Surprise: That Mobile Is Running Windows

LG Electronics is the latest handset maker to get on the bandwagon and run the Windows Mobile operating system in its phones

by Jay Greene

The ads for the Samsung BlackJack mobile phone from Cingular are as slick as can be. A card dealer shuffles several of the mobile phones and fans them out, just like a magician performing a card trick.

It's a fitting metaphor, since BlackJack helped Microsoft (MSFT) accomplish a feat that seems nothing less than a sleight of hand itself. In 2006, according to market research firm IDC, mobile phone carriers worldwide sold more phones running the software giant's Windows Mobile, the operating system used inside the BlackJack and other phones to send wireless e-mail, than BlackBerry, the category-defining gadgets from Waterloo (Ont.)-based Research In Motion (RIMM). It's an astonishing turn of events for Microsoft, which stumbled for years in the mobile market.

Smartphone Collaboration

And BusinessWeek has learned that LG Electronics, the fourth-largest mobile phone maker, is developing new Windows Mobile devices. With Samsung and Motorola (MOT) already selling Windows Mobile phones, Microsoft will have three of the top five handset makers in its camp.

LG says it's working on at least two new smartphones, including devices that would use its touch-screen technology rather than buttons. The first handsets will hit the market in the second half of this year. It's a new market for the Korean company. Woo-young Kwak, LG's vice-president and head of mobile communications research and development, says the "collaboration with Microsoft will enhance LG's stance in the growing smartphone market."

Microsoft and LG are expected to announce the news at the 3GSM World Congress in Barcelona on Feb. 12. It will also unveil Windows Mobile 6, which will include improved collaboration software and better security. The first Windows Mobile devices will arrive in the spring.

Watershed moment

For Microsoft, the mobile phone business has been marked more by defeats than victories. When it pushed into the business in 2002, handset makers and mobile phone carriers balked, worried that the software giant would try to marginalize partners, squeezing the lion's share of profits for itself just as it has in the PC business. What's more, its software was clunky, and a battery hog to boot, making devices running it unappealing.

The turning point came in September, 2005, when Microsoft convinced longtime rival Palm (PALM) to put Windows Mobile inside its popular Treo device. Microsoft Senior Vice-President Pieter Knook calls it a "watershed moment" for Windows Mobile's legitimacy. Over time, the company became more willing to let handset makers and carriers define the customer experience, as long as users tapped into e-mail servers running Microsoft's Exchange software.

Squeezing the BlackBerry

Since then, a handful of slick designs have propelled Windows Mobile, everything from Motorola's slim Q to the more rounded Dash, made by Taiwanese contract manufacturer HTC (see BusinessWeek.com, 4/13/06, "The Hottest Tech Outfit You Never Heard of"). "It gives them a real advantage on a choice standpoint," says Kent Mathy, president of the business market group at Cingular, which also sells the BlackBerry. That diversity only grows with the LG deal.

The high-end handsets with big screens and the ability to handle spreadsheets led Cantor Fitzgerald & Co. to replace BlackBerrys with Windows Mobile devices for its roughly 1,500 employees who use smartphones. The process should take about two years, as employees' service contracts expire. Part of the reason for the switch: The financial-services firm was able to develop and deploy software its bond traders use to buy and sell in real time for Windows Mobile phones.