Palm wasn't the first to introduce a PDA, as any fan of the Apple Newton will tell you. And it isn't the first to offer a smart phone for $200 or less. Similarly priced phones such as the Nokia E62 and the BlackBerry Pearl are already available. Smart phones typically can access e-mail and the Web, manage personal information and be used for phone calls.
But Palm had the marketing savvy 10 ten years ago to make the Palm Pilot a widespread success. And it likely still has the savvy to turn the smart phone, which so far has been embraced primarily by early adopters doling out as much as $600, into a mainstream tool for consumers. The irony is that the victim of lower smart phone prices will be Palm's first big innovation, the PDA.
"Clearly, PDAs as a growth market are done," said Neil Strother, research director for mobile devices, content and services for market research firm NPD.
Accelerating the trend
The downward spiral for PDAs had already started well before the recent announcement of the Treo 680, which has not yet been released. NPD, which monitors sales of such devices, reports that about 2.6 million PDAs were sold in retail stores from October 2003 through September 2004. Two years later, unit sales had fallen to 1.5 million units, according to NPD.
Need further proof of the demise of the PDA?
"Palm hasn't released a new PDA in more than a year," noted Todd Kort, a principal analyst for Gartner. Both Kort and Strother said that lower smart phone prices bring about a simple type of mathematics that will further contribute to the decline of the PDA.
"If people need a pocket organizer, and if they buy a new phone every year or two, they'll start thinking whether they want one device for $200 or two devices for $100 a piece," Strother said. "It only makes sense to get a smart phone. So lower smart phone prices will further erode the PDA market."
Of course, while PDAs are headed down, smart phones have no place to go but up. Strother said that, in the most recent quarter, only about 2.5 percent of all phones sold were smart phones. That's an increase over the same quarter a year ago, "but it's still small potatoes," he said.
Gartner's Kort predicts, though, that smart phone sales will start ramping up quickly. He said that, worldwide, 49 million smart phones were sold last year and almost 80 million will be sold this year. Overall, almost a billion mobile phones will be sold worldwide this year, according to Gartner. That firm measures sales and defines smart phones somewhat differently than does NPD, causing a discrepancy in sales statistics.
"It'll probably grow at least that much again next year," Kort said. The trend toward lower-priced smart phones is not only putting a crimp on PDA sales, but it also will start limiting sales of higher-end smart phones," Kort added.
"The cost is coming down so quickly in the last six months you won't see a lot of $300 or $400 or $500 smart phones coming out next year," he said.
For the enterprise, too
So far, vendors are aiming cheaper smart phones at consumers, but lower prices will also have a big impact on the enterprise, the analysts agreed.
"It's the same equation at the low end of the enterprise market as it is on the consumer side," Strother said. "It becomes a matter of device management. The IT guys will think, 'hey, I can only give them one device.' So the smart phone will become the standard over time."
Also leading to growth of smart phone sales to business users is the fact that, often, consumer purchases lead to enterprise purchases. One notable and often-cited example is the Palm Pilot itself, which initially was purchased by individuals who used the devices to manage work-related contacts and appointments. Eventually, many IT departments bought and maintained the devices for employees.
The crossover from consumers and the enterprise is actually built in to smart phones such as the Nokia E62, Kort noted. That device comes with software for listening to music and watching video, but it also is capable of receiving corporate e-mail from platforms such as Microsoft Exchange and BlackBerry Connect.
An ironic story
Palm's Treo 680 announcement is the latest page in a story full of irony and premature far-sightedness.
It began with a company called Handspring, which was started in 1998 by two of Palm's founders, Jeff Hawkins and Donna Dubinsky. Handspring started with PDAs, but after a couple of years of mixed success, announced it would focus on smart phones, which it predicted would be the wave of the future. Hence, the original Treo was born.
The Treo was an instant cult classic, embraced by early adopters but by few others. Its premature reliance on the Treo, however, put Handspring into financial peril and Palm bought the company in 2003, not long after the release of the initial version of the smart phone. With the company, Palm also acquired the now-successful Treo.
"I'd hate to think where Palm would be right now if it hadn't been for Handspring," he said. "It gave them a two-year headstart on everybody else."
Remaining barriers
There are still a few barriers to the unbridled growth of smart phones. A big one, according to NPD's Strother, is that the cellular operators are demanding that users buy expensive data services to go with cheap smart phones, something that consumers and enterprises are likely to resist.
"People are smart enough to know that the price of the phone is only the first thing," Strother said. "And some of the data plans are just too expensive."
A notable example of how this strategy can fail is the Motorola Q smart phone, which was introduced earlier this year for about $500. Now, Verizon Wireless is offering that smart phone for under $100 after incentives.
"They saw a very high rate of return on the Q because of the $80 minimum (voice and data) service plan that Verizon was asking for," Kort said.
Despite hurdles such as expensive data plans, the analysts agreed that smart phones eventually will be widely adopted. And even when that happens, the PDA won't fade away entirely.
"There always will be guys who need to work on construction or climb up telephone poles who need the larger display of a PDA," Kort said. "There are guys building aircraft fuselages at Boeing who have PDAs on their belt, and when they need to look at a schematic, they whip out their PDA. So there will always be applications."
But those are niche applications. The bottom line is that high visibility moves such as the Treo 680 announcement will not only accelerate the growth of smart phones, but they'll also hasten the decline of the PDA. In the case of Palm, the irony is that it's helping destroy the market it pioneered and built.