Personal Digital Assistants on Hold
Companies reassess demand for much-hyped device
By Rory J. O'Connor, Staff Writer
San Jose Mercury News
November 15, 1992
A mere five months ago, a handful of computer companies began talking about a revolutionary kind of handheld computer that experts predicted could revitalize Silicon Valley's high-tech industry and seize the consumer electronics market back from the Japanese. But today, even before the first so-called personal digital assistant has hit the market, the revolution has been put on hold.
When Apple Computer Inc. Chairman and Chief Executive Officer John Sculley unveiled a prototype of the Newton last summer, he confidently called it a breakthrough product that would offer millions of consumers undreamed-of access to a high-tech future and open up a new market worth trillions of dollars.
Sculley's enthusiasm spread through the computer industry like wildfire. U.S. and Japanese companies pledged to build the computing companions and sell them to eager buyers for a few hundred dollars each, saying some would be available as early as next year.
But on the eve of the computer industry's largest annual gathering, the Comdex
Fall exhibition, companies are reassessing just how quickly the devices will become
Sculley himself began backpedaling in September, saying he is "less and less convinced there is a market for these things in the near term in the consumer market." The pundits who in the spring hailed Newton as a visionary breakthrough now say the consumer market might not explode until the beginning of the next century.
"Apple has spread a lot of fire and mist and hyped the market too much," said Jeff Henning, an analyst with BIS Strategic Decisions in Norwell, Mass.
That's not to say the computer industry has abandoned the idea of producing what Cupertino-based Apple has dubbed PDAs, or personal digital assistants. Newton received much praise for its combination of technologies: battery power, and electronic pen for writing commands, highly advanced programming to interpret those commands and a wealth of options for communicating with people and computers, from sending a fax to receiving computer data over the airwaves. Many companies, including Apple, think PDAs will be embraced by business executives who want to keep in touch with their office computers and data.
Comdex will give most of the 140,000 or so show-goers their first look at these information appliances with a handful of technology and concept demonstrations.
Huge Consumer Market
Almost everybody in the computer business remains convinced that a huge consumer market is on the horizon for the devices, especially when they become as cheap as VCRs and can tap into a nationwide information network that offers everything from electron mail to the daily newspaper to video entertainment. Proponents say the market is one that could dwarf the amazing success of the personal computer age and reinvigorate the country's lack luster high-tech business.
"There's lots of opportunity in this new world for American technology to reinvent itself, and even to regain the lead in consumer electronics," said Robert Kavner, group executive of communications products for American Telephone & Telegraph Co., which has invested in everything from the computer chips to the software to the communications networks that are vital to the PDA market.
Getting there, though, is proving far more challenging than Apple's initial burst of enthusiasm would indicate.
The industry faces two chief obstacles to creating the new class of product: confusion about why people would want it and the high price tag.
WHAT'S IN A NAME?
Confusion, when it comes to tacking a sobriquet onto a new generation of portable high-tech gadgets that will combine some functions of computers, cellular phones, calculators, hand-held video games and pocket organizers. Different companies and individuals have proposed at least 11 names for such gadgets, although the most popular so far is Apple Computer Inc.'s PDA designation:
PDA HARD TO DEFINE
Universal agreement about what constitutes a PDA isn't even close. Most analysts believe that, to be attractive to consumers, the devices must fit easily in a pocket; operate with a pen instead of a keyboard; run for many hours, preferably days, on one set of batteries; be able to communicate by cellular phone or radio nearly anywhere the user might be; and be as easy to use as a telephone or VCR.
At this early stage in the market, what companies can't seem to agree on is just what application of PDAs will prove so crucial to consumers that they will flock to buy them. As competitors try to figure out what will constitute that so-called "killer" application, some executives fear the resulting jumble of PDAs will send such confusing signals that they will put consumers off for years.
Analysts contend the problem has its roots in the practices of the computer industry, which often simply takes the latest available technology and tries to build something out of it, without deciding ahead of time what customers might be willing to buy.
"The computer industry builds products first and asks questions later," said analyst Doug Kass of the Viewpoint Group in Aptos.
In the hotly contested consumer electronics market, by contrast, buyers open their wallets only when they can see a product that has some clear, well-defined purpose and a low price.
"If a PDA is a $700 calculator or a $700 phone book, I don't need it," said Dick Shaffer, an industry analyst in New York.
PRODUCT'S PURPOSE UNCLEAR
Having too many functions also can be a deterrent to buyers, who aren't sure what the product's main purpose is. Companies themselves are so confused that they have come up with a dozen or more names and acron7yms to describe the devices, from the personal communicator moniker favored by AT&T and start-up EO Inc. to palmtop computer to personal information appliance. Some deliberately shy away from PDA because of Apple's apparent flip-flop on Newton.
