Why is Bill Gates so scared of the Psion? deal scares Microsoft's guru

A BRITISH company - dwarfed by the size of the Microsoft Corporation - appears to have the world's richest man, Bill Gates, running scared.

According to an internal Microsoft memo "leaked" to the press earlier this week, Mr Gates has identified Psion as the greatest competitive threat to the American software giant over the next five years.

The reason is an agreement Psion has signed with the world's three biggest mobile phone companies to develop software for a new generation of "smart" phones. These mobiles, it is claimed, will combine the virtues of personal computers and traditional phones, and will clearly threaten the dominance of personal computers, on which Microsoft's wealth is based.

Psion's founding chairman and chief executive, David Potter, has steadfastly refused to comment on Microsoft's memo, mindful perhaps of the fate of Microsoft's legions of former rivals who now lie crushed. Psion, founded in 1980, is worth around pounds 260 million on the stock market, compared to Microsoft's pounds 136 billion.

The most obvious reason why Microsoft, the owner of the Windows operating system which dominates all PCs, should be worried about Psion, is the trend for miniaturisation and mobility. For the last ten years or so PCs have dominated workplaces, taking advantage of the easy to use Windows system and plummeting microchip prices.

Mr Potter, a former Cambridge academic, has pioneered devices which have several winning features, attractive enough to build an almost cult- like following. Born in Zimbabwe he is described by colleagues as charismatic and dynamic, although now 55. His wife Elaine Potter was a journalist, and the couple have three sons.

Mr Potter's "Symbian" joint venture with the world's three largest mobile phone companies Ericsson, Motorola and Nokia, will build on the success of Psion's hand-held personal organisers, which enable you to throw away your pocket diaries, phone number and address books, filofaxes and even word processors.

First and most important, the Psion organisers ( the latest is "Series 5") are light enough and small enough to fit in a pocket. Secondly, if you lose them you won't have lost all your precious phone numbers and so on, since the Psion stores these on spare discs which you can keep elsewhere.

But there's more to the gadget's success than that. Psions arouse strong emotions, rather like any cult. Like Apple Macs before them, Psions create strong loyalties, with fans enthusing about its various features and the effects it has had on their lives. Others complain the devices have "yuppie" overtones.

There is one conspiracy theory why Microsoft allowed its internal memo to be made public this week. The software giant is currently being investigated by the US Department of Justice over accusations that Microsoft intimidated almost all its major rivals in the industry.

If however Mr Gates can point to a dangerous threat from a tiny British company - how on earth can he be accused of being a monopolist?