PHS phones that incorporate data communication and personal information management functionality), and vertical application devices (handheld terminals used for such tasks as inventory management or data collection).

According to market researcher IDC Japan, the Japanese market for smart handheld devices has been expanding dramatically, in spite of the continuing sluggish economy. IDC Japan estimates that handheld device shipments reached 1.61 million units in 1998, up by 41.3% from the previous year, and forecasts that shipments of handheld devices in Japan will grow steadily to 3.65 million units by 2002.

"Japan has a basic affinity for small and convenient devices, and this has been a leading factor for the increased growth of the smart handheld device market here," says Kevin Williams, a market analyst with IDC Japan. "In Japan, people are willing to pay a premium for convenience and portability. This is quite different from the US, where price seems to drive many of the sales. People [in the US] sometimes are unwilling to pay more for a smaller keyboard, smaller screen, and higher functionality. This can also be seen in the market for mobile PCs, which are generally more expensive than desktop PCs. In Japan, between 40% and 45% of all PC shipments are notebooks or subnotebooks, which is more than double the rate for the US portable PC market."

Sharp's Zaurus holds a two-thirds share of the PDA market

King Zaurus The champion of Japan's smart handheld devices, the Sharp Zaurus, has virtually monopolized the Japanese PDA market since it was first released in 1993. Currently, the Zaurus holds a 67% share in the Japanese PDA market segment, having sold over 1.6 million units in Japan so far. The Zaurus's strength lies in its solid PDA technology and large and loyal customer base.

There are several Zaurus models on the market. The latest, the Power Zaurus, features such functions as digital photo data handling capability, a map viewer, and data synchronization with popular Microsoft application software such as Excel, Word, Outlook, Access, and PowerPoint. The Power Zaurus lists for ´130,000 without camera, or ´168,000 with an incorporated digital camera. (The model without a camera can handle digital photo data if an optional digital camera card is installed.) The Zaurus's strong hold on the market, however, faces tough competitors: Windows CE-based handheld computers and devices. Industry experts question whether Zaurus can maintain its market dominance for much longer. "Although Zaurus remains on top, its market share has been declining since the release of Windows CE-embedded devices," notes IDC Japan's Williams. "Until two years ago, Sharp really had nothing to worry about. But now, Zaurus is starting to meet formidable competition from other platforms. It's difficult to see it holding onto a majority of the market in another year or two."

The Zaurus's weak point is its closed architecture, with a proprietary CPU and operating system (OS). The proprietary architecture has not hindered Zaurus's market growth so far because Sharp has been introducing numerous peripherals and application products to enhance the Zaurus's usability. But the advent of Windows CE handheld computers and devices threatens that strategy because Windows CE device users can share their core resources with others on a global scale.

"Zaurus has a slight lead over Windows CE thanks to the instability of the current-generation Windows CE platform. But Microsoft continues to enhance the OS, and may manage to remove all the bugs and quirkiness in its third iteration, thus making it more stable," says Williams. "That, along with the rise in home and business penetration of Windows CE, will cause a decline in Zaurus's share, and Japan's PDA market size as whole will also shrink." To confront the threat from Windows CE devices, Sharp has been trying to expand Zaurus's corporate market share by educating current and potential business users through seminars explaining Zaurus's business applications. According to a Sharp spokesperson, the ratio of corporate use has recently reached 30% of total Zaurus use.

The Japanese market gave the
Palm Pilot the thumbs down

Where's the Palm Pilot?

In the US, although PDAs are not generally popular, one palmtop device, 3Com's Palm Pilot, has been a big hit. The Palm Pilot released in the US in 1997 offered enough capacity to store some 4,000 addresses, 2,400 appointments, 750 "to do" items and memos, and 100 e-mail messages. Its latest version, the Palm III, features an infrared connection, three selectable fonts, and enough storage capacity for some 6,000 addresses, 3,000 appointments, 1,500 "to do" items and memos, and 200 e-mail messages.

Worldwide, 3Com reports it has so far sold more than 2 million of the Palm series. Sales in Japan, however, have been less than spectacular, even though 3Com has been introducing its Palm products to Japan only a few months after their release in the US. The main reason for unfavorable sales here is that the company has been marketing only inadequately localized English versions of the products and, accordingly, its sales channels have not been sufficiently developed.

3Com did not touch localization of the Palm products itself, instead assigning a third-party company the task of developing tools for supporting Japanese-language handling. As a result, while a Japanese OS for the Palm Pilot/Palm III, known as J-OS III, and Japanese e-mail software, Papi-Mail Pro, exist, they are sold independently and do not come from 3Com. To make matters worse, the performance of the J-OS III is not sufficiently sophisticated.

"J-OS is not an easy thing to use for inputting Japanese characters," observes IDC Japan's Williams. "In addition, in order to display the Japanese characters on the original English version of the Palm Pilot/Palm III, the screen resolution needs much improvement. Since the original product's screen is designed for English characters, the resolution is not high enough to handle double-byte Japanese characters. 3Com has to change its LCD and driver to support a higher display resolution to enable use for the local market."

