Microsoft: Making Mobile Progress

Sony Ericsson unveils a line of phones boasting Microsoft's Windows Mobile operating system, a coup for both players

by Jennifer L. Schenker

Sony Ericsson's Xperia X1

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Every year since 1999, when Microsoft (MFST) first said it would produce a mobile-device version of its Windows operating system, the company has used Europe's annual industry gathering to take swipes at Symbian, maker of the leading software platform for smartphones. This year's Mobile World Congress is no different. On Feb. 10, as some 50,000 people gathered for the opening of the show in Barcelona, Spain, Microsoft was crowing that Windows Mobile would be used in a new line of phones by Sony Ericsson, a Symbian shareholder and major producer of Symbian handsets.

In winning Sony Ericsson as a customer, Microsoft can now claim that Windows Mobile runs phones made by four out of five of the world's top handset makers. "There is a steady movement from Symbian to Microsoft," says Scott Horn, director of Microsoft's Mobile & Embedded Device Div.

To be sure, Microsoft is making progress against Symbian. About 13% of the smartphones shipped this year are expected to be Windows Mobile devices, up from a 9% market share in 2007, estimates Richard Windsor, a wireless analyst at the brokerage firm Nomura. Yet even if Symbian is losing some ground, the platform's market share is still expected to total a commanding 48% this year. More significant, it's unlikely Microsoft will ever snag Nokia (NOK), the controlling shareholder in the Symbian consortium and also the world's largest cell-phone maker with a 40% market share.

How Deep Will the Relationship Be?

Microsoft paints its announcement with Sony Ericsson on the new Xperia line as a major coup, explaining that it plans to collaborate with the handset vendor on mobile browsing, music, and other media, a move that may help both companies better straddle the line between phones for business users and sophisticated consumers, or so-called prosumers. The X1, the first Xperia phone, is a slider phone with a full QWERTY keyboard, combining Office applications and multimedia entertainment. "Microsoft is edging more towards the prosumer side, RIM (RIMM) is becoming more consumer-centric, Symbian is moving more towards the enterprise, and Apple (AAPL) is trying to gain more of an enterprise focus," says Ben Wood, director of CCS Insight, a British mobile consultancy. "So everybody is competing on everybody's turf."

Analysts question, though, just how deep Microsoft's latest partnership with a major handset vendor will go. They expect Sony Ericsson, like some of the other handset vendors Microsoft has partnered with, to limit Windows Mobile to just a few phones aimed mainly at corporate users, an area where Symbian and Nokia are not as strong as they'd like to be. But other phones made by Sony Ericsson will continue to use operating systems that compete with Microsoft's. "My take on this is that Sony Ericsson will do what other partners have done," Wood says. Indeed, at the same Feb. 10 Barcelona press conference to unveil the Microsoft phones, Sony Ericsson also announced two new midrange phones powered by the Symbian operating system.

Some of the wireless partnerships announced by Microsoft in the past haven't amounted to much. Take the case of Ericsson in 1999, before it merged its cell-phone operations with Sony's. Just months after Microsoft chief Bill Gates unveiled his company's mobile ambitions, the U.S. software giant announced a joint venture with Ericsson to build phones powered by Microsoft's Mobile Explorer and deliver e-mail to wireless devices. "Mobile Internet access and services are crucial for realizing Microsoft's vision of empowering knowledge workers and consumers through software anytime, anywhere, and on any device," Steve Ballmer, then Microsoft's president and now CEO, said at the time.