Telecommunications

Can Microsoft Catch Up in Mobile?


Microsoft (MSFT) executives have long spun visions of a world where computer users can seamlessly share information between a PC, the Web, and a cell phone. But the company has made little progress in making that vision a reality—at least until now.

On Feb. 16, Microsoft CEO Steve Ballmer will take the stage at the Mobile World Congress in Barcelona to announce a major overhaul of the company's mobile strategy. Some of the new initiatives are purely catch-up. Ballmer will unveil an online app store that lets users of Microsoft-powered phones download tools, games, and other apps. (Apple opened its own app store in July, and Research In Motion (RIMM), Nokia (NOK), and others have announced plans for their own app stores.) Ballmer will also announce a new service called My Phone that lets mobile-phone users automatically sync photos, contacts, videos, and other files to a personalized Web site and then gain access to that content from a PC or any Web-connected device.

But over the next year and a half, the company also hopes to create what it hopes will become a major new category of consumer device—the "Windows phone." Until now, the company has been content to be a supplier of an operating system, called Windows Mobile, to phone makers such as Samsung and Sony-Ericsson, which in turn branded and sold the devices as they saw fit. The hope is to convince PC owners that a Windows phone is the most sensible choice to go with their Windows computers. "We're going to double-down on the Windows brand," says Todd Peters, head of marketing for Microsoft's mobile communications business. He says to expect a major advertising push. "When people go shopping in the future, we want them to ask specifically for a Windows phone."

That would certainly be a change. Although it was a pioneer of the so-called "smartphone," Microsoft's Windows Mobile software has little of the brand cachet of the Apple (AAPL) iPhone, RIM's BlackBerry or even Palm Inc.'s products. "We haven't done a good job of positioning [our mobile products], period," says Robbie Bach, president of the Entertainment & Devices Div., which includes the mobile effort. "Most people who see a cool Windows Mobile phone don't even know it's a Windows Mobile phone. We have to communicate very clearly the value in that."

Extending the Windows Franchise

If successful, the Windows phone idea could extend the lock that's helped Microsoft become one of the great cash-generating machines in business history. Consider the reach of Microsoft's franchise. Windows runs on an estimated 1.1 billion PCs in use around the world. Roughly 500 million people use Microsoft's e-mail or instant messaging services. And while Microsoft's share of the smartphone business has fallen from to 36% from 45% in the past two years, according to Nielsen Mobile, more than 20 million phones have been sold in the past year that are based on its Windows Mobile software. But even Microsoft executives concede that the company has to succeed quickly. "What happens in the next three to four years will determine what happens for the next decade or more," says Microsoft Senior Vice-President Andy Lees, who was hired by Bach a year ago to run the mobile communications business.

The strategy faces many complications. In the PC business, Microsoft's approach of signing up as many hardware makers as possible led to market dominance, as hordes of software developers wrote applications that could run on any PC, whether it's made by Dell (DELL), Hewlett-Packard (HPQ), Lenovo, or some other maker. But when it comes to the mobile-phone business, software must be tweaked to run on each different kind of phone—and for each network on which it works. As a result, many developers would prefer to focus on so-called "hero phones"—single models like the iPhone that garner monster popularity on their own. And analysts say Microsoft has lots of work to do on its basic mobile technology. While Ballmer is expected to announce an upgrade of Windows Mobile, dubbed version 6.5, the major 7.0 upgrade was recently delayed and now isn't expected to reach the market until next year.

And if Microsoft is going to achieve its goals of true PC, Web, and phone integration, Lees will need to change the way Microsoft's hulking, decentralized business units work together. As head of Microsoft's gold-mine server business, Lees spent years making sure corporations could make the most of PCs running Windows and the company's Office suite of productivity programs. Since taking the job a year ago, the 18-year Microsoft veteran has been hiring stars from around Microsoft, including online services executive Brian Arbogast and Joe Belfiore, who designed the entertainment-oriented version of Windows called Media Center. Other hires include Tom Gibbons, who ran the hardware unit that makes keyboards, mice, and the like, as well as former server colleague Terry Myerson, who previously ran the Microsoft Exchange business. "For a long time, mobile wasn't looked at as a place that was going to be a big platform for the future," says Bach. "Andy's done a very good job of galvanizing appreciation for the significance of the space."

Innovation Is Key

Microsoft insiders say the push for more collaboration between units is paying off. When the PC unit launched its "I'm a PC" ad campaign last year, Lees made sure Peters attended the bi-monthly meetings—a first, says PC chief Bill Veghte. "I went from talking to the PC people once or twice a year, to every two weeks," says Prithvi Raj, a project manager in Lees' group. And there are other efforts afoot to enhance cross-company collaboration. Last April, the company created a sales and marketing organization called Consumer & Online International. Rather than have Windows, Windows Mobile, and its Windows Live Web software sold separately, the unit is responsible for all of them.

Organizational shakeups will mean nothing if Microsoft can't do a better job of delivering truly useful, easy-to-use innovations. To that end, Microsoft's top brass met last fall to define solutions to seven common frustrations of today's digital-minded consumers. One, for example, is helping busy parents meld their work and personal calendars, and manage their family affairs through a single Web site. Other scenarios included simpler ways of handling music, videos, and e-mail. "This was a first" for a management team that normally spends the annual planning session on major strategy questions, Veghte says.

Lees has created teams focused specifically on perfecting each scenario. "It's one thing to sit around and have strategy conversations," Veghte says. "It's another to get everyone you need and sit in a room for 12 hours to talk about a specific scenario—customer step by customer step."

The Customer Has Spoken

The biggest challenge will come from competitors such as Apple, RIM, and Palm (PALM), who are pushing ahead quickly. "For years, we've been kind of bobbing about," Veghte says. Now, with millions using smartphones and billions using the Web, "it's very clear that we have a unique opportunity—and the time is now."

Burrows is a senior writer for BusinessWeek, based in Silicon Valley .


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