Can Compaq’s iPaq thrive?

When Compaq Computer Corp. unveils a new line of consumer and business-computing devices, you might assume that at least some would be PCs. But new PCs were nowhere to be found at Compaq’s iPaq product launch this week in New York. Instead, the company’s introduction of an array of nontraditional computing devices is apparently the start of a growing line of products aimed at both home users and corporations.

The new products, including an MP3 player, wireless handhelds, a Web appliance, and a home Internet gateway, join Compaq’s Pocket PC, introduced this spring. All will be marketed under the company’s iPaq sub-brand, first used earlier this year for the company’s slim-line, legacy-free business PC.

The New York event was rife with the requisite hoopla of a major announcement: Giant monitors showed clips of consumers using the new products, including an apron-wearing grandma using the Web appliance in her kitchen to trade recipes with friends. (For as long as manufacturers have been trying to jump-start the market for Web appliances, they’ve been mentioning this grandma, or someone very much like her.) Corporate executives engaged in scripted banter about the new products; the audio player introduced itself by reading a short speech in a feminine voice, and a real live hacker crouched before a notebook, purportedly attempting to break into a home network protected by the iPaq Connection Point gateway.

Why the ambitious move into nontraditional computing devices? Compaq points to a recent Forrester Research prediction that by 2003, 45 per cent of online users in the United States will use more than one device to connect to the Net. Compaq thinks many of those devices won’t be PCs – hence the iPaq line. The company expects to continuously expand its iPaq family to include new types of computing products.

While the iPaq line is clearly a departure for a company that built its business on mainstream PCs, it’s not quite the radical move that it might seem. Compaq is quick to point out that there’s a PC angle to all its new products. The audio player needs a PC to get its tunes, for instance, and the wireless handhelds grab e-mail from your desktop PC’s in-box. The company even expects the iPaq Home Internet Appliance will offer an introduction to the Web for recipe-swapping grandmas – and as a “second PC” in households that are already online.

Compaq also makes no bones about the fact that the new products are based on existing, outsourced technologies. For instance, the pager-like iPaq W1000 and H1100 wireless handhelds are Compaq-branded versions of Research in Motion’s well-regarded BlackBerry devices. The iPaq audio player uses RioPort Audio Manager software, the same utility supplied with Diamond’s groundbreaking Rio MP3 player.

The home gateway uses technology from security veteran WatchGuard. Both the Internet appliance and Pocket PC are built around Microsoft’s Windows CE operating system.

Judging from demos at the iPaq unveiling, most of the new products are attractively conceived and designed. The biggest question mark is whether the Windows CE-based Internet appliance can find success in a market where competitors such as Oracle’s Network Computer and Netpliance’s I-Opener haven’t made much impact.

At the New York demo, at least, the Compaq device’s performance seemed interminably sluggish, and its list price – US$600 – seems out of whack with the realities of today’s market. (You can get the appliance for $200 if you sign a three-year MSN Internet service provider contract at $22 a month, but it’s open to question whether this commitment will appeal either to Web-neophyte grandmas or Internet veterans.) Compaq isn’t gambling everything on a Windows CE-based Web appliances, though: It has another appliance in the works, this one based on the Be operating system.

Overall, Compaq executives say they’re shooting for a market share in alternative computing devices that’s similar to the one it commands with PCs. That’s an ambitious goal, given that Compaq sells more PCs than any other company, according to research firm Dataquest.

One iPaq device already seems to be a bona-fide hit: Demand for the Pocket PC has outstripped supply since April, and there have been reports of eager gizmo fans bidding up units on eBay to twice the list price.

Compaq advises would-be Pocket PC owners to sit tight–it’s ramping up production. And if its forecasts of future Pocket PC sales are any indication–possibly a million units yearly–the iPaq line is off to a flying start.