Microsoft Sets Collision Course with Nokia

The software giant says it's happy with the progress of its operating system for smartphones, despite low penetration rates

By Ken Wieland

One year after the first commercial launch of a smartphone based on Microsoft's (MSFT ) Windows for Mobile OS, the US software giant claims it's happy with progress made so far. "We've made a good start bearing in mind we've only been in this business [mobile OS] for a comparatively short time," says Annemarie Duffy, senior marketing director of Microsoft's mobile devices division. "It's still very early days."

It was in October 2002 that Orange launched the first Windows-powered smartphone in the UK – branded the SPV – with Orange networks in France, Denmark, Switzerland and the Netherlands following suit. Seven other mobile operators around the world have also partnered with Microsoft, including Hong Kong's CSL and Australia's Optus.

But while Duffy reckons that Micsrosoft has made a good start, others are not so charitable. "If I were to mark out of ten Microsoft's OS smartphone so far, I'd give them one," says Richard Windsor, communications equipment equity analyst with Nomura. "The [radio] protocol stack is poor [making for a poor all-round customer experience for data services] and it doesn't perform well as telephony device. The lack of a strong brand [in comparison with Nokia (NOK )] has also been a hindrance."

Nokia, with its rival Symbian OS software, is the biggest threat to Microsoft's desire for dominance in the smartphone space, not least because it's already the world's most successful handset manufacturer in terms of sales (a near 40% market share). And according to research undertaken by Nomura and published in August 2003, Symbian had shipped nearly four million smartphones compared to Microsoft's meagre 80,000.

But Microsoft's Duffy says she is not unduly concerned. "The early problems with the SPV phones were ironed out this February with OTA (over-the-air) software upgrades and now we're pushing forward with products from Motorola (MOT ) and an upgrade to the SPV handset [the SPV E200, which has an integrated camera and bluetooth connectivity].

The relationship with Motorola, signed up last month, is a big boost to Microsoft as the US hardware supplier -- despite recent market share declines -- is still a top-three handset manufacturer. And it comes with the added psychological bonus that Motorola had previously pulled out of the rival Symbian consortium. "By using Motorola equipment, Microsoft also solves its radio stack problem at one stroke," says Nomura's Windsor. "It also gives Motorola a leg-up into the corporate market." The first fruits of the Microsoft and Motorola partnership is the MPx200 handset (showcased at the Microsoft stand, Hall 4), which is aimed at the high-end consumer and business market. It's expected to be commercially available in Europe this month (via Orange) and in the US (via AT&T Wireless (AWE )) by the end of the year.

"Our two main advantages [over Symbian] is the familiarity of our mobile applications [to desk-top users] and our extensive application developer community," adds Duffy. Nomura's Windsor concurs: "The need for easy and seamless interoperability between the desktop and the handset plays right into Microsoft's hands," he says.

By 2009, Nomura believes that corporate users will account for 25% of smartphone penetration, with Microsoft grabbing an 80% of that market. Of the total smartphone market, Nomura estimates that Microsoft will take a 20% share with Symbian on 40%. Qualcomm's BREW platform is expected to take a 28% share by 2009.

Wieland is with the ITU Telecom World 2003 On-Line News Service

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