Microsoft has a new opportunity to dominate in mobile. That’s a bold assertion to make, so let me back it up. There are two monstrous, not-traditionally-mobile companies running away with much of the attention in mobile these days: Apple and Google. I’m leaving Facebook and Twitter out of this, because, while they both influence a ton of mobile activity, both are still peanuts in comparison to the other two in terms of revenue.
Apple launched the iPhone and brought smartphones mainstream, while assuming much of the influence over users formerly held exclusively by carriers. They followed it up with the App Store launch, extending their grasp deep into the transactional ecosystem also once solely owned by the carriers. More than just owning the device or owning the content, Apple stole control of the consumer, largely marginalizing the carrier role. That’s why you see carriers selling tiered data plans now instead of apps or content.
Google developed the Android mobile operating system and app Marketplace and put it out there for free to any handset vendor that wants to implement it. Layer in their search, web apps, and mapping capabilities on top of a solid user experience, and they’ve enabled several large manufacturers with a really powerful platform. Android now outsells iPhone, has double the market share of iPhone, and the Android Marketplace is growing faster than the Apple App Store.
Microsoft has has several failed attempts in mobile over the past decade or more. From the Windows CE/PocketPC/Windows Mobile operating systems to the recent Kin device flops. They acquired Danger, makers of the Sidekick, but after a number of system issues, even the Sidekick has now gone Android. Microsoft has been in the mobile game for a long time, but has not seen much for their efforts. I believe they’ve got another chance to be one of the big three.
Under Their Hoods
Let’s look at what each company brings to the mix.
Apple owns the whole platform stack, including hardware, the OS, and the App Store, including payment processing. This is key for delivering a smooth user experience and solid device performance. They also bring Facetime VoIP (still pretty limited) and a huge network of gift card purchase points around the world, a uniquely valuable and often overlooked advantage. They’ve tried to go social with Ping and some elements of MobileMe, but it hasn’t quite taken off. They’re dipping their toes in advertising waters with iAd, following an acquisition a while back of the Quattro Wireless ad network, but no exceptional business has come of that yet either. Apple doesn’t play in the Search game and has downplayed its importance in mobile. Make no mistake about it, Apple is a hardware company, which makes its hardware so compelling by leveraging a tightly controlled ecosystem around it.
Google isn’t a device company, but it does control the core operating system and marketplace, including several integrated carrier billing options. In terms of VoIP, Google brings gChat (IM, VoIP, and video) and Google Voice. Google Buzz, its social sharing platform, has received a luke-warm reception, but rumors are that Google is working on another social push soon. Google easily dominates Search and its advertiser network is very established, with its AdMob acquisition contributing mobile-specific specialties. While Google used to utilize Navteq and later Tele Atlas for its maps product, it now has built its own data repository for this. This is a huge strength for the company’s mobile push considering 40% of Google Maps searches now come from mobile. These days, Google doesn’t focus on anything that does not start with mobile. Google is an aggregator of information and behaviors that makes its money on selling the most contextually relevant advertisements it can.
Recently, there’s quite a bit coming together for Microsoft in mobile. They’ve rebuilt their mobile operating system and launched Windows Phone 7 to strong reviews, and they’ve put big bucks behind major advertising and extensions of key carrier relationships. The WP7 OS will now be the core smartphone platform for Nokia, the world’s largest handset manufacturer. This partnership with Nokia also gives them access to Navteq maps (owned by Nokia), and they’ve also recently announced the acquisition of leading international VoIP provider, Skype. Microsoft is trailing in Search, but has made substantial gains since its re-branding and omnipresent marketing push as Bing. In Social, Microsoft owns a piece of Facebook, and Bing now touts search integration with the social network. Microsoft is a software company, and it makes money by licensing its OS, software packages, and software-as-a-service (SaaS) offerings.
How do I get from here to my prediction that Microsoft will become a formidable mobile powerhouse soon?
If things pay off with this Nokia arrangement, I suspect Microsoft will buy Nokia in the next few years. Normally, I would suggest this is a horrible move for a software company to take on a new hardware business, but I think in mobile, there seems to be significant advantages to owning the whole stack (as demonstrated by Apple), and while Microsoft has had some notable hardware failures, they’ve also had huge successes like Xbox. Nokia is an amazing hardware company, with an impressive global distribution network. It owns Navteq (maps) and Nokia Interactive (mobile ad network, formerly Enpocket), and Nokia has been underutilized in this market for a long time and would make a great partner for Windows to grow on. Microsoft will finally have all the right ingredients to give both Apple and Google a good fight and go mainstream.
Here are the three largest risks I see to a Microsoft stronghold:
1) When companies grow by acquisition (especially large ones), they often commit the cardinal sin of portraying themselves in a way aligned to their internal organization rather than the way consumers see them. Microsoft runs the risk of having too many sub-brands and disjointed experiences, which turns off users quickly. They’ve got to keep unification governance strong, while evolving quickly.
2) Many device manufacturers have chosen Android, because at its “free” price point, powerful and expensive devices become more profitable. In an ironic twist of fate, while Google offers Android for free, as a result of a patent settlement, Microsoft actually gets paid $5 for each HTC Android device out there and is seeking even more from other device manufacturers. Microsoft is a company that lives on the value of its intellectual property. Will other manufacturers pay up to license Windows Phone for their devices? Will they be turned off if they’re licensing it from a potential device competitor as well? (That didn’t seem to turn off IBM-PC licensees.)
3) Microsoft has a long experience of working with established developers, but perhaps less experience networking with this new breed of mobile developer. Microsoft will need to change their core business model a bit where it extends to the developer ecosystem that will make Windows Phone a very appealing and powerful environment for which to code. They’ve got to wrestle a challenge that Nokia has struggled with for years in creating a new type of developer program, and now they need to steal priority away from several significantly dominant development platforms already established.
All things considered, with a stable foundation, Microsoft is well poised for mobile growth, and this is an industry where change happens quickly. I think there’s room for a third top platform contender to join Apple and Google, and odd numbers tend to do best in creating vibrant competition. While BlackBerry’s numbers are falling, this is a great opportunity for Microsoft to move up. How many mobile device platforms do you think this new generation of smart devices realistically support?
This also means the further commoditization of the mobile carrier, which is being forced to consolidate and invent new ways to package the data pipe. This will continue to accelerate, especially as tablets proliferate, and while each of these three heavyweights has a sophisticated VoIP system just waiting to be let loose on carrier networks. Come to think of it, why didn’t a carrier buy Skype when they had the chance? That’s a topic for another blog post.
Leave me a comment to let me know what you think if you read all the way to the end of this long editorial.