Can Microsoft Salvage Its Mobile Strategy?

Microsoft is working hard to turn around its flagging mobile business, but success is far from guaranteed for Windows Phone 7.

Remember Microsoft Bob? Does anyone in your company use Windows Vista? Do you have a Windows Tablet PC, circa 2003? Microsoft has been in business since 1975, and along with its many high-profile, successful products, the company has laid an egg or two -- or even three.

Some think that the company may soon add a new member to its list of obsolete technologies: the Windows Mobile OS.

"Microsoft has made so many mistakes over so many years with Windows Mobile that I just don't see how it can recover," says Jack Gold, principal analyst at J. Gold Associates LLC.

Yet there are reasons for optimism. The vendor recently acknowledged its mistakes and has been trying to dramatically overhaul the Windows Mobile line to get itself back on track. The company has reorganized the group's management team, pumped more money into development and attempted to raise the mobile platform's profile. A major new release of the system has been planned to coincide with this year's holiday season smartphone sales.

Whether the moves will pay off, though, is unclear. Microsoft has badly misread the smartphone market, and the firm's traditional strengths haven't translated well to recent market changes. Rather than shutting the door on its competitors, it has seen its market share spiral downward as users have embraced the Apple iPhone and Google Android. Consequently, Microsoft finds itself playing catch up, and the question is: Are the company's moves too little, too late?

A Checkered History
While many other Microsoft duds were doomed almost immediately upon their launch, Windows Mobile has had a more volatile history. The product was unveiled in 2000 and delivered in 2002. From the start, Microsoft focused on the enterprise market. Because it was tied closely to the Microsoft e-mail and office-productivity products, the mobile OS gained traction in the smartphone market as many businesses deployed the platform.

Consequently, some companies like the Microsoft system quite a bit. Kris Anderson, team leader for Your Premier Team, a RE/MAX Excalibur franchise in Scottsdale, Ariz., found that her team members were having difficulty answering their e-mail messages during the workday. In the high-pressure, quickly moving real estate market, three to four hours sometimes passed before team members could return calls. In 2008, the company worked with 4SmartPhone, a local mobile-services company, to use Microsoft Direct Push Technology and hosted Exchange services to deliver e-mail to employees even as they were showing houses. The end result was improved productivity and more sales.

Advanced Computers Engineering Solutions (ACES) is a computer reseller in Cedar Falls, Iowa, which has about 15 employees. Several years ago, the company searched for a way to help engineers assigned to evening and weekend support more easily monitor their incoming messages. Alerts were automatically generated, but the employees had to access them via a PC, which was inconvenient. To streamline response times, the company outfitted its employees with Windows Mobile phones.

Smartphones vs. Laptops
In business since 2003, Dallas-based Homecare Homebase LP developed software that allows home-care providers (nurses, therapists and home health aides) to collect and send patient information to its main offices from people's homes. "Competitors relied on laptops to collect their information, but we found them bulky and their batteries often wore out during the day," notes Jim Griffin, VP of customer services at the company, which has 150 employees. Because Homecare Homebase relied on Microsoft products, its selection of Windows Mobile phones over a competitive offering from what was then Palm Inc. was a "no brainer," Griffin says. Currently, employees use Windows Mobile-based phones from HTC Corp., LG Electronics and Motorola Inc. to collect and ship patient data.

Because it was so popular with businesses, the Microsoft Mobile OS garnered significant market share and found itself in a race with the Research In Motion BlackBerry as the No. 1 business phone OS.

Hitting Rock Bottom
In the last few years, however, the market position of Windows Mobile has dropped like a stone, and Microsoft has been floundering on the mobile front. The company claimed it would increase unit shipments from 11 million in fiscal 2007 to 20 million in fiscal 2008. But it fell 10 percent short of that goal and has been steadily missing key milestones.

Apple Inc. blunted the Windows Mobile momentum with the introduction of its iPhone in January 2007. The product's touchscreen UI was sleek and easy to use. Users loved their iPhones, while Windows Mobile users did not.

In fact, Microsoft users often feel indifference -- sometimes even disdain -- for the Windows Mobile product. In 2008, Phil Kenealy, president of ACES, beta tested one of the HTC Windows 6.5 phones. "It was difficult to get the system to work; I wasn't sure if the problems were with the phone, our carrier or our applications," says Kenealy, who eventually returned the phone and withdrew from the beta program.

Enter Android
In November 2007, Google Inc. unveiled its Android platform. With its open source and open interface approach, it garnered a great deal of third-party support. Developers don't need to get Android apps certified by anyone, nor are there any hidden APIs. By contrast, in most cases, handset vendors make their APIs accessible only to mobile operators.

Three times over the course of a few weeks, engineers walked into Kenealy's office to tell him how excited they were about applications they found for their Motorola Droids, which run the Android OS. That's something that rarely happened with their Windows Mobile phones, Kenealy says. Consequently, Google and Apple are in a heated battle for mindshare and market share. In fact, NPD Group Inc. recently found that Android system sales surpassed those of the iPhone for the first time in the first quarter 2010.

In Need of Some Buzz
The end result is that the Microsoft mobile OS is now under siege. "Clearly, there's a lack of buzz about Windows Mobile," notes Phillip Redman, research vice president at Gartner Inc. One telling sign of a failing product line is a name change. After using the name Windows Mobile since the launch of the OS at the turn of the millennium, Microsoft decided that the latest iteration of its mobile OS would be known as Windows Phone 7, a subtle but telling distinction.

