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Smart Phones, Smarter Partnership

By Olga Kharif For several years, Microsoft (MSFT) and Symbian, which sell rival operating systems for mobile computing devices, have been fierce competitors. They've poached each other's staffers and lured each other's customers away. So, when the rivals shook hands on a licensing deal on Mar. 22, it looked a bit like the Hatfields and McCoys sitting down for Thanksgiving dinner.

Symbian announced it will license Microsoft's Exchange Server ActiveSync. The feature allows users of smart phones, which are a cross between a cell phone and a personal digital assistant (PDA), to access corporate e-mail and scheduling programs that run on Microsoft's Exchange Server 2003.

LICENSE FEES. So why do it? London-based Symbian likely can't manage without this ActiveSync feature. The global mobile workforce is expanding rapidly. At the same time, Microsoft Exchange's popularity is growing as well: While 33% of corporations use Exchange e-mail, Microsoft's leading market share should rise to 39% by 2009, according to market researchers at Radicati Group. Hence, ActiveSync is essential for Symbian if it wants to continue appealing to corporations, the largest market for the pricey smart phones, which can cost as much as $700.

What's good for Symbian, is great for Microsoft. The partnership could give Redmond a lift in its server software sales, which already contribute 20% of total revenue, says Matt Rosoff, an analyst at consulting firm Directions on Microsoft.

In addition, Microsoft will get more license fees, though the deal' terms weren't announced. Industry insiders believe that, eventually, Symbian could also license Microsoft's Media products, which would help it with digital-rights management and playing audio on cell phones. Cell-phone maker Nokia (NOK), the giant behind Symbian, licensed that technology in February (see BW, 2/14/05, "Will Rewiring Nokia Spark Growth?").

RIM'S LOSS. The licensing agreement could also boost Microsoft's mobile business. Some industry insiders argue that it help Microsoft gain market share from another rival, Research In Motion (RIMM), maker of the popular BlackBerry devices. If corporate customers want to connect to their Exchange servers, and RIM doesn't offer that capability, those customers will now have more alternative devices -- based on Windows Mobile and Symbian -- to choose from.

RIM's shares fell 3%, to $79.71, on Mar. 22, after the Microsoft-Symbian deal was announced.

The new agreement could also potentially expand the market for smart phones by making them more practical for corporations, says Neil Strother, an analyst at market researcher In-Stat. Shipments of smart phones, which now account for about 3% of global mobile-device sales, should grow 67% this year, to 32.2 million units, according to In-Stat.

CLOSING THE GAP. As that market expands, so will Microsoft's share of it. Already, the Windows Mobile division ranks as Redmond's fastest-growing business -- albeit a small one, accounting for less than 1% of total revenue. After only two years on the market, Microsoft's Windows Mobile OS is used by 40 device manufacturers, who sell to 67 wireless service providers in 48 countries. While Microsoft still places third -- after Symbian and Palm OS -- in the mobile market, it's closing in on No. 2, says Strother.

Indeed, for Microsoft, this looks like a good deal all the way around. As it has in so many other markets, the software giant is starting to reel in its rivals. Kharif is a reporter for BusinessWeek Online in Portland, Ore.

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