The design of handheld devices has been changing, and the dividing lines between cell phones and PDAs have been disappearing. Increasingly, phones support applications like text messaging, email, Web surfing, and even video transmissions. With the increasing popularity of voice over IP, PDAs are carrying more and more voice communications. As this convergence takes place, third party developers, handset manufacturers, and cellular carriers want to deliver new multimedia applications on a new generation of phones, dubbed smartphones. The devices will provide mobile executives with a simple method of exchanging information with the home office.
Because of their potential benefits, the products have generated a great deal of buzz, but they have not yet gained a significant amount of user acceptance. Market research firm In-Stat/MDR, a division of Reed Elsevier PLC, found that out of the 560 million phones shipped in 2004, only 16 million (representing about 3 percent of the overall market) were smartphones.
There are a number of reasons why the devices have not gained traction. Smartphones are designed to run on third generation cellular networks which deliver the bandwidth needed to support the multimedia applications, but carriers have been slow to deploy such networks. While Asian carriers have moved to these networks, -- high-speed data access is common in China, Japan, and South Korea -- U.S. and European carriers have had trouble digging out from the dotcom bust and put many of their upgrade plans on hold.
Handset hardware has been another problem. "You can't fit a complex operating system in 1M or 2M bytes of memory, but that was all some of the early smartphones supported," noted Michael Mace, chief competitive officer at PalmSource Inc.
When dealing with computers, vendors have been able to drive product pricing down quickly, but smartphones' small footprint presents them with significant challenges. "Smartphones require a multiprocessing system, but reducing the required circuitry so it fits into a handset is tricky because multi-processing systems generate a lot of heat and require a great deal of battery power," said Rex Wang, vice president of marketing at Sleepycat Inc., an open source software supplier.
To address such problems, vendors have made significant research and development investments, which they need to recoup. "Smartphones are too expensive for most consumers to buy," said Neil Strother, an industry analyst with In-Stat/MDR. "They cost $500 to $1,000, and the sweet spot in the consumer market is the $50 to $100 range."
Smartphones have not been attractive to independent software vendors. Ideally, they want to design software that runs on a variety of smartphones, but that is possible only if a common operating system ran on a variety of the devices. Currently, handhelds support more than two dozen proprietary systems, such as PalmSource's Palm OS, Microsoft Corp.'s Windows Mobile, and Symbian Ltd.'s Symbian OS, as well as the open source Linux. After coupling the wide variety of choices with the low shipment numbers, ISVs find themselves spending a lot of time and money designing applications that don't generate much revenue, so most have passed on this opportunity. "In the handheld space, the most popular applications have been information systems, such as weather and online gaming systems," noted Carl Zetie, an industry analyst with Forrester Research Inc. "There haven't been many business applications."
But analysts expect that to change dramatically during the next few years and for these devices to become common business tools, especially for salesmen and other road warriors. 3G cellular data services are becoming more common. "Companies like Nokia and Motorola Inc. have been delivering more modular handset product lines based on a common operating system," said Jacob Lehrbaum, product marketing manager at MontaVista Software Inc. This change makes smartphones a more enticing market to ISVs.
At the moment, Symbian is the leading smartphone platform. "Since Symbian OS was designed specifically for cell phones, it does a good job of delivering needed functionality for mobile users," noted In-Stat/MDR's Strother. Available since 1998, Symbian OS has garnered significant support: approximately 29 phones from companies, such as Ericsson PLC., Matsushita Electronics Corp., Nokia Networks Inc., Psion PLC., Samsung Electronics Co. Ltd., Siemens AG, and Sony Eriksson Ltd.
But not all mobile phone vendors feel comfortable with that OS. "A number of competitors do not like the tight relationship between Nokia (a cell phone maker that owns about one third of the OS supplier) and Symbian, and would rather rely on an operating system that comes from an unbiased source," said Ira Brodsky, president of Datacomm Research Co., a market research firm that focuses on wireless transmissions.
Aware of that desire, Microsoft has tried to leverage its Windows operating system in the smartphone space with its Windows Mobile OS. The petite operating system was designed to be compatible with its Outlook email system, Internet Explorer Web browser, instant message capabilities with MSN Messenger, and multimedia features via the Microsoft Windows Media Player.
Because of the compatibility, the software giant garnered new allies. Motorola Inc.'s first Microsoft-based smartphone was the MPx200, and it was followed by the MPx and MPx 100 handsets. Nextel Communications Inc. worked with Motorola to enhance its services to support their smartphone. Samsung Group and two Taiwan companies HTC Corp. and Mitac International Corp. are producing smartphones running the Microsoft software.
Yet, there has been some reluctance among carriers and handset vendors to embrace Microsoft's product. Handset suppliers fear that Microsoft will eventually dominate the cell phone OS market as it does the PC OS, and that would eliminate differentiation from handset hardware, which is where they envision their profits coming from.
Linux is emerging as a more appealing choice. The operating system is attractive to manufacturers because of its open source heritage, which minimizes manufacturers' development costs and maintenance requirements. Like other areas in the smartphone market, the initial interest in Linux is coming from Asian carriers. In China, Samsung released a Linux-based smartphone. In November 2004, NTT DoCoMo said its data services will support the N900iL and the N901iC, both developed by NEC Corp., and the P901i from Panasonic Mobile Communications Co., Ltd., a subsidiary of Matsushita Electric Industrial Co., Ltd. All three of the devices run MontaVista Linux.
Perhaps even more significantly, in December, PalmSource, whose Palm OS has garnered noteworthy acceptance in the smartphone space, purchased China MobileSoft Ltd., which developed 30 mobile phones for the Asian market, a few of which rely on its variation of Linux. PalmSource's Mace noted that the company plans to support its PalmOS, but views Linux as its principal operating system in the future. The firm has not set a delivery date for its Linux version of PalmOS but expects to make its plans clearer at its developers conference in the spring.
Once that product is available, Linux could become a more attractive option to ISVs. "Linux provides a great deal of flexibility to developers, but some prefer a more packaged operating system where they don't have to make as many design decisions and complete as much integration work," noted Bill Weinberg, Open Source Architecture Specialist at Open Source Development Labs, Inc. "A Linux version of PalmOS could address their concerns."
Because of such changes, the much anticipated union between Linux and smartphones is taking shape and the open source operating system is emerging as a key smartphone platform.