Microsoft: Making Mobile Progress

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Sony Ericsson's Xperia X1

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And Ericsson, he said, "is an ideal partner to help deliver this vision." But no phones were ever launched and the partnership collapsed. Instead, Ericsson (ERIC) formed its partnership with Sony (SNE). And, adding to the sting, Sony Ericsson became a Symbian shareholder.

Soul-Searching in Redmond about the iPhone

Some of Microsoft's other best-laid plans for the mobile sector have also fizzled. At the 2003 mobile show, then held in Cannes, France, Microsoft announced that Samsung would be making Windows-based smartphones. But the very next day, Symbian revealed that Samsung was becoming a shareholder and would start shipping smartphones on that platform, too. LG also makes smartphones with both Symbian and Windows.

Microsoft's most successful deal to date with a top handset maker, say analysts, has been with Motorola (MOT), which sold its Symbian stake in 2003 and started mass-producing Windows-based smartphones such as the Q (though it still produces some phones based on Symbian). But Motorola's well-cataloged tailspin means that it is likely to spin off or sell off its mobile-phone unit soon (BusinessWeek.com, 1/31/08). If the potential buyer is not an enthusiastic member of the Windows Mobile camp, Motorola's woes could extend to Microsoft.

Perhaps more worrying for Microsoft is that Apple succeeded in coming out of nowhere with the iPhone, says CCS Insight's Wood. "I bet there has been quite a lot of soul-searching in Redmond about 'How the hell did that happen. We put our best brains on this and they just came out and whooped us,'" he says. Still, "drip by drip, Microsoft is making headway in the smartphone market," says Neil Mawston, director of wireless device strategies at tech consultancy Strategy Analytics. "They are gradually picking up tier one partners," and Sony Ericsson is one more feather in Microsoft's cap, he says.

For Sony Ericsson, which holds about a 9% share of the global market for smartphones, it would be hard to make the investment required to get a strong foothold in the enterprise market. So focusing on the consumer side of business and adding a line of phones powered by Microsoft makes sense, say analysts.

At the same time, the move by Sony Ericsson to adopt Windows Mobile for some phones is a slap to Symbian. It also does not bode well for the future of UIQ, a software platform based on Symbian that Sony Ericsson purchased in 2006 to help it introduce applications such as real-time mobile e-mail, Internet browsing, and enhanced music applications, says CCS Insight's Wood. That said, four of the top five global handset vendors will introduce new phones powered by Symbian's operating system during the Barcelona mobile congress. In addition to Sony Ericsson, sources say LG, Samsung, and Nokia will also introduce Symbian phones. To date, some 200 million phones have been shipped with the Symbian operating system.

Schenker is a BusinessWeek correspondent in Paris.