Say this much for Microsoft: It never gives up. A decade after it started flogging a shrunken-down version of Windows for electronic devices other than PCs, the Redmond (Wash.)-based software titan is finally making a meaningful mark on the vibrant market for mobile phones.
A curious evolution has happened along the way, though. Sure, Microsoft (MSFT) is still urging handset makers to adopt mini-Windows -- known today, after innumerable rebrandings, as Microsoft Windows Mobile 5.0 -- as the core operating system for their phones. But now it's chasing an even juicier prize: central position in a whole spectrum of mobile applications, from portable music, to wireless e-mail and messaging, to mobile TV.
In effect, Microsoft is trying to become the standard-setter and middleman for all the sexy new things people can do with their phones. "Microsoft has realized that, at the end of the day, it can't make much money from selling operating systems for handsets," says Ben Wood, senior mobile analyst for researcher Gartner, near London. "Instead, it's now looking at an even bigger opportunity."
MUSICAL COUP. The new strategy was much in evidence on Feb. 13, the first day of the 3GSM World Congress mobile phone show in Barcelona. Microsoft announced a deal with Vodafone (VOD) that lets the world's largest mobile-phone operator offer business customers Microsoft's mobile e-mail technology. The service, which ties into Microsoft's popular Outlook e-mail system, rivals Research In Motion's (RIMM) BlackBerry, which Vodafone also offers.
The same day, Microsoft said that the world's No. 2 handset maker, Motorola (MOT), will adopt its digital music technologies, such as the Windows Media Audio file format and digital rights management (DRM). Motorola will start offering Microsoft's music tools in the second half, including on models that run operating systems other than Windows.
A coup for Microsoft, that deal is also a blow to Apple (APPL), which has previously collaborated with Motorola on handsets such as the poorly received ROKR that incorporate Apple's iTunes software (see BW, 12/05/05, "The Leading Edge is Razr-Thin").
What's going on here is that Microsoft has finally started to figure out the mobile industry -- and to spot the places where it can exert the most leverage. That's not to say it has given up on mobile operating systems. In recent years, it has scored a few big-name customers, including Motorola and Samsung, which use Windows on a limited number of models. It has had greater success with Taiwanese outfits that produce designed-to-order handsets for mobile operators such as Europe's Orange (FTE).
SERVER PLAY. Still, its market share is minimal. Researcher Canalys figures that Windows was used in less than 5% of "smartphones," which pack the power of a pocket-sized computer into a handset, sold in Europe in the first half of 2005. (Second-half figures arent't yet available.) That compares with 80% for Nokia (NOK)-backed rival Symbian, which virtually invented the smartphone category.
Besides, even if Microsoft grabbed 50% of the market, total revenue from selling pint-sized operating systems at $5 a pop could amount to only a half-billion dollars, a pimple by Microsoft standards.
But the idea isn't to make heaps of money off phone operating systems. Rather, it's to sell servers, and to provide key technology, such as digital rights management, so that those become standards, says Charles DiBona, an analyst with Sanford C. Bernstein & Co.
"It's hard to sell in enough volume to make a dent in this company," DiBona says. "Mobile won't be a monster product category for them." In the last quarter, Microsoft's Mobile & Embedded Device Div. was the smallest of the company's seven business units, contributing just $101 million of the outfit's $11.8 billion in sales. Still, deals aimed at selling other Microsoft technology show "they are headed in the right direction now," DiBona says.
MOBILE SEARCH TECHNOLOGY. Microsoft's new approach could be worth much more because it links the future of the enormous mobile industry to areas where Microsoft is more dominant, such as PCs, the Internet, and Internet TV. The tactic was already on display at the last 3GSM show, a year ago in Cannes(see BW Online, 2/22/05, "A Telecom Show's No-Show: Gloom"). That's when No. 1 handset maker Nokia, Microsoft's longtime nemesis, stunned the industry with a deal to license Microsoft's digital music technologies for use in its phones. Nokia also agreed to use Microsoft e-mail and calendar synchronizing software that lets Nokia phones and PDAs hook up with Outlook.
This year's deals broaden Microsoft's list of major partners. But the software company isn't stopping at music and mail. It's also signing up mobile operators to support MSN instant messaging, which will let customers swap messages from their phones to desktop MSN users or owners of other similarly equipped phones. One such deal, with French carrier Bouygues, was announced Feb. 10, and several more are in the works. "We don't approach mobility 100% as an extension of our PC business, but it's closely linked," says Matt Champagne, the director of mobile partners for MSN.
Microsoft also is plunging into mobile-based search technology -- again, keyed to its mounting fight against Yahoo! (YHOO) and Google (GOOG) in desktop Internet search. On Feb. 13, Microsoft revealed plans to buy a small French maker of mobile search technology, called MotionBridge. By combining its own technology with tools acquired from MotionBridge, Microsoft "will provide mobile operators and consumers with an even richer search experience," said Christopher Payne, corporate vice-president of MSN Search in a press release.
CHANGING ENVIRONMENT. Finally, Microsoft appears poised to jump into the year's hottest new fad, mobile TV. Unconfirmed press reports say that CEO Steve Ballmer will announce in a speech on Feb. 14 plans to launch a mobile TV service in England with British telco BT Group (BT) and Richard Branson's Virgin Mobile.
The service would ride on spectrum now used for Digital Audio Broadcast, an alternative to the rival schemes being floated by Nokia and Korean companies. For Microsoft, which wouldn't comment on the reports, this could represent a chance to stake out turf both in video networks -- where it's already pushing IPTV technology -- and in phone-based video software.
Of course, just because it is forging partnerships with mobile giants doesn't guarantee Microsoft success. After all, it's still largely shut out of handset operating systems, despite many contracts announced over the years for Windows Mobile.
SITTING PRETTY? The difference this time is mutual self-interest. When Microsoft tried to barge into mobile phones, handset makers had viable homegrown alternatives to choose from.
But now that the mobile industry is moving into nontraditional fields such as audio, video, and e-mail, it needs Microsoft's technologies to bridge the gap with PCs and the Internet. It looks as if the King of Software has finally found its sweet spot in telecom.
Reinhardt is managing editor of BusinessWeek.com Europe
with Jay Greene in Seattle
READER COMMENTS
BW MALL
SPONSORED LINKS
VMware Fusion 3
The Best Way to Run Windows on Your Mac, Only $79.99
Printer-Friendly Version