October 19, 1999 Web posted at: 12:19 p.m. EDT (1619 GMT) by Geoffrey James

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(IDG) -- With all the brouhaha surrounding Windows 2000, it's easy to forget that Microsoft has another strategic operating system targeted at the enterprise - Windows CE.

In fact, Microsoft is now working harder than ever to position CE as an operating system for non-PC devices in corporate networks because CE-based devices haven't exactly been setting the consumer world on fire.

Microsoft says it has recruited thousands of OEMs to develop vertical applications based on CE, and the company claims there are now more than 500 commercial applications for CE on the market.

The company is touting CE as a platform for embedded network devices performing process monitoring and control; vertical applications such as wireless point-of-sale tracking; peripherals and thin clients connected directly to corporate networks; and network-connected personal companions such as handheld computers.

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But CE faces an uncertain future. Introduced by Microsoft at Fall Comdex in 1996 as "a Win32-based preemptive, multitasking, graphical, high-connectivity operating system designed specifically for embedded applications," CE was thrown into a broad range of consumer markets - everything from game consoles, smart phones and TV set-top boxes to DVD players, home appliances and handheld PCs.

The numbers don't look good

The results have been less than spectacular. An estimated 778,000 devices running CE will ship in 1999, according to market research firm Venture Development Corp. in Natick, Mass. To put that in perspective, combined OEM shipments of Microsoft's core operating systems - Windows NT and 9x - are expected to top 100 million in 1999, according to International Data Corp. (IDC), a market research firm in Framingham, Mass.

The market in which CE was expected to have the most impact is what IDC calls personal companions - mobile devices that range from keyboard-less palm-size units (like the Palm) to near full-size laptops with touch-type keyboards (like the NEC Mobilepro 800).

However, CE is running a distant second to the PalmOS in the booming market for palmtop computers. In fact, while IDC predicts that CE will eventually catch up to the PalmOS, the short-term picture is decidedly bleak for Microsoft. In 1998, the PalmOS held a 73% market share for palmtop devices in the U.S. compared to 14% for CE. The PalmOS is expected to hold an 80% to 13% advantage when 1999 results are tallied, according to IDC projections.

IDC analyst Jill House says the Palm is winning because it's smaller and has better battery life than CE-based devices.

Windows CE is also a very minor player in what IDC calls "vertical devices" - pen tablets, pen notepads, keypad handhelds - which are used for tracking remote deliveries or conducting factory inventory.

While Windows CE market share is expected to grow to 9% by 2002, the product's market share in 1999 will only be 2.1%. The problem in this market appears to be one of customer demand.

"We really haven't had much demand from Fortune 1000 or the utilities for CE devices," explains John Harris, vice president of marketing for the Panasonic Personal Computer Company in Secaucus, N.J., the largest U.S. vendor of ruggedized, wireless portable PCs.

The only market that CE dominates, at 91% market share, is keyboarded handhelds. Unfortunately, that market is so small that Microsoft's victory rings very hollow. "Microsoft has a cornerstone on a market that nobody's buying," House says. "Microsoft has all these consumer initiatives, but nobody really wants Windows CE."

In fact, Windows CE has been blamed for the lackluster acceptance of keyboarded handhelds in general, which some analysts say aren't useful for much other than e-mail retrieval. "When are they going to get it to work right with a server as opposed to a desktop?" asks Rob Enderle, vice president at Giga Information Systems. "And when are they going to get an adequate set of personal productivity applications?"

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CE vs. NT?

An even more serious challenge for CE, however, may come from inside Microsoft rather than from competitors. It appears that there is significant internal competition between the company's operating systems groups.

Microsoft recently released Windows NT Embedded, a product that, like CE, is aimed at nontraditional computing environments such as manufacturing systems, telecom systems, office automation and medical devices. The announcement raises the specter that Microsoft might someday replace CE with a stripped-down version of NT.

However, Tony Barbagallo, Microsoft's group manager for CE, insists the company remains committed to CE in the commercial market. "I don't believe that there will be a day when one operating system will fit all devices," he says. "CE is suited for lower-end devices in a spectrum of whatever vertical market you're talking about. CE enables client-sized devices while NT enables the server-sized devices."

And Barbagallo maintains that CE can fulfill the needs of the highly disparate markets in which it competes. "The development environment has a platform builder with eight pre-configured systems," he explains. "You can mix and match the modules you want." By selecting features, OEMs can create a variety of environments, thereby allowing CE to be deployed across a range of commercial applications.

CE as thin-client operating system

Hardware vendors are using CE as a platform for implementing thin clients and network-connected peripherals. Wyse Technology, the world's leading supplier of display terminals, uses CE as the platform for its Wyse Winterm 3000, a Windows-based terminal that connects as a client to NT networks or systems running MetaFrame from Citrix.

