Device Drivers
By Niall McKay in Silicon Valley, Mon Sep 03 00:00:00 GMT 2001

Psion's always been at the forefront of the industry, and their recent shift in strategy may be a sign of things to come.

Europe invents a new technology, America brings it to the mass-market and Asia makes it a commodity. Think cars, TVs, and computers. Nowhere has this become more evident than personal digital assistant market.

Recently, the creator of the first commercially viable PDA, the UK's Psion PLC, announced that it was pulling out of the consumer market because of tough competition.

A changing market

Those that don't have a PDA should be familiar with defending their choice as gadget freaks harangue them with the virtues of such devices. In the past couple of years PDAs like Palm Pilots, Handspring Visors and Compaq iPAQs have made the leap from being almost exclusively toys for high-tech groupies to becoming a replacement for the Filo-fax. So why is it that the two companies that defined this market Psion and Palm are having difficulty?

The answer lies in the fact that the Britain's Psion practically came up with the category in the late 1980s, the US's Palm brought it to the mass-market in the late 1990s and now Asia is now stepping in to make PDAs a commodity in the new millennium.

"Until recently these guys (Psion and Palm) were enjoying big fat margins on their products - a great deal fatter than any TV or hi-fi manufacturer," says Seamus McAteer, analyst with Jupiter Communications, a high-tech research firm. "But they always wanted to get into the consumer electronics business. Well now they are in it and rather than feeling the success that they expected they can feel the pain of competing in one of the world's toughest markets."

The problem is that mass-market consumers, while a lot less knowledgeable then high-tech groupie counterparts, are much tougher customers. They pay less, demand that the devices be as easy to use as a TV remote control and include all the functionality of a personal computer.

At least, that's been the experience of Psion.

A changing company

David Potter and Charles Davies founded the company twenty-one years ago and have sold over eight million units since then. At the time they published and developed software (particularly games) for microcomputers. It was Potter and Davies that came up with one of the first flight simulation games - which ran in 1K of memory on the Sinclair ZX Spectrum.

Then one night in 1983, while the two had dinner in a Greek Restaurant on London's Edgware Road, they sketched out the plans for the first PDA on a napkin. The games business was getting far too competitive for their liking so they refocused the company and designed the FIRST handheld pocket computer that used programmable EPROMs (Electronically Programmable Read Only Memory) for storage and program execution, used an incredibly small foot print operating system, ran on the Hitachi 6303x family processor and sported a tiny A to Z keyboard. It was called the Psion Organizer and the first product shipped in 1984.

Since then, the company has come up with a number of firsts. It was the first pocket computer to run serious applications, such as a slimmed down version of the Oracle database (Oracle Mobile Agents) and SAP R3, it introduced one of the first wireless products in 1993 [Wireless products ran on the Psion HC range from 1989 onwards], and the first pocket computers with 16-bit and 32-bit operating systems in 1989 and 1997 respectively.

Now, once again company is finding the competitive landscape too tough and has effectively abandoned the consumer market (although it will keep supporting its current range of product until 2004).

Learning from the past

"We believe that our strength lies in innovating new product lines rather than competing against the mainstream consumer electronics manufactures," says Peter Bancroft, Psion's director of corporate communications.

Certainly, the European market for handheld computers slowed sharply in the second quarter of this year, falling 24 percent from the first quarter to 2.1 million units, according to the research group Dataquest. This slowdown comes after 123 percent growth last year. Moreover, there was a shift in the line up of leaders for the sector.

Palm's lead shrank from 59.5 percent last year to 32.3 percent this year. The big surprise was Compaq iPAQ computer rose a staggering 25.7 percent to 30.2 percent and Handspring doubled to 8.2 percent while Psion's market share in was slashed in half to 9.8 percent the research firm reported.

Of course, one would expect the market shares of newly released products such as Compaq's iPAQ to jump the quarter it is introduced. But if this quarter has been tough then just wait until next quarter as Sony, Toshiba, Acer and a handful of other Asian consumer electronics manufactures all release new products.

Psion's big mistake is that it has never managed to gain a foothold in the US market which, of course, is one of the major reasons why Palm rather that it is credited with creating the pocket computer category. The other major reason is that Psion, taking a note out of Apple's disaster with the Newton, showed little interest in handwriting recognition and shipped most of it's products with a keyboard.

If Psion has cracked the US market then perhaps it would have been the Nokia of the PDA market place but as Bancroft notes. "20/20 hindsight is a terrible thing." But least one feels tempted to consign Psion to that ever increasing list of high-tech companies headed for the garbage heap it is worth noting that the company has an uncanny ability to be several steps ahead of everybody else, even if, its not quite so good at turning this ability into dollars.

Where to go from here

Now, the company is going to focus its efforts on two discreet market places. First, it will continue to develop Psion Teklogix its systems integration and corporate mobile wireless division which boasts such customers as the UK department store chain Marks and Spencer, British Gas and Volkswagen. Teklogix specializes in providing such companies with 802.11 wireless inventory management systems that are integrated with company management systems like SAP R3 and Oracle.

Second, insiders say that while it will cease to manufacture and market pocket computers it will continue to develop and license technology.

Indeed, if successful Psion could well become one of the first of a new breed of systems design houses that license intellectual property to the major electronics manufactures. One only need look at the success of microprocessors design houses such as the UK's ARM, or Ireland's Parthus and Rambus and MIPS Technologies in the US to see that such a model can be successful. Other sectors such as the auto industry already use this model.

Indeed, in 1998 Psion spun out it's EPOC operating system into a joint venture with Nokia, Ericsson and Motorola called Symbian - a move mirrored by Palm just last month. The venture now has many major electronics vendors such as Sony, Sanyo, Philips and Panasonic on board. However, Symbian develops reference specifications, software and services for mobile wireless devices. Psion is likely to concentrate on developing hardware implementations for these specifications and licensing them to the consumer electronics manufactures.

In the meantime the personal digital assistant market place is only going tougher for everybody concerned as Toshiba, Acer and many other consumer electronics vendors join the fray by the end of the year.

The winning device will probably be the same size and form factor as a Palm V, include a platform as powerful as the Symbian or Windows CE, include a color screen, an mp3 player, and 3G mobile wireless connectivity as well as Bluetooth and will be priced below $300.00.

Of course, such a device is not available yet. Following that such a device would probably have to offer location based services and a lightweight digital camera and digital audio broadcasting receiver. In short, a device that has everything.

Now both the cell phone and the PDA manufacturers will say that no one device will fit all categories. But that's not what the experience of the PC industry. It has moved from providing the public with something that was capable of running word processing and spreadsheets to something that is capable of making movies. If Psion carve out a small slice of this new PDA market then it most certainly has a future.

And do you know what? I wouldn't be surprised if Palm followed suit.

Niall McKay is a contributing editor for the Red Herring magazine. He can be reached at