"I would not have had a problem settling on PDA (as a name), but given what Sculley has done to it, I wouldn't use it," said Howard Elias, vice president of Tandy Computers, which is developing a device with Japan's Casio Corp. that it now calls a personal information processor. "He's confused everybody, including himself, on what he means."
With Sculley backing away from the consumer angle for Newton, some people have labeled his flashy introduction at the Consumer Electronics Show a mistake.
"Some vendors believe Apple's hype has set the market back and created expectations (among consumers) that can't be met," Henning said.
Apple maintained it did the right thing, even if it has changed its message since.
"I would have labeled it a mistake if (Sculley's CES presentation) had NOT achieved its objective of making people understand the potential of the technology," said Burt Cummings, director of marketing for Apple's Personal Interactive Electronics division, which will produce Newton. "The response since CES has be very, very positive."
But he acknowledged that high outside expectations have "really set some tough challenges for us."
One of those is the other major problem faced not only by Apple but by every company hungrily eyeing the PDA market: The technology to create a full-featured PDA is far too expensive today to allow manufacturers to sell it for a price most consumers would be willing to pay.
Sculley originally talked about Newton selling for less than $1,000 -- the most common price analysts briefed by Apple cited was $700. Even at that price, however, few consumers would buy the product. Most popular consumer electronics products sell for $100 to $400, the price at which products like VCRs and CD players become best-sellers. Retailers refer to an over-$500 product as a "two-spouse decision," making it a much more difficult product to sell.
BUILDING A PDA
One reason consumers won't see a $750 PDA in consumer electronics stores anytime soon is that the cost of just the parts is far more than that figure. These are likely prices a company like Apple would pay for the components of a mythical PDA today, based on a composite of the figures from industry analysts and manufacturers:
Pen-sensitive screen: $175
Expansion slot: $10
Communication: $35 to $150 (wired);
$10 to $500 (wireless)
Case and power supply: $50-70
Storage, 20 megabytes: $300-600
Microprocessor and "mother-board": $100
Memory chips: $140
Software licenses: $100
Minimum components total: $910
Apple's profit: $500
Manufacturer profit: $400
Retailer profit: $400
Total profit: $1,300
Probable list price: $2,600
"Street price": $2,200
Hewlett-Packard Co. of Palo Alto discovered the price barrier when it was designing its HP 95LX, a calculator-size computer with a miniature keyboard, a small screen and a built-in copy of the Lotus 1-2-3 spreadsheet program. Many analysts consider the popular $550 business product to be a precursor of full-function PDAs, although it has no pen and no built-in communications.
MODEL SPARKED INTEREST
In 1989, the company showed a "concept" model of a PDA-like device that had more features than the 95LX to a group of consumers to gauge their reaction to it. Even though it was the last of eight models the group saw during a two-hour session, it sparked immediate interest, said Ken Henscheid, a Hewlett-Packard executive involved in the project.
"People who had been nodding off literlily jumped up," he said. Excited company officials asked the consumers what they would pay for such a product.
"They said they'd be willing to spend as much as $100," Henscheid recalled. "But we all knew that the technology cost much more than that." Price, he added, is "probably THE fundamental barrier to consumer acceptance of these devices."
Nearly all those involved now believe PDAs will be less of a dramatic shift and more of a gradual movement to smaller and more "personal" computers. The market will probably be peppered with a wide variety of devices that have vastly different functions and prices.
EO believes it can help develop the market by targeting traveling executives with its new personal communicator -- essentially an 8-by-10-inch pen computer with a cellular telephone option -- with a starting price of $2,000. AT&T, which holds a stake in EO, believes that the devices are compelling enough to jump-start the industry -- and help U.S. companies dominate the new field.
WE HAVE THE TECHNOLOGY
"We have, from a competitive standpoint, a set of technologies absolutely required to made this happen, like microprocessors, software and communications networks," Kavner said. "And the Japanese have some key technologies like flat-panel screens, miniaturization in manufacturing and memory chips."
Kavner said personal communicators offer the United States a chance to "trade hostages" with Japanese companies and bring all the needed technology for PDAs onshore.
Apple, which still plans to unveil its first Newton in early 1993 -- although several reports indicate the product has run into delays -- now says the product will sell to business users and "early adopters" of technology.
"There's a tremendous response from institutions," Cummings said. "But we wanted to get away form[sic] the word consumer: It has so much meaning that it's almost meaningless. Everybody has their own interpretations of it."
At the other end of the scale, Tandy plans to unveil an under $500 "PIP" sometime next year, which it will sell to consumers. But it is unlikely to include wireless communications options, one of the most expensive parts of a PDA.
"We can do all the things people promise in these things," said Tandy's Elias. "Just not in 1993 and not for $500."