"Technically, Windows CE is a good, clean multitasking environment for a small footprint device," says Jeff McNaught, Wyse's vice president of marketing. However, Wyse doesn't use CE on its front-line product - the Winterm 5000 network terminal - because CE doesn't support Unix and mainframe operating systems. And just last month, Wyse announced that it plans to add a high-end Windows terminal based on Windows NT Embedded 4.0 to supplement its low-end client based on CE.

Unisys selected CE as the operating system for a new scanner that's now shipping. The company already has an NT development staff in place and ported the application to CE, according to Joseph Borkowski, a software engineering manager at Unisys who oversaw the project.

However, Borkowski says he can't get Microsoft to commit to exact release dates for support of token ring - an important protocol in Unisys' target customer base of financial institutions. While Microsoft has promised additional network features and protocols in future releases of the product, "the lack of a firm promise means you can't bank on it," Borkowski says.

Despite their concerns, Unisys and Wyse are continuing to develop products using CE.

CE as embedded operating system

Some companies have been embedding Windows CE into industry-specific devices that are networked into a corporate database. Because CE supports the same Win32 programming environment as Microsoft's other operating systems, it's possible to develop an application on NT and then port it into the CE device.

This is an improvement over the way that embedded software used to be developed - as highly customized software running on a customized operating system kernel. Developing software for that kind of environment can be costly because each project is likely to have its own idiosyncratic tools and procedures.

Radiant Systems in Alpharetta, Ga., which specializes in the automation of retail establishments, is using CE as the platform for 11 products, including a movie theater kiosk by which customers can order tickets and refreshments, communicating information about the transactions to a centralized database.

"I really believe that Microsoft has a winning product here," says Jimmy Fortuna, a product line director at Radiant, who praised the fact that specialized devices built with CE integrate well into Windows-based corporate computing enterprises.

IDEXX Laboratories in Westbrook, Maine, is using CE as the operating system for a device that tests milk for antibiotic residues. IDEXX found that a major advantage to CE over custom-built operating system kernels was that CE made it easy to develop new releases more quickly.

While CE may not be fast enough for some high-performance real-time applications, Microsoft has established itself as an important vendor in many industrial automation applications.

"I haven't talked to any [industrial] R&D group in any company that isn't investigating or moving forward with a Windows CE solution," says Nat Frampton, president of Real Time Development in New Orleans, who consults on industrial automation for companies such as Boeing and Chrysler.

CE in vertical application devices

Despite its low market share, Microsoft continues to push CE for Vertical Application Devices - pen tablets, pen notepads and keypad handhelds used by field sales, factory workers and other remote employees to enter and retrieve data remotely.

Honickman Affiliates, a bottling and distribution franchise in Pennsauken, N.J., is using CE devices to track sales for its Canada Dry Delaware Valley unit.

"Orders are automatically transmitted once they are entered by the salesperson," says Gwen Dolceamore, vice president of IS at Honickman. She says a background process "wakes up" and transmits an order over the wireless network as soon as a sales representative clicks on the "Save Entry" button on a handheld device.

A major attraction for CE was that "it uses standard, readily available development tools and technologies for Windows, such as Visual Basic and ActiveX," says Mark LaRosa, chief information officer for Dynamic Mobile Data in Somerset, N.J., which helped Honickman develop the application.

Synder Healthcare Sales, also in Somerset, N.J., is using 1,500 Windows CE handheld computers to replace a paper-based sales tracking system. A major reason Synder selected CE is that it ran on hardware from a variety of vendors.

"We looked at some other systems... but they simply did not have the range of functionality and features that we needed," says Tom Pollock, senior director of IS at Synder.

The name game

These forays into myriad consumer and corporate markets raise questions about Microsoft's positioning of Windows CE. This is reflected by the controversy surrounding the "CE" in the product name.

Although a document on Microsoft's Web site says CE stands for "Consumer Electronics," Barbagallo claims that he's "not sure what the CE stands for." The company is evidently considering "Compact Edition" or even "Compact Embedded" as a new meaning for the CE acronym.

The positioning problem, however, may be temporary, given Microsoft's commitment to win these software markets. Even Microsoft's competitors insist that CE will remain a major force in the market.

"Windows CE is something that is going to remain in the market as one of the players in the small format market," says George Grey, vice president of business development for Psion PLC, a London-based company that makes handheld computers that compete with CE.

And IDC's House points out CE is still a young product. "It hasn't reached its third release, and the third release is the charm for Microsoft operating systems," she says, referring to the success of Windows 3.0 and NT 3.0.

However, before CE can be embraced by a majority of network professionals, Microsoft needs to clarify the positioning of the product vs. the company's other operating systems. In addition, Microsoft needs a public plan, with firm milestones, for adding features and protocols required for the corporate network market.