Will Microsoft's Mobile Strategy Pay Off?Will Microsoft's Mobile Strategy Pay Off?

I ran across an interesting post at Seeking Alpha that outlines why Microsoft's attempts to make significant headway in the mobile market haven't yielded much fruit and that they've slid back in the past few years. It also argues that the road ahead is going to be tough for MS. Can Microsoft remain a key player in the mobile market?You should read the whole article because it has some good points, but I specifically wanted to address one of the key points made. The author contends that Microsoft is in a unique and unfortunate position because it doesn't actually make phones and it charges for the OS.

There are advantages and disadvantages in each of the above scenarios. If you make your own OS and build the phone as RIM and Apple do, you do make a nice profit on the sales of the hardware, but you also have to have significant investment in manufacturing. Even if you don't own the plant, you do own the tooling and that isn't cheap. You also have to have good forecasts for how many devices will sell. If you forecast too high, you and you alone take the hit on discounting the product to clear out inventory. By just making the OS, there is no costs associated with this. You leave it up to your licensees to deal with, which is what Microsoft does with companies like Palm, HTC and the various carriers.

I keep hearing about these open source projects for mobile devices, which includes Linux, but I just am not seeing it. I don't see anything of any substance happening with Linux in the mobile phone space. It has been around for years and there have been various mobile device projects that had Linux on them. You could even burn Linux on the original iPAQ Pocket PC. I guess it is the same reason that Linux on the desktop just isn't going anywhere fast with the average consumer. Yes, builds of various desktops are getting better, but the average consumer wants to buy a PC that works right out of the box without having to worry about what shell it has, and you need to know the Linux shell before you go and start downloading apps. Putting Linux on a phone may get you a super-cool phone with all sorts of great features, but it really becomes a hopped up feature phone for the average Joe because there isn't a vibrant third party software market for that particular flavor (or any flavor for that matter) so what you buy is what you get.

Yes, I know, Android is based on Linux. Google has done an absolutely fantastic job with it too. It has an application store, a fairly standard UI and best of all, it is free! But free might not be so great. That means there are no barriers to entry at all for any hardware maker. Why should name-your-phone-maker-here let the likes of Motorola and Samsung have all of the fun? The phone maker is already building the hardware and the OS is free. Cut out the middle man and go straight to the carrier or consumer for distribution. Other than proprietary add-ons and brand recognition, what do the big names have to offer that the little guy doesn't? I think it will ultimately be a race to the bottom on handset margins.

By having an OS that isn't free, Microsoft can set a basic standard of what the phone has. Microsoft doesn't need any devices out there that are underpowered in areas of video performance, RAM, CPU, etc. as that can reflect poorly on the OS itself. Just ask anyone that purchased a "Vista Capable" PC that wound up not supporting anything but Vista Home Basic, and that not very well. By partnering with the likes of Samsung and HTC, MS can be comfortable knowing that its OS will be on phones of high quality while still being a value to the consumer.

Microsoft has also tied its platform into Exchange and other server products that provide an incredible amount of control to satisfy even the most security conscience IT admin. RIM has the same thing for their Blackberry, but no other company does. Quite a few platforms do have ActiveSync on them, such as Android, iPhone and Symbian, but that alone doesn't have the same control available that Windows Mobile 6.1 or the Blackberry allow.

Microsoft is building an app store, and rumors continue to swirl that the Zune interface will make it to Windows Mobile 7, so that is an instant music store. It will give the end user those cool things that they want while IT managers can ensure nothing dangerous gets on the device.

I am not saying MS has the winning strategy. They may not. According to the article, Microsoft's share has dropped from 23% of the phone in 2004 to 12% in 2008. To me, that was MS getting too comfortable. PalmOS was dead, the iPhone didn't exist and Windows Mobile 5 was about ready to ship. Those were good years. Today, I have a Windows Mobile 5, 6.0 and 6.1 device and honestly, I can hardly tell the difference between. WinMo 5 is almost 4 years old. MS quit innovating. The iPhone in 2007 changed all of that and the first fruits of their efforts will be Windows Mobile 6.5 this year and WinMo 7 next year. This wasn't a failed strategy, just a failed execution.

We'll have to see if MS's strategy pays off in the next few years. The WinMo development team seems to be firing on all cylinders lately and the market will decide if Windows Mobile is a worthy competitor to proprietary devices like the iPhone and Blackberry and to open free platforms like Android and Linux.