The Pen Pc Market Is Moving Half Steam Ahead

Nine months ago, Anthony Weir, a policeman in San Jose, Calif., was agog over a new type of personal computer that could recognize hand-printed words. In demonstrations, people simply scribbled on a computer screen with a special pen and, presto, it was translated into computerized text. "Everybody is going to use these," he gushed when he and his fellow officers started testing the newfangled machines to write up field and accident reports.

But today, just as computer makers are preparing these machines--called pen PCs, pentops, or tablets--for market, people such as Weir are no longer as gung-ho. They've found an annoying flaw: The software that recognizes handwriting isn't up to snuff for some jobs. Too often, it confuses a Z with a 2, or a U with a V--and so on. "When we have to write two-page narratives, the lack of accuracy can be painful," says Weir.

That means that San Jose cops--and lots of other potential customers--may not be buying as many machines as computer makers had expected. But it doesn't mean that a market for pen PCs isn't taking shape. In fact, the pentop business is beginning to take off--albeit at about half the speed boosters originally figured. This spring major players such as IBM are launching pen PCs (table) that are aimed at a promising sliver of potential customers, rather than at a mass market. The target: workers such as nurses, sales reps, real estate agents, and insurance adjusters who are on their feet or away from the office much of the day and can't easily use desktop or laptop machines. "This is for the lapless worker," says Kathy Vieth, vice-president for tablet systems at IBM.

TRAVELING REPS. And there are a lot of lapless workers. Pensoft Corp., a software startup, figures there are 30 million of these on-the-go workers in the U.S. Analysts at Prudential Securities Inc. estimate that $1 billion worth of pen PCs could be sold to traveling sales reps each year, and health care workers could snap up an additional $500 million worth.

That adds up to a healthy market, but not the bonanza that computer makers and analysts predicted a year ago. Limitations in pen technology, and product delays, have prompted market researcher Dataquest Inc. to slash projections of the 1992 pen-PC market by more than 40%, to 200,000 units, or about 10% of the portable-computer market. It also cut its 1995 forecast by about 25% but still sees a formidable market then: 4 million units annually and revenue of $10 billion. Forrester Research Inc. in Cambridge, Mass., is more pessimistic, predicting sales of just 75,000 pen PCs this year--half its estimate of a year ago.

State Farm Mutual Automobile Insurance Co. is typical of early pen-PC customers. Its field agents have tested pentops for 18 months, using them to fill in electronic forms, make short notes, and compute repair costs on damaged cars, says Norman L. Vincent, vice-president for data processing at the insurer. Now, the company is considering buying as many as 15,000 units over the next two to three years. Still, in their current form, pen PCs won't hack it in State Farm's executive offices. People who think pentops are ready for general office use, says Vincent, "have got their heads in the clouds."

Getting pen PCs onto office desks and into the computing mainstream will require major improvements in handwriting-recognition software. Already, says S. Jerrold Kaplan, chairman of pentop software pioneer GO Corp., the accuracy of his PenPoint software has risen to 92% to 93%, from 85% just six months ago. Even so, 1 in every 15 characters could be misread by the computer. "It means every other phone number you write is a wrong number," says Vern Raburn, president of pentop software maker Slate Corp.

Programmers concede that 100% accuracy is an impossible target. And, Kaplan asserts, it's myopic to focus on it. His vision goes beyond PCs that read hand printing to a concept called "living paper"--using pentops to capture notes scribbled in the margins or to sketch a new product. These digitized images can then be shared on PC networks.

Even if software limitations hold back the pen-PC market, the new machines still represent a refreshing growth opportunity in the troubled personal-computer industry. That's why so many PC makers are jumping in. By summer, at least 10 brands of pen PCs will be available, many of which will use new operating systems, or basic control programs: PenPoint from GO Corp. and Windows for Pens from Microsoft Corp. Both recognize hand printing traced on a liquid-crystal display screen and translate it into computer text. GO has spent four years and about $30 million writing its program, while Microsoft has spent three years and $15 million.

Suddenly, GRiD Systems Corp., the Tandy Corp. subsidiary that pioneered the market and had the field to itself for two years, will be feeling some competition. The company plowed $50 million into developing GridPad, a 5-pound pen PC that sells for $3,000 to $4,500 but has sold only about 20,000 units. Now, GRiD will be surrounded. NCR Corp., which introduced a pen PC last June, has started shipments, and startup Momenta Corp. says its pentop is available in 200 computer stores. And after the rash of products this spring, heavyweights such as Compaq, Dell, and Zenith Data Systems plan to jump in by yearend.

PRICE CUTS. Already, the market shows signs of overcrowding and discounting: Just out of the starting gate, NEC plans to drop its price in April from $4,099 to $3,599, and Momenta is offering customers $1,000 off its $4,995 pen PCs. "I suspect we're going to see price erosion in the next few months," says Bruce Langos, NCR's director of strategic product planning. Indeed, a week before the planned announcement of GRiD's latest pen PC, company executives were pressing President D. Bruce Walter to cut the price from $2,895 to $2,000 to compete with machines from Poqet Computer Corp. and PI Systems Corp., priced at $1,995 and $1,895, respectively.

Walter stuck with the higher price because he thinks his product has an edge. The 2.8-pound PalmPad is specifically designed for workers who spend their days in the great outdoors. Encased in the same plastic used for cameras, the PalmPad may be just the ticket for meter maids and truck drivers who would need a machine that could survive being roughed up a bit. "We have dedicated our entire company to pen PCs," says Walter. "We think it's going to be big."

Lightweights such as PenPad and Poqet are only a hint of the compact second- and third-generation pen PCs now on the drawing boards. Most of this year's models look and act much like notebook PCs. But within 18 months, pen PCs are expected to shrink to the size of a steno pad, a 5-by-8-inch computer weighing 2 pounds to 3 pounds. The expected price for these scaled-down models: $500. And by 1994, pen PCs could be pocket size. These would be used as personal organizers for jotting down phone numbers and appointments. They would also do simple calculations using numbers and commands written on the screen. Future models may even have wireless communications links.

So, for all their flaws, the products coming out now do represent a beginning. "It's show time for pen computing," says GO's Kaplan. Early reviews may be mixed, but pen-based computing could still shape up as one of the industry's long-running acts.