Having experienced a tough time so far, 3Com has announced plans to reinforce its product sales in the Japanese market by finally releasing a true Japanese version of the Palm III in the near future. Such a step is essential, since the Palm Pilot faces an increasingly hot chase from competitors who offer similar products with solid Japanese-language capability. Such competitive products include Casio's palmtop device, the Cassiopeia E-55, released in Japan last December, and the Sharp Wiz.

Several Windows CE-based handheld/palmtop computers, with prices ranging from ´50,000 to ´130,000, are already competing on the market. These include NEC's Mobile Gear products, Casio's Cassiopeia, Hitachi's Persona, Fujitsu's Intertop, and Hewlett-Packard Japan's HP 620LX. While these keyboard-based PC companions are in a different category than Sharp's Zaurus, according to IDC Japan's definition, they compete directly with Zaurus in both price and functionality.

In the US, these handheld computers are facing the threat of A5-size subnotebook computers with the new Windows CE 2.11, Handheld PC Professional Edition (formerly code-named Jupiter). Windows CE 2.11-based PC Companions were released in the US late last year, and are scheduled to be introduced in Japan soon. They are expected to be priced in the ´120,000 to ´140,000 range. It is likely that these will prove tough competition for the smaller Windows CE-based handheld computers, unless the handheld computers can quickly establish a firm foothold, particularly in the corporate market.

"Instead of notebook computers, many companies in the US are looking to support handheld devices as a secondary machine, seeing a shift in a few years," says IDC Japan's Williams. "A switch from notebooks to handheld devices in the corporate world could potentially improve TCO (total cost of ownership) numbers." Williams notes, however, that market dynamics in the US and Japan are quite different. In the US, a desktop PC is still considered the primary usage machine. Secondary machines are currently notebooks, but this will shift to handheld devices in the future.

In Japan, on the other hand, the assumption that a desktop PC is the primary machine doesn't hold up. In many organizations workers are using notebooks and even subnotebooks as their primary device, thus sometimes eliminating the necessity for another mobile device.

Smartphones are devices that integrate mobile phone functionality with some handheld PC-like features. Among the smartphones already on the market are Toshiba's Genio, Kyocera's DataScope, and Matsushita's Pinocchio.

Smartphones were, at first, for PHS-use only, but Kyocera has recently developed a cellular version of its DataScope, which has been offered to the market via NTT Mobile Communications Network (NTT DoCoMo) with the name "DataScope for DoCoMo." In addition to ordinary PHS/cellular phone functions, the new DataScope unit offers PIM functions and e-mail, messaging, Internet access, and Web browsing capability. The list price is ´88,000.

In Japan, sales of smartphones are expected to be strong given the large population of mobile phone users. As of December 1998, there were some 45 million mobile phone subscribers: 40 million cellular phone users and 5 million PHS users. However, the penetration ratio of smart phones has been limited so far, since it is hard for manufacturers to see the market for smart phones, particularly for the next generation.

For one thing, PHS use has been declining, due mainly to insufficient area coverage caused by a lack of system infrastructure. Since PHS is technologically more suitable than the current cellular phones for reliable, high-speed data transmission, PHS carriers would have a strong selling point if only they can improve their coverage area. To save deficit-ridden PHS carriers, would corporate mergers have been taking place. NTT Personal, for example, was absorbed into NTT DoCoMo, and Astel was saved by Tokyo Telecommunication Network (TTNet). Though the new PHS business may still be troubled by the poor management of the former PHS carriers, the PHS business now has a chance to break new ground.

There is worldwide market confusion about the OS to be embedded into the next generation of smartphones, which are expected to enable worldwide coverage and feature dynamic Web applications. One of the promising OSes for the next generation of mobile phones is Psion's EPOC32 OS, which is backed by major telecom vendors such as Ericsson, Motorola, and Nokia. These three companies established a joint venture, Symbian, in June last year to promote the EPOC OS.

One month later, the partners joined with IBM, Intel, Toshiba, and 14 other companies to support the Bluetooth wireless connectivity initiative. This is a computing and telecommunication industry specification that describes interconnectivity among mobile phones, computers, and PDAs, and also between home and business phones and computers using a short-range wireless connection. Although none of the Symbian members have released a smart phone with the EPOC OS yet, the industry will be carefully watching Symbian's next move.

And here comes, again, the shadow of Windows CE. Qualcomm, the major patent-holder of CDMA technology, which has been a focal point of the 3rd-generation mobile phone debate, has announced that the company will make voice- and data-enabled wireless devices incorporating Windows CE. Together with Microsoft, Qualcomm has created a joint venture company, WirelessKnowledge, to offer digital wireless communications service via a wide area network. This would enable carriers to offer their mobile customers secure wireless access to data and applications over their choice of wireless networks and enterprise systems. Qualcomm had been using the Palm Pilot OS for its smartphone. Through a tie-up with Microsoft, however, the company has changed its strategy and become a Windows CE proponent for expansion of the company's wireless network business.

Windows CE seems to be everywhere now, infiltrating into the smart handheld device market. Its impact cannot be overlooked, even though the early versions of the OS have not been very powerful. The competitors who currently lead the market will have to start developing new ideas before the Windows CE proponents catch up and pass them - and the time for action is now.