Redmond's Mobile Push
By Ari Weinberg
Friday February 22, 8:00 am Eastern Time
When Microsoft wants to get into a market, the Redmond, Wash.-based company creeps up slowly and then
stomps. It did it to Lotus and WordPerfect. It overcame Netscape. Currently it's taking on Palm , plus Sony and
Nintendo , all at once.
Now Microsoft is gunning for the burgeoning market for "smart handhelds," a catchall phrase that describes
handheld computers that in various combinations can send and receive email, browse the Web and make
wireless phone calls. Microsoft is aiming for a day when Windows runs on mobile phones as widely as it
does the PC.
By announcing chip design deals with Intel and Texas Instruments for their so-called Smartphone, Microsoft is
trying to create a standard upon which manufacturers can build PocketPC and Smartphone devices. That's a
direct attack on the major players in the mobile phone industry, namely Motorola , Ericsson and Nokia .
Microsoft is making no secret who it's aiming at. "Nokia has the most to be concerned about," says Microsoft's
vice president of mobility, Juha Christensen. He says that while Nokia leads in handset design and market
share, it's looking at slowing sales growth that could cut into the Finnish company's cushy 17% operating
margin (2001).
Microsoft's assault on the wireless business comes as its main business of licensing Windows and selling PC
software is suffering from sputtering PC sales. Retail desktop sales in the United States fell 25% in 2001 to
$4.9 billion, according to market research firm NPDTechworld. Microsoft's targets--personal digital
assistants (PDAs) and cell phones--are still growing. U.S. retail PDA sales were up 19% to $950 million in
2001. U.S. cell phone unit sales were up 7% to 21.9 million in the fourth quarter of 2001.
So as Microsoft makes its opening moves by attacking Nokia's front line of popular phones, Nokia has
countered by making moves on its back end. Yesterday it announced that it wants to collaborate with other
companies on IP base station architecture--essentially the technology behind getting voice and data from
networks to phones.
Nokia "We fear no competition as long as they adhere to open standards," counters Nokia spokesperson Pekka
Isosommpi.
The fight of course, will be right in the middle, or right where the wireless service providers sit.
While Nokia can make a cute phone, it takes service providers like NTT Docomo in Japan, Vodafone in the
U.K. and VoiceStream Wireless in the U.S. to sell them. With a 37% share of the global handset market, Nokia
has ironclad relationships with scores of service providers around the world, and none will shift their
loyalties lightly.
With major phone manufacturers sticking to their own software, Microsoft has sidestepped companies like
Nokia and Ericsson by heading right to carriers with products made by Hewlett-Packard and Taiwan's
Compal .
The phone makers don't intend to sit still developing their own software to compete with Microsoft's. Nokia,
Motorola and Ericsson are only three companies behind the Symbian consortium, which continues to develop
Symbian OS, the same operating system used on the Psion line of handheld computers popular in Europe.
Nokia will launch a Symbian-based phone in the U.S. later this year, while Microsoft's products are already
showing up in Europe.
But management fallout and sluggish action could have Symbian racing to catch up. Christensen, a co-founder
of Symbian, joined Microsoft more than a year ago. Before Symbian, he spent six years at Psion.
As for Microsoft's other goal, to sell PocketPC/Smartphones, the lead in phone/PDA integration belongs to
Palm . And while Pocket PC use is growing, Palm's operating system was on nearly 60% of PDAs shipped
worldwide in 2001, according to Dataquest.
Michael Mace, chief competitive officer for PalmSource in Santa Clara, Calif., Palm's soon-to-be separate
software unit, points to success of current Samsung and Kyocera Palm phones, along with software licensing
by Handspring and Sony , to demonstrate the strength of the Palm OS--a much simpler and less
power-consuming PDA platform.
"There is not a single perfect design," says Mace. "Mobile devices are more like clothing. You don't see
anyone out there trying to develop one suit for everyone."
While Microsoft's Christensen says the buzz from 3GSM World--an industry conference going on in
France--is that people want smart voice/data capable devices, it looks to be the consumer, not industry big
wigs, that could make the ultimate call.
"Cell phones are still a minimalist environment for consumers," says Rob Sanderson, an analyst at Bank of
America Securities.
However, Microsoft's marketing muscle and power of persuasion, with Intel and Texas Instruments at its back,
looks like it could change the landscape.
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