Linux jumps into handheld battle

The giants in handheld computer software, Palm Inc. and Microsoft Corp., will soon get a new competitor: Linux, the free operating system.

The cult software, developed by a global network of developers overseen by Finnish programmer Linus Torvalds, has long been targeted at PCs and corporate-server computers. It's positioned as an inexpensive, reliable alternative to Microsoft's Windows and to versions of the Unix operating system sold by Sun Microsystems Inc. and others.

But recently, several electronics makers in the U.S. and abroad have announced that they are creating Palm-like gadgets based on the software. Royal Consumer Business Products, a unit of Italy's Olivetti SpA, has said it will introduce Linux-based handhelds in mid-2001. Electronics maker G.Mate Inc. plans to release a Linux-based handheld in South Korea by the end of the year. Earlier this month, Agenda Computing Inc., a unit of Hong Kong-based Kessel International Holdings Ltd., unveiled the Agenda VR3, a Linux-based device that is scheduled to ship in June. And Japanese electronics giant Sharp Corp. has said it will launch a Linux-based handheld gadget in the U.S. late this year.

Move over Palm and Microsoft?
These developments seem likely to increase competitive pressures on Palm, which supplies the operating system for more than 75 percent of the handheld computers that are sold in the U.S., and Microsoft, whose Pocket PC software is used in most of the other handheld devices.

For Palm, in particular, the arrival of a new competitor couldn't come at a worse time. Last month, Palm said it had been hit by the slowing economy and its own troubled transition to a line of new handhelds, compelling it to slash its earnings forecasts and to lay off staff.

Michael Mace, Palm's chief competitive officer, says he began tracking the makers of Linux devices more carefully last year. The Linux machines are "still pretty crude, but so was Palm at one time," he says, adding that Sharp's support for Linux is especially worrisome. "Sharp has really deep pockets," he notes.

Microsoft executives are a bit more dismissive. "From what I've seen of these Linux gadgets, the jury is still out on them," says Ed Suwanjindar, a product manager in Microsoft's mobile devices division.

Linux is an "open source" operating system, meaning that users and computer makers can improve on the programming instructions used to create it. The Linux code is also free and openly available to software developers, so computer makers don't need to pay licensing fees to embed the software in their handhelds. Palm and Microsoft don't disclose their licensing fees. But the brokerage firm Needham & Co. estimates that Palm, which also makes its own hardware, charges between $5 and $15 per device that other manufacturers sell -- or about 10 percent of the hardware's wholesale price -- and Microsoft charges about the same.

Many Linux proponets
Proponents of Linux say its handheld software is versatile and hardy, able to run multiple programs at the same time. But there may be some drawbacks to the Linux approach. No single company supports the operating system. While Red Hat Inc. and a few other companies are developing PC programs based on Linux, these companies haven't yet entered the handheld computing market. As a result, the hardware companies creating Linux-based handhelds don't have any standards to follow in creating their new machines. Each company is developing its own user interface and has launched its own efforts to recruit programmers. That means there will probably be limited compatibility between their devices.

That's very different from the way Palm and Microsoft work. First of all, both provide standard user interfaces to those companies that license their operating systems -- Handspring Inc. and Sony Corp. in the case of Palm, and Compaq Computer Corp. and Hewlett-Packard Co., among others, for Microsoft. Both operating systems are centrally supported, so developers of third-party software always know where to go with questions. And consumers who upgrade their hardware can easily transfer their data to new handhelds using the same platform.

Palm's operating system is considered more streamlined and intuitive than Microsoft's, making it easier for consumers to use. Microsoft's platform is viewed as more robust, able to immediately perform multimedia tasks like playing MP3 music files and boasting color screens on most of its models.

Royal, the Olivetti unit based in Bridgewater, N.J., has used its own operating system for its previous lines of handheld computers, which compete with the low end of Palm's line. For a higher-end device, Royal wasn't eager to buy software from its direct rival.

After much discussion, the company also decided to bypass Microsoft's Pocket PC platform and go with Linux. The software is "open source and can be all things to all people," says Bob Robinson, an executive director of marketing at Royal. He says Royal's new handheld will include a color screen, 15 megabytes of memory, an expansion slot and the capability to play MP3 digital music. The machine, yet to be named, is targeted to retail at around $299.

Sharp, which previously used proprietary software for its handhelds, began looking for a new operating system that would appeal to a variety of software developers. "We wanted to take advantage of the millions of Linux developers," says Stephan Petix, a vice president of the Sharp mobile solutions group. "The Linux platform fit our strategy of creating a unique product."

Will consumers care about the software?
Ken Dulaney, an analyst at Gartner Group, says consumers don't typically care what software is embedded inside a handheld computer as long as there are plenty of applications and good hardware to go with the machines. "In the handheld device market, it's a lot less about the technology," he says. "It's more about what you can get for your money." For now, he concludes, Linux poses a small threat to Palm and Microsoft.

But Bradley LaRonde, chief executive of Agenda Computing, says his company is trying to close the software gap by offering development tools to programmers. There is already a community of several thousand Linux developers creating programs for mobile devices, he estimates, and about 1,700 have signed up to create programs for the Agenda VR3 machine in the past few months. "The openness of Linux matters," he argues.

The Agenda VR3 will sell for about $249. The product will include 8 megabytes of RAM plus 16 megabytes of flash memory and built-in programs like e-mail. Agenda's user interface is similar to Palm's, with on-screen icons representing applications that a user activates with a stylus.

But even LaRonde concedes Linux-based handheld devices face a bumpy road. He expects the products to appeal initially to Linux proponents. Still, he predicts Agenda will sell about 500,000 VR3s this year and another 750,000 in 2002.

"Can Linux kill the Palm platform? No, but it can compete with Palm and Microsoft's Pocket PC, and it may ultimately dominate the market with an 85% share," he says, and "maybe even more than that."