Seymour from TS.com: Hope I don't get sued for copyright infringement. Important stuff though.
Microsoft-Ericsson Deal: Less Than Meets the Eye
By Jim Seymour
Special to TheStreet.com
12/9/99 6:00 PM ET
Reports of a joint venture between Microsoft (MSFT:Nasdaq) and Swedish phone giant Ericsson (ERICY:Nasdaq ADR) Wednesday got a lot of attention. Ericsson closed up six and change; Microsoft closed down a shade. Neither movement reflected the realities of this deal, nor of this market.
In fact, the more I look at the plans for the joint venture -- so far more talk than real, but with Ericsson clearly holding the majority stake -- I think there's a lot less here than meets the eye.
And don't be fooled by this JV's apparent focus on wireless email. This isn't really about email, nor even about cell phones. Rather, these are among the first shots fired in the upcoming war to dominate "pervasive computing" -- the "computing anywhere, anytime" model. Cell phones just happen to be among the first devices we'll use to play in the world of pervasive computing, the inevitable successor to personal computing as we have known it.
First, some background. As regular readers know, I think that eventually, nearly everything on the user-to-Net level will go wireless. We'll still have, and use, lots of wired connections in the Net infrastructure. All that buried fiber will be lit and humming. But for you and me and a few hundred million other Net users, our interaction with that Net that exists out there somewhere in the ether will be sans wires.
And that future will be much more data-centric than voice-centric, contrary to today's voice-dominated wireless structure.
The market is huge. Forecasts vary widely, but in general, there are about 250 million digital wireless phone users in the world today, headed toward a billion users in a few years. Probably half of those customers, maybe more, will want serious wireless data service -- pervasive computing -- as well. By some guesses, today's 1:5 ratio of data-to-voice exchanges over wireless devices will be turned upside down in just three or four years, to 5:1 in favor of data -- and that's just for starters.
In a decade, data could claim 50 to 100 times the current volume of wireless services. And even that guess may be low.
So the potential players on the hardware, software and services sides of this game are looking at an immense and hugely profitable market ahead. For example, IBM's (IBM:NYSE) partnering with Nokia (NOK:NYSE ADR), and Amazon.com (AMZN:Nasdaq) wants you to be able to buy things (from them, of course) over Sprint's (PCS:NYSE) network and phones.
I'm a big fan of the idea of wireless email as an initiation into this brave new world. Ericsson, a follower behind leaders Nokia, Qualcomm (QCOM:Nasdaq) and even Motorola (MOT:NYSE) in the cell-phone market, wanted a play which seemed to project them into the wireless data-exchange future. Ericsson's been working on its wireless application protocol, or WAP, and needed a big partner with which it could ally to claim some market standing for that WAP - and an embedded microbrowser to make WAP useful for buyers.
It got a partner. But probably a very fickle one.
Because Microsoft's agenda here is much larger than Ericsson's and because, as far as I've been able to learn, there's no exclusivity in the Ericsson-Microsoft deal. Microsoft can and will play with anyone else in this market who can help Microsoft's goal of dominating the wireless-data marketplace, starting with its new embedded browser in data-capable cell phones.
Microsoft wants to appear to be at the front of the pack of companies developing software for this mobile wireless market and specifically needs to keep its Windows CE alive in a hand-held computing market dominated more every day by the Palm Pilot platform.
So Microsoft rolled out on Wednesday its ephemeral "Mobile Explorer" -- uhh, product -- its contribution to this Ericsson-Microsoft joint venture. Turns out that Mobile Explorer is not just the essential microbrowser to embed in the phones, but actually a jumble of several software products -- that browser code you build into a cell phone, plus separate back-end packages such as modified versions of its Exchange Server and Back Office system software, plus good old Windows CE -- plus a services component, MSN Mobile.
Cell-phone makers are supposed to be able to pick and choose among these products and services what they need. Surprise! To deliver a reasonable package of convenience and services to customers, and to deliver the full range of features promised by Mobile Explorer, cell-phone makers will find ... they need to buy into the whole Mobile Explorer package, hook, line and sinker. Or as the Department of Justice might put it, it's 1988 all over again. Or maybe 1984, or 1981. You choose.
Microsoft is making a huge power play here to get phone makers to accept the whole thing as a de facto standard for the mobile wireless market.
This market sure needs a standard. So far we've got several, none generally agreed-upon, none clear winners in the implicit race to set THE standard. British software developer Symbian (which Ericsson helped found), thought it had a leg up on the hand-held-device operating system side. Others thought -- still think -- they have their own essential pieces of the puzzle. Such as Qualcomm's patents.
We'd better hope somebody's standard quickly takes over this market. Else we'll have the same kind of Balkanization we have now in cell phones for voice and sort of for data.
I'm a big believer in letting markets, not private groups meeting in hotel suites, set standards. But this one may be too big, and too important, to leave to the machinations of a software giant wrestling with its own demons, trying to extricate itself from its last firefight in a rear-guard battle with the Feds, and worried mainly that it may not be able to control the future as it has the past.
Ding-ding-ding! They can't!
The Ericsson-Microsoft deal may produce a winner. The odds? Hard to know. But make no mistake: This is just one of dozens of forays you'll see, with transient alliances, cries of "unfair!" and "betrayal!" in the years ahead.
Those who look to the past to forecast the future may well argue that up against behemoth Microsoft, no one has a chance -- and so this Ericsson deal may well set the standard.
Those who live in Web time will recognize the fallacies in that, and will likely keep their powder dry a little longer.
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