Unanswered questions: PDA and Sony's Playstation 3

Perhaps the biggest handheld-related news at CES this year was the long-anticipated announcement by Palm of the Treo 700w, to be offered with Verizon Wireless service. The coming together of Palm, Microsoft, and Verizon was announced last 26 September, in a convergence of rivals heretofore unseen since Bill Gates showed up on a big screen at a Macworld conference to announce his company's settlement with Apple.

If "convergence" continues to be a watchword, then there is indeed some of it going on with regard to the 700w: It essentially makes the most talked-about PDA that Palm makes, a cell phone; and in turn, it makes Windows Mobile 5.0 a sophisticated dialing tool.

As the market starts anticipating that PDA functionality be grafted onto high-end mobile phones, the economics of the whole PDA business changes. Service providers such as Verizon are willing to "subsidize" purchases of their high-end models - essentially eating some or all their costs - in order to sign up new customers long-term. Subsidizing smartphones essentially leads to the sublimation of PDA functionality, from the cornerstone of an industry unto itself into a bonus feature for a communications network. This doesn't necessarily make the Treo 700w inexpensive - for now, $400 if you sign up for a Verizon two-year contract - though many analysts who've spoken with us during the fall season predicted Verizon would lower that price dramatically, a little bit at a time, sweetening the deal for themselves with even longer service contracts along the way.

The 700w will contend with Motorola's equally anticipated "Q" smartphone, which was not officially announced at CES last week, although sources somehow ended up with plenty of photographs anyway. Also a Windows Mobile 5.0 device, and also to be distributed through Verizon, the Q is likely to sell for nearly the same price, sources say. With the Q and Treo 700w sporting nearly identical features, what may end up tipping the scales in consumers' minds is whether they're more likely to trust a communications device provider (Motorola) or a personal functionality provider (Palm) with their phone service. Here is where Windows may actually work against Palm, since Palm users to date have trusted their brand not for its little rocker pointer device, but for the Palm OS - the software now produced for some, not all, Palm computers by a recently spun-off company trying desperately to survive. The most sensible reviews published to date by mobile device news sources tend not to praise Windows Mobile, calling it "kludgy," awkward, and too much like using a computer. So for Palm's established customer base, the 700w may as well not be a Palm at all; and among new customers, it may be difficult to discover what Palm brings to the table as just another Windows Mobile provider.

The relative success of the Motorola Q versus the Palm Treo 700w, once they become available at the same stores with the same service provider for what is predicted to be about the same price, may be our most sensitive indicator to date as to whether the PDA as an industry category has become assimilated.

The side-effects of the sublimation of the PDA certainly showed at CES this year, as personal devices without communications capability may as well have fallen off the planet. While thousands of attendees may have simultaneously depended on their BlackBerrys to get news or communication connectivity where cell phones fail, BlackBerry itself was not a newsmaker this time around. The Canadian company's battle to maintain the rights to operate its service in the US, in the wake of a patent threat, may have taken a toll, as manufacturers of mobile phones with BlackBerry Connect service managed to tone down their messages this year. As an exclusive e-mail provider, BlackBerry faces no direct competition, in North America or anywhere else. There's also no question it's a successful service that's still in high demand. With obsolescence not a threat, it appears that BlackBerry's supporters this year were simply hedging their bets.

PS3 on display at CES

For thousands of eager fans, the fact that Sony's Sir Howard Stringer did not exactly hoist the PlayStation 3 onto center stage, along with its big-screen plasma HDTVs and Blu-ray disc players, was a major disappointment. But the truth was, Sony never did say it would make a PS3 announcement at CES, and just as noteworthy is the fact that it might not have needed to.

Demand for Microsoft's recently released Xbox 360 has outpaced supply to such a degree that Microsoft may be creating three disgruntled customers for every one satisfied. Recently, Microsoft has released Xbox 360 to retailers in short, unannounced bursts, but mainly through Wal-Mart, instead of through any of the electronics-specific retailers whose support is necessary to help build and establish the brand. And the company has only now signed on third-party manufacturers such as Celestica, to help respond to the console's woefully underestimated demand. Such moves as these are not helping Microsoft, whose lack of familiarity with being a #2 player has certainly showed in recent months. Couple these developments with the fact that one of the biggest Xbox 360 accessories shown at CES this year was a radically retrograde liquid cooling device that makes your game console look like one of those plastic hamster cages, and you realize the road to Xbox 360's eventual success looks more uphill now than it did in November.

So if Sony did reveal some PlayStation 3 news, such as its absolute release date, or the complete list of game titles available at launch...or the price, what would Sony necessarily have gained? From some folks' perspective, Microsoft could actually be paving the way for Sony's eventual announcement, whenever it comes. And customers who haven't decided whether to purchase an Xbox 360 or PS3 (or, as some gaming analysts claim a quarter of gamers will do anyway, both consoles) and who are awaiting news from Sony, are probably also awaiting news of shipments from Microsoft anyway. Furthermore, in the wake of speculation from gaming industry investment analysts that the PS3 could eventually sell for as much as $500, Sony may have good cause to leave such speculation hanging in the air, especially if it intends to surprise the street with a much lower retail price.

But how low should the console's price go? Hewlett-Packard's formula of eating the manufacturing costs for its printers, pays off in spades once it collects millions of captive customers for its copyright-enforced ink cartridges. That formula works when you're the sole supplier of those cartridges, and you can successfully leverage copyright law - the same law that protects software publishers against piracy, and operating systems from being reverse-engineered - to guarantee your exclusivity. But neither Microsoft nor Sony can rely on such a guarantee, as long as the gaming software market remains free and open. So where, exactly, does the revenue come in?

Keep in mind also that the PS3 won't be just a gaming system, but also a Blu-ray disc player as well. Given price quotes of as much as $2,000 for premium, "full-profile" Blu-ray console recorders - and even some basic players - $500 may be a competitive price, from manufacturers' perspectives, for an entry-level Blu-ray system. But the truth is, no one will know that for certain for at least a few months' time, as a great many other concerns in the high-definition disc market have yet to be settled. As a result, it only makes sense that Sony held off on a formal announcement and introduction of PS3 at this year's CES.