Can Microsoft muscle in on mobile?

Citation

Curwen, P. (2003), "Can Microsoft muscle in on mobile?", info, Vol. 5 No. 2. https://doi.org/10.1108/info.2003.27205bab.001

Can Microsoft muscle in on mobile?

Can Microsoft muscle in on mobile?

Peter Curwen

Currently, and for the past many years, there has been one clear leader in the market for mobile handsets; namely, Nokia. Although there has been some jockeying for position elsewhere in the pecking order – for example, South Korea's Samsung has grabbed market share at the expense of, in particular, SonyEricsson – and Motorola remains entrenched in second spot, Nokia's position is seemingly impregnable. Clearly, therefore, if there is to be a realistic threat to its dominance it must come from outside the ranks of the established handset manufacturers and from a company with the reserves and cash flow sufficient for the purpose of breaking into an already over-supplied market; hence, Microsoft.

Needless to say, Microsoft is already well aware of this, and it has already taken its first tentative steps to muscle in on the market. But what, realistically, are its prospects of success in usurping one of the places currently occupied by the minor players – a less than enticing prospect given their lack of profitability – let alone the likes of Samsung, Motorola and Nokia? To answer this question we must first bear in mind that, to coin a phrase, there are handsets and handsets. The vast majority of the handsets currently on the market are designed to do two basic things to a high standard – convey voice and send short messages. The other things, such as a limited game-playing facility constitute the "knobs added on". A relatively small proportion of handsets are equipped with GPRS, and a large number of those are not used for activities that require GPRS, but that proportion is growing rapidly as is the proportion of handsets that, outside Europe, are enabled with cdma2000 1xRTT. Beyond these, technologically speaking, are the handsets with built-in still or video cameras that are enabled with full multimedia messaging facilities. These are currently scarce outside Japan and South Korea, where they are catching on very quickly, so we can expect their numbers to grow rapidly from a small base during 2003.

In essence, what distinguishes these handsets from their predecessors is that they have become "smarter". What is particularly interesting about smartphones is that although they act in many ways like pocket computers, with their colour screens, Internet access (of a kind) and ability to take and send pictures and download games and music files, they do not originate as spin-offs from the computer industry but from the consumer electronics industry. It is also noteworthy that, whereas there are still more Americans with access to a computer than to a mobile phone – although the gap has narrowed significantly – mobile phone penetration has already reached 100 per cent in several countries and, at a claimed average of over 75 per cent in Europe, has left PC penetration levels far behind. It is significant that PCs have become both much faster and much cheaper over the past two years, but they have ceased to evolve much at all. True, there are increasing numbers of portable PCs, among which many take the form of Personal Digital Assistants or handhelds, but only 12 million of the latter were sold in 2002 compared to over 400 million mobile phones, so it is surely not unreasonable to conclude that what the vast majority of the public want are increasingly sophisticated – but no heavier – versions of their trusty mobile handsets.

This is why, in essence, Microsoft is attempting to move away from its reliance on PCs to assail the ramparts of the mobile phone industry. Unfortunately for Microsoft this is no easy task not least because, as already noted, the incumbents, and especially Nokia, have, until very recently, always sold own-branded handsets. On the whole, operators have been happy with this arrangement, since both existing and potential subscribers trust the manufacturers' brands but have proved to be very fickle when it comes to switching between operators, and these have, accordingly, preferred to offer much the same range of handsets as their competitors while competing in other ways.

For Microsoft to succeed, this pattern needs to be changed, and the opportunity has been provided by the need to introduce operating systems capable of providing "always on" Internet access. This can, in principle, be provided by a variety of operating systems such as Palm OS, Symbian EPOC or Windows CE (WinCE). Symbian was spun out of Psion in 1998 – leaving it with a 28 per cent stake – to licence the EPOC operating system, and is supported by all the major manufacturers such as Nokia, Motorola, SonyEricsson, Samsung and Panasonic – 11 manufacturers, all told, have now licensed Symbian. Nokia, for example, introduced its Symbian-driven 7650 smartphone with a picture messaging capability onto the market in mid-2002, and Ericsson followed up with its P800. In coming late onto the scene, Microsoft accordingly found almost all of the prospective smartphone manufacturers licensed to Symbian, and only Samsung – which licenses everything as a matter of course and has just bought a stake in Symbian – among the major manufacturers was willing to adopt the Windows-powered Smartphone 2002 software, formerly known as Stinger, and to produce a PocketPC-based handset, the SGH-i700, for the European market. The capabilities of Microsoft's PDAs are linked to the relatively sophisticated Windows operating system and, hence, the WinCE version is likely to be favoured for models towards the top end of the market. In the USA, the latest version of WinCE, the PocketPC Phone Edition, is achieving inroads with the launch of devices such as the Trium Mondo, a phone-enabled handheld device made by Mitsubishi and Microsoft, that can do conference calls, call direct from the address book and send and receive faxes, as well as the device launched by T-Mobile in December 2002, manufactured by Taiwan-based High Tech Computer (HTC). However, this is essentially a business market – the T-Mobile device costs $500. For its part, Microsoft's more "phone-centric" operating system is struggling. In its recent guise as MS Smartphone 2002, it was first introduced in October 2002 in the Orange SPV (sound, picture, video), also made by Taiwan's HTC. However, it is significant that this was described by Orange as "a hardcore multimedia phone for sophisticated data users, in particular business users" and has so far gained roughly 40,000 subscribers. Furthermore, Microsoft suffered a simultaneous setback when UK-based Sendo, in which Microsoft had a stake and from whom it was due to take delivery of the Z100 smartphone, deserted Smartphone 2002 in favour of Symbian, citing its inability to access Microsoft's source code. Microsoft's response was to point out that the Orange SPV was customised, but this desertion has undoubtedly placed it under additional pressure to sign up other manufacturers. How many of them are going to be willing to let operators own-brand is a moot point – HTC is, after all, hardly a household name outside Taiwan – but this is likely to become an increasing trend with a number of sub-contracted manufacturers seeking to move up-market like HTC to become "original design manufacturers" (ODMs), and only Nokia can truthfully say that its own brand name is worth more than that of any operator. Even so, operators appear to prefer Symbian for their consumer market devices and own-branding is unlikely to change this significantly, if only because handset prices are largely determined by economies of scale – to be cheap, they must be manufactured in their millions and that is well beyond the kind of numbers currently being ordered from ODMs.

For now, therefore, there seems to be little prospect of a re-run of what happened in the PC market when the hardware turned into a commodity and Microsoft was able to impose a stranglehold on the software. PC makers were only too happy to license Windows, but handset manufacturers appear to have learned that lesson and are keen to support Symbian. One of the reasons for this is that Symbian licensees are permitted to examine and modify the software to suit their own purposes and to alter the user interface. In particular, Nokia has developed the Series 60 platform, based on Symbian, which it has licensed to other manufacturers – including Sendo. Microsoft traditionally had a "take it or leave it" approach to its operating system and, although it claims to have modified this in respect of its software for handsets, the Sendo affair indicates that problems remain. Microsoft is sceptical about Nokia's motives, wondering aloud why it should be so kind to its competitors, but that is hardly surprising and ultimately means little.

Overall, therefore, Microsoft's prospects remain poor for now, and although it has been known to use its muscle in other fields, it has had so many run-ins with anti-trust regulators in recent years that it must tread with care. Given its lack of an existing foothold in handset manufacturing, the one thing that regulators could probably do little about would be a move to take over, or buy a majority stake in, one of the existing smaller manufacturers, but that, as noted, could well just turn out to be a recipe for losing money.