Microsoft Pays Mobile App Developers to Catch Apple

Microsoft CEO Steve Ballmer
Microsoft Corp. CEO Steve Ballmer, speaks at the Microsoft Worldwide Partner Conference in Washington, D.C. Photographer: Joshua Roberts/Bloomberg

Microsoft Corp. is paying developers to build mobile applications for its Windows Phone 7 system to help it narrow a lead by rival products from Apple Inc. and Google Inc.

The company is providing financial incentives ranging from free tools and test handsets to funds for software development and marketing, said Todd Brix, a senior director at Microsoft who works with app developers. In some cases, Microsoft is providing revenue guarantees, and will make up the difference if apps don’t sell as well as expected, he said.

Microsoft revamped its flagship mobile operating system to recoup market share lost to Google and Apple. To win consumers, the world’s largest software maker needs an ample supply of games, music and navigation apps when handsets with Windows Phone 7 reach stores later this year. Some developers may be reluctant to sign up before they know Windows Phone will lure enough customers, said Kevin Burden, an analyst at ABI Research.

“In no way do they want to say, ‘Trust us, there will be apps at some point,’” said Burden, who is based in Hopkinton, Massachusetts. “If that means paying developers, so be it. It’s a good strategy for them.”

While Microsoft, based in Redmond, Washington, has used similar compensation programs for previous versions of its mobile operating system, it’s devoting a larger sum this time, Brix said. He declined to say how much Microsoft will spend.

‘Open for Business’

“We are investing a lot to attract developers big and small to Windows Phone 7 to let them understand what the opportunity is and provide as many resources as we can to help them be successful on our platform,” Brix said. “We’re open for business and we want to work with them.”

Microsoft needs a hit to turn around its mobile business, which Chief Executive Officer Steve Ballmer said this week “missed a generation.”

Windows accounted for 6.9 percent of the worldwide smartphone-software market in the first quarter, from 10.8 percent a year earlier, according ABI. Shipments of the iPhone rose to 15.8 percent, while Android handsets had 9.9 percent.

At least four app makers have been approached by Microsoft and offered financial incentives in cash, assistance with development costs or revenue guarantees in exchange for having apps ready at or near the release of Windows Phone 7, said five people with knowledge of the matter. The people declined to be named because the incentive terms are confidential.

Fewer Apps Than Apple

Other mobile software makers use different approaches to entice programmers. Apple shares a portion of the revenue generated when consumers buy apps from its online store. With more than 51 million iPhones sold since its 2007 debut, Cupertino, California-based Apple hasn’t offered payments like Microsoft’s incentives to gain programs, the people said.

Apple spokeswoman Trudy Muller declined to comment.

Apple has about 225,000 apps available for the iPhone, while devices that run on Google’s Android operating system have access to some 65,000.

Microsoft is starting from scratch in amassing apps for Windows Phone 7. Its overhaul of the operating system was so complete that programs developed for older Windows-based phones won’t work on the new one. At the end of last year, Microsoft had only 246 apps, according to ABI.

Microsoft rose 31 cents to $25.44 at 4 p.m. New York time on the Nasdaq Stock Market. The shares have declined 17 percent this year.

The company’s deep pockets and the likelihood it will keep investing in Windows Phone 7 mean Microsoft may have an easier time luring developers than a smaller company, Burden said.

‘Unproven Prospect’

Developers expect Windows Phone 7 to be successful, three of the people said. Yet it’s difficult to get companies to build software for an operating system that doesn’t exist yet.

“There’s absolutely less enthusiasm today for Windows Phone 7 -- developers develop for the platform with largest number of users because that’s where they can make the most money,” said Matt Rosoff, an analyst at Directions on Microsoft in Kirkland, Washington. “Windows Phone 7 is an unproven prospect. It definitely makes sense for Microsoft to prime the pump a little bit.”

Last month, Microsoft scrapped an effort to sell its own phone, less than two months after the device debuted. Sales of the Kin social-networking phones fell short of the company’s expectations, a person familiar with the matter said then.

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