Who Will Cash in on the Smartphone 'Gold Rush'?

By David Needle

August 26, 2008

Microsoft has high expectations for Windows Mobile, but it may have to rethink its strategy.

Microsoft sold more than 18 million licenses in fiscal year 2008 for its Windows Mobile software. Internationally, the company saw triple digit gains in France, Latin America, Central and Eastern Europe, Japan, and India.

Apple's much-publicized App Store is closing in on having a thousand applications available for download, while Microsoft says there are now more than 18,000 Windows Mobile applications. And for business users, recent additions have come from such blue chips as Bloomberg, Reuters, and SAP.

So what's wrong with this picture?

"Microsoft is going to have to change the way it does business," analyst Jack Gold of J. Gold Associates, told InternetNews.com.

Gold sites the sudden rush to open source software this past year, as Nokia is doing with its Symbian OS, the LiMo Foundation offers for newly released Linux-based devices and Google has planned for devices based on standards set by the Open Handset Alliance the search giant helped launch.

"Having all that stuff available to phone companies for free, from a licensing perspective, puts tremendous pressure on Microsoft to reduce or eliminate what it charges for its operating system," said Gold. "If I'm Motorola paying, let's say $10 per phone to Microsoft for ten million phones when there's a free alternative, I'd have to look hard at that."

Gold thinks Microsoft will be forced to shift over the next few years to focus more on applications for mobile revenue. Nearer term, it's most immediate challenge is Apple.

"The iPhone has and will continue to have an effect on Microsoft and the rest of the industry," said Gold. "Even though there are a lot of issues for the iPhone in the enterprise, where Microsoft is very strong, it's changed the way the game is played. And this isn't the PC market. Even if Microsoft does really well with Windows Mobile, there's a lot of competition so ten to 15 percent of the smartphone market for them would be an optimistic forecast."

Microsoft's Scott Rockfeld is not only optimistic; he's downright giddy about Windows Mobile's future.

"For every Apple fanboy, there are three customers lined up to buy a Windows Mobile phone," said Rockfeld, group product manager for Windows Mobile. "It's hype versus reality. We're continuing to lead.

"Don't get me wrong, I give Apple credit for raising awareness of what a smartphone can do, but we've been in this for the past seven years and now the smartphone is poised for exponential growth. It's a gold rush."

Rockfeld points to IDC research that projects over 44 million Windows Mobile devices will ship to individuals and over 27 million units to enterprises worldwide by 2012.

"IDC expects Windows Mobile to experience five year compound annual growth of over 54 percent in the enterprise and around 33 percent in the consumer space for the forecast period," IDC analyst Sean Ryan told InternetNews.com.

Ryan said the iPhone's hype is "well deserved" and "it's a great device. But Microsoft is a juggernaut," he said. "They are persistent and well-bankrolled with a strong ecosystem and time proves that model out."

Ryan said Microsoft is particularly well positioned in the enterprise where its more immediate challenge is RIM's popular, business-friendly line of BlackBerrys.

"You look at Exchange, Sharepoint, SQL Server, all these technologies Microsoft has that reside behind the firewall and you can expect them to keep leveraging those with plenty of help from their mobile partners from developers with custom apps for .Net to the handset makers themselves," he said.

Push versus Pull

But consumers, who also work in corporations, are having more of a say or at least influence over what IT products are used there. There is plenty of anecdotal evidence of executives and managers demanding iPhones, where Windows Mobile and other devices are more of a standard issue, IT-authorized tool.

"IT departments may not like the idea of Apple in the enterprise, but users are becoming much more demanding about having the same tools available at work that they choose to use personally," Rebecca Wettemann, analyst with Nucleus Research, told InternetNews.com.

"When I'm at the airport, someone always stops to talk to me about my iPhone. I've never had anyone tell me how excited they are about their Windows Mobile device."

But Rockfeld says there's plenty of excitement in store for would-be Windows Mobile customers. "One size won't fit all," he said. "What differentiates Windows Mobile is our ability to scale around the world and give users plenty of choice. Apple's a player, but one competitor won't win the market.

"Some users like touch, some prefer a QWERTY keyboard. Both are available on Windows Mobile devices."

Both Rockfeld and Ryan point to Sony's new Xperia X1 as an example of a sleek-looking, feature rich Windows Mobile 6.1 device that could dim some of the iPhone's shiny appeal.

And Microsoft is continuing to learn new things about what consumers want. Rockfeld mentioned Danger, the phone developer Microsoft bought earlier this year that developed the T-Mobile Sidekick.

"We just announced the new Sidekick XL. When you flip the screen around, the software makes this cool noise. I said 'who cares'? But it turns out that sound is unbelievably important to tweens" he said.

And getting younger buyers is key to Microsoft's mobile ambitions. "It fits well with our 'One phone for life' strategy," said Rockfeld.

Article courtesy of InternetNews.com.



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