Microsoft Faces Pressure from Smartphone OS Alliances
NEW YORK -(Dow Jones)- With the smartphone world increasingly shifting toward an open operating system model, Microsoft and its Windows Mobile face another obstacle in trying to penetrate the consumer market.
While strong in the corporate world, the software giant aims to put a Windows Mobile smartphone in the hands of every consumer. It already faces stiff competition from the likes of Apple and its iPhone, and will now compete against collaborative efforts orchestrated by power players such as Nokia and Google.
"I think this puts a lot of pressure on Microsoft at a critical time when they are trying to make more of a push into the consumer market," said Carolina Milanesi, an analyst at Gartner.
In addition, the partnerships and commitment to an open source model bring the promise of cheap, and even free, software that can power sophisticated new cellphones. Microsoft, which charges for the use of its software, could be pressured to lower its licensing fees to remain competitive.
"Microsoft is absolutely going to have to justify the cost (of its operating system)," said Avi Greengart, an analyst at technology research firm Current Analysis."It's going to have to either prove the value or potentially lower the licensing fees itself."
For its part, Microsoft doesn't expect the licensing fees to change, noting that the development costs for a phone running on a new operating system would be much higher, said Scott Rockfeld, group product manager of the company's Windows Mobile division.
Plus, despite its current licensing fees, Microsoft still owns the leading operating system in the U.S. smartphone market.
Nonetheless, Nokia wants to prove Microsoft wrong, and on Tuesday said it would acquire the remaining stake of mobile operating system developer Symbian and create the open source Symbian Foundation. It stands alongside partnerships formed through Google's Open Handset Alliance and the LiMo Foundation.
The Symbian Foundation, under Nokia's stewardship, plans to stop charging licensing fees, further driving adoption and innovation in Symbian's software. Symbian is primarily on Nokia devices, while the other major handset makers offer only a few cellphones using the operating system.
"The wide support for this initiative, uniting the industry around the Symbian platform, reflects the strong gravitational pull it has for application developers," Nokia Chief Executive Olli-Pekka Kallasvuo said in a statement.
The formation of the alliance, which includes the likes of AT&T, Samsung Electronics, and NTT DoCoMo, follows similar interest in the LiMo Foundation, which last month added heavy hitters such as SK Telecom and Verizon Wireless.
"We feel quite strongly that next-generation handsets and OS require openness and collaboration from multiple parties," said Andrew Shikiar, director of global marketing for LiMo.
Microsoft Consumer Push At Risk
While Microsoft has consumer aspirations for Windows Mobile, critics say a
stodgy user interface - which still betrays its ties to the corporate
environment - isn't yet ready. The company is preparing a new version with an
improved interface.
Even without the consumer market, Microsoft has fared well in the U.S. Last year, 44% of U.S. smartphones used Windows Mobile, while only 4% used Symbian, according to the NPD Group. The No. 2 smartphone player in the U.S. was Research In Motion - which is also a closed system - with 32% of the market share.
Globally, Symbian powers 60% of the smartphone market with its operating system.
Microsoft's strength in the U.S. is primarily because of its business presence. Windows Mobile ties into Microsoft's near-ubiquitous corporate IT systems. The OS also boasts a large software library and installed base of users and developers.
The company wants to make a larger push into the mobile consumer market, which offers the potential for higher volumes. But there it faces such consumer-friendly brand names as Apple, Nokia and Google.
Microsoft has had a mixed history of change. Its Windows operating system and Internet Explorer browser have seen smaller, more nimble entrants such as Firefox eat away at their dominance by constantly updating with new features, forcing Microsoft into a reactive stance. The same scenario could play out with Windows Mobile, which faces competition from even more established threats than in the PC world.
"Microsoft has had a heck of a time getting the market they're accustomed to in the PC business," Shikiar said, adding the company will struggle if it can't cater to the individual changing needs of each of their handset partners.
Still, Microsoft has options and time. The company can lower its licensing fees, although Rockfeld insists it isn't necessary. The company doesn't disclose its fees because they vary depending on volume and the partner. It's unlikely the company would eliminate them altogether because that's how the company generates its revenue. The Windows Mobile business is a small part of Microsoft's Entertainment and Devices division, which itself makes up nearly 11% of total revenue.
"It will be interesting to see what (Microsoft's) response will be and if they consider a more flexible licensing agreement," Milanesi said.
The company can take steps to speed up the development of a phone, such as better integrating its software into a chipset, which makes it more attractive to handset makers. It can also tout its stability and experience - Google has made numerous revisions to its Android software.
And while Microsoft expects 20 million handsets to ship with Windows Mobile this year, Google faces delays in development, and expects phones to arrive in the fourth quarter and later. Verizon Wireless said it expects LiMo phones by 2009. The Symbian Foundation will make its open source code available over the next two years.
As a result, the near-term impact is negligible, Rockfeld said. Over the longer term, issues such as security, the consistency of the product and confusion over branding could weigh on the alliances, he said.
The Microsoft executive joked that he "sees more Linux consortiums come and go than actual Linux phones."
-By Roger Cheng, Dow Jones Newswires; 201-938-2020; roger.cheng@dowjones.com
(END) Dow Jones Newswires
Posted to the site on 24th June 2008