The lack of buzz has translated into declining market share. The Windows Mobile U.S. market share dropped a whopping 33 percent between October 2009 and May 2010, according to market research company comScore Inc. By the end of that month, the Microsoft OS was on 13.2 percent of new smartphones sold versus 19.7 percent eight months earlier.

The industry behemoth, however, isn't ignoring its problems. Earlier this year, CEO Steve Ballmer acknowledged that the company's outlook about its smartphones was wrong. "A phone is not another PC" became the company's new mantra. Given its roots, Microsoft had been focusing on using its phones to leverage more sales of its Windows OS and associated business tools -- but such thinking has gradually changed in Redmond.

In May, Robbie Bach, president of the company's Entertainment and Devices division, which was responsible for both Windows Mobile and the Xbox, found himself out of a job. The party line was that Bach, who had overseen the division for 10 years, was retiring, but few observers bought that story. Senior Vice President Andy Lees was put in charge of the Mobile Communications Business, which was split off from the Xbox group. He now reports directly to Ballmer.

The moves foreshadow the release of Windows Phone 7, which is designed to address some of the Windows Mobile shortcomings. Windows Phone 7, which was released to manufacturing last month, features a robust Web browser, integration with social-networking tools and support for a broader range of third-party applications. Windows Phone 7 supports Internet Explorer Mobile 6, the latest version of the Microsoft mobile Web browser (previously, the browser was sold as a separate product, but now it will be integrated with the Windows Phone 7 OS).

The browser includes several new features. Traditionally, mobile handsets have lacked sufficient processing power to support full-function browsers. But this time, IE Mobile includes a full HTML engine. A dual-mode feature will let users switch between full HTML browsing and browsing of Web site content specifically designed for mobile devices.

Another noteworthy new function is seamless Facebook integration. The social-networking service is becoming a common tool for business users as well as consumers.

Improved Integration
There's also tighter integration between contacts lists and various applications. Every application, including e-mail and text, automatically creates a link for an address. With Windows Phone 7, users can automatically pull contacts' updates when they access them via the address book. Executives can look at current status details alongside phone numbers and addresses. The software recognizes street addresses and then offers one-click access to map locations and details, via the Microsoft Bing search engine.

Another problem area for Redmond's mobile plans has been application development, which traditionally has been a Microsoft strong point in other areas. Apple has more than 150,000 applications for its phone available in its iTunes store. In response, Microsoft has announced its own app-dev store called Windows Marketplace for Mobile, which provides direct-to-phone mobile applications and can be accessed from both phones and the Web. The company claims that 20,000 applications have been developed for its mobile OS.

Microsoft does have a few other chips to play in this high-stakes game. While Apple and Google have created a buzz with their phones, there are questions about how well their respective products operate in the corporate space. Security on these devices is often an open question, especially for enterprise users. For instance, not until version 4 did the iPhone include multitasking features that let IT professionals monitor their users' activity.

Swing and a Miss
While Microsoft is fighting back, it still faces some hurdles. As it was dramatically revamping its smartphone business, the company introduced the Kin line of phones, which debuted in April 2010 and quickly bombed. These devices were based on technology garnered from the $500 million acquisition of Danger Inc. in 2008. The phones were targeted at teenagers and young adults. The most celebrated technology feature in Kin was its Studio function, which allowed the storing of pictures and other multimedia in the cloud and included tight connectivity to social-networking applications such as Facebook and Twitter.

There was one problem, though: The products were shelved almost as soon as they reached resellers' stores. "The Kin really didn't seem to meet any pressing market need," says David Morton, director of mobile communication strategies at the University of Washington. While Microsoft targeted young users, the price tag for Kin phones -- about $150 -- was too high. Plus, it was coupled with voice and data plans that would run users at least $70 a month. In addition, the phones lacked instant-messaging and calendaring functions, and customers were unable to easily download applications.

Similarly, the Windows Phone 7 design dumps some features that are needed in the enterprise. For instance, Homecare Homebase's Griffin was disappointed that the OS won't support an inherent database-management system, a feature needed to run his company's mobile applications. "We couldn't use the iPhone because our customers work with several different carriers, so we plan to take a look at adding support for the Android system to our product line," Griffin says. Finally, the Microsoft decision to block multitasking -- at least in the initial release of Windows Phone 7 -- also sparked complaints from customers and developers.

Microsoft As the Gritty Underdog?
So, Microsoft finds itself in an unusual position: the underdog.

"When we announced that we were resetting our mobile strategy, we knew the transition wouldn't be easy, but on balance we're extremely pleased with the course we're on," says a Microsoft spokesperson.

The company has supporters, including Kenealy of ACES. "Microsoft is a large, well-run company with a lot of smart people," he says. "It seems to be quite focused on improving its smartphones, and has the resources to be a major player in the marketplace."

Others, however, are not as certain. "We're concerned about the direction that Microsoft is moving in with Windows Mobile," Griffin says. "We want the company to do well, but are not certain that will be the case."

One thing is clear: There's a distinct possibility that Windows Mobile and Windows Phone 7 will take their places among other notable Microsoft bombs. "The fate of Microsoft should become clear in the months that follow the Windows 7 rollout," Morton, of the University of Washington, says. "The Palm product announcement generated some buzz, but it quickly died down. To be successful, Microsoft will need to keep its buzz going, the way that Apple and Google have done for the last few years."


comments powered by Disqus

Subscribe on YouTube