Another British success story passes into history

Psion; BAE Systems; Digital pain grows
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The Independent Online

When Psion launched the world's first volume produced handheld computer in the mid-1980s, it was widely hailed as the start of a technological and industrial renaissance for Britain. Not that anyone thought Psion's success would last. It seemed only a matter of time before the wretched Japanese would come along and improve on it.

Well, as it happened, they never did, and until the launch of the first Palms, Psion managed to stay ahead of the pack in the handheld computer market. It seemed a rare example of Britain not only establishing but also maintaining a technological lead.

Yesterday Psion announced that it is finally throwing in the towel in consumer palm tops to concentrate instead on "local area network solutions". Out gunned and out competed, Psion can't make money any more out of electronic organisers, and by its own admission it no longer has the necessary financial fire power to carry on in a market which is subject to growing commoditisation.

It all seems a long way from when Bill Gates in an internal Microsoft memo famously identified David Potter, chairman of Psion, as one of the biggest threats around to Microsoft's future prosperity. Since then, Microsoft has taken the handheld market by storm leaving Psion, and even Palm, trailing in its wake. The dream of world domination over, Psion is retreating into business markets too obscure for most of us to take the time to understand.

That and the Symbian joint venture with the big mobile phone companies, which also appears to be running into the sands. It all seems a terrible shame, not so dissimilar, in a way, to the decline and fall of Alan Sugar's Amstrad, which revolutionised the desktop market and made it accessible to all, only to be eventually trounced by larger, more fleet of foot rivals.

Technology is a brutal task master and it is remarkable in many respects that Psion stayed ahead of the game for as long as it did. For that achievement alone, it deserves more than just a passing footnote when the business history books come to be written.

BAE Systems

All quiet on the Weston front. The attempt by John Weston, the chief executive of BAE Systems, to bully the Ministry of Defence into granting him a monopoly over all future warship orders has backfired badly. The big guns at BAE are feeling bruised but the real collateral damage has been suffered at the company's Clydeside and Barrow yards where there will be 1,100 fewer jobs come Christmas.

The upside, however, is that warship building has been preserved on the south coast. Plucky little Vosper Thornycroft would have been blown clean out of water had the Defence Secretary, Geoff Hoon, gone along with BAE's demand that it be allowed to build all 12 of the Navy's next generation of Type 45 destroyers. As things have turned out, Vosper will now get a large chunk of the workload, enabling it to afford the move from its Southampton yard to posher shipbuilding facilities at the Portsmouth Naval Base.

The argument employed by BAE – that it would be cheaper for the taxpayer and simpler for the MoD if it only had to deal with three yards under a single ownership – always looked implausible. Mr Hoon has decided to rely instead on the tried and trusted method of keeping prices down by ensuring there is competition for its business. In most other areas of military procurement, such as fighters and radar, the competition can be provided by the Americans. But there really isn't much point and nothing to be saved at all from dragging complete hulls across the Atlantic.

Having lost the first skirmish in its battle to get a better deal out of the MoD, BAE must now move on to the second phase of its campaign. This is to persuade the top brass in Whitehall to switch from fixed-price contracts to something which more closely resembles the old-fashioned cost-plus deals that once existed. The bath that BAE has taken on the Nimrod airborne reconnaissance contract has convinced it that the risk-reward balance on procurement programmes is tipping too far in favour of the customer.

As the MoD's biggest and closest supplier by far, BAE would have more to gain than anyone from a change in policy. But as the MoD's warship decision shows, familiarity can also breed contempt.

Digital pain grows

British Telecom, BSkyB and ITV Digital (formerly ONdigital) are ganging up on cable. Show us what you can do, is cable's response. For years BT used to complain that regulators were being unfair in allowing cable to bundle together telephone and pay-TV services, when BT was banned from doing the same.

That restriction is now largely lifted, but BT is so far behind in its digital subscriber line roll out that it doesn't make much difference. The vast majority of BT subscribers can't technically receive TV down their telephone lines anyway. That position doesn't look like changing anytime soon, so lamentably has BT failed in its broadband strategy.

So BT is trying a different approach. Instead, it has signed up both Sky and ITV Digital to sell bundled packages at a price it claims will undercut the cable companies. Both Sky and ITV Digital would have preferred an exclusive arrangement with BT, but there's no way the competition authorities would have allowed that.

No prizes for guessing which of the two TV companies will do better out of the arrangement. ITV Digital has been given every possible assistance by its owners, regulators and the Government in its fight with Sky, but it has already largely lost the battle of the digital airwaves. Sky has emerged supreme and it is questionable how much longer ITV Digital's backers are prepared to support such a financially draining proposition.

Nonetheless, this latest marketing alliance makes obvious sense for all three parties. For BT, it may help at least to slow the loss of market share to cable and for the two digital TV platforms it adds a product they cannot at present offer – telephony – even if they won't have a share of its revenue. As it happens, Sky is eventually hoping to launch its own digital subscriber line proposition using the BT network, but that's still a little way out.

None of this seems to bother Telewest and NTL very much, or at least that's their public stance. Unlike the new alliance, they enjoy the advantage of a seamless TV and telephony service. And whatever the new alliance says, they claim still to be cheaper.

It's all great fun for the marketing men, but the stock market tells a different story. BT's shares are still close to a three year low, Sky is worth less than a third of what it was a year and half ago, NTL shares have lost three quarters of their value in two months (they plummeted through the $10 mark yesterday to a new all-time low), and ITV Digital's owners, Granada and Carlton, are struggling to keep their heads above water too.

Nobody's making any money out of the digital land grab, and there is a growing realisation in the City that at least one of them will have to disappear before anyone can. That company is widely assumed to be ITV Digital, but the way the NTL share price is bombing, you never know.