Microsoft's Windows Mobile OS Gains Traction

Cell phones have been transformed into handheld computers capable of supporting e-mail , Web surfing, and video transmissions, which has necessitated the development of more sophisticated cell phone operating systems. After a number of failed attempts to emerge as a significant force in this market, Microsoft (Nasdaq: MSFT) appears to be gaining ground with its Windows Mobile platform.

Cellular communications is dramatically evolving. These networks have morphed from voice only mediums to networks supporting data transmissions at rates from hundreds of kbps to even multiple Mbps. Carriers are now working with third parties to deliver new multimedia applications that take advantage of this newfound functionality. Ideally, software vendors would like to write one application that runs on a variety of cell phones, but now a handful of standard operating systems, including Symbian, Palm, Linux and Windows, as well a plethora of proprietary approaches, are vying for acceptance.

Microsoft has been in this market for more than a decade, but its Windows Mobile system has been slow to gain traction. There is always a learning curve involved when a company enters a new market, and Microsoft certainly made its share of mistakes. "Initially, Microsoft did not seem to understand handheld operating system dynamics as well as it did with desktop systems," said Neil Strother, an industry analyst with market research firm The NPD Group.

First Releases Lacked Functionality

Initially, Windows Mobile was a bit bulky and lacked functionality, such as hard disk storage support and the ability to run multimedia applications, found in competitive offerings. Microsoft has tried to learn from its mistakes, and the company has recently experienced some success: during the past year, Windows Mobile has generated more than 40 percent year-over-year growth in each quarter. The number of mobile operators shipping Windows Mobile based devices increased from 93 in 2005 to 115 today.

Product enhancements are on the way to sustain Windows Mobile's momentum. In May, Microsoft provided developers with a sneak peak at the next release, Windows Mobile 6.0, which is expected to ship in 2007. The operating system kernel was redesigned to support 32,000 rather than 32 processes, with each process running in 2 GB virtual memory address space compared to 64 MB of memory previously.

Improvements are coming in part because the stakes are being raised in the handheld operating system space. "Smartphones -- those that take advantage of the new data capabilities -- make up a small portion of the cell phone market, but they are a market segment that has been growing," The NPD Group's Strother told TechNewsWorld.

Getting Ready for a Duet Duel

The battle in the cell phone operating system space seems be evolving into a duel between Windows Mobile and Symbian. At the moment, it is not clear what the future holds for PalmSource, which is responsible for the operating system. The company was purchased by Access Co. Ltd., a Japanese mobile content provider, and unveiled a version of Palm that runs on Linux. Linux has not garnered enough third-party support to be an important factor at this point, say industry insiders.

Symbian, however, represents a formidable challenger. Available since 1998, the operating system is the product of a group development project, with Nokia (NYSE: NOK), Ericsson (Nasdaq: ERICY), Panasonic, Samsung, Siemens (NYSE: SI) and Sony Ericsson all holding a stake in the company. Since the Symbian OS was designed specifically for cell phones, it does a good job of delivering functionality needed specifically by mobile users. In fact, the company claims that currently more than 100 Symbian phones are available, and more than 70 million phones have been delivered to customers since the operating system began shipping in November 2000.

Yet Symbian has hurdles it must overcome, starting with its fragmented ownership. Sometimes, vendors have different views about how to approach the market, so it can be difficult to reach consensus. Motorola (NYSE: MOT), an early supporter of Symbian, withdrew from the consortium and is now focusing its development efforts on Windows Mobile.

Turning Toward the Sun

The Symbian operating system lacks the programming tools and development environment needed so third parties can write applications. To address this shortcoming, Symbian supporters have thrown their weight behind Sun Microsystems' (Nasdaq: JAVA) Java 2 Mobile Edition (J2ME) development tools. Since the operating system and the development environment were not designed to work together, the integration between them can be a bit circumspect.

A few of Symbian's weaknesses play to Microsoft's strengths. "Microsoft has done a good job leveraging its Visual Studio development environment, so third parties can build Windows Mobile applications," said Michael Cherry, lead analyst with Directions on Microsoft, a market research firm focused on developments at Microsoft.

Microsoft has also tried to leverage its Windows success on the desktop for a larger slice of the cell phone market. "Microsoft's big advantage is its products are compatible with its large base of desktop applications," said The NDP Group's Strother.

In fact, the handheld operating system was designed to be compatible with its Outlook e-mail system, Internet Explorer Web browser, instant message capabilities with MSN Messenger, and multimedia features via the Microsoft Windows Media Player. Recently, the company enhanced Outlook Express so it can push email messages to users' handheld systems in a manner similar to Research in Motion's BlackBerry system.

History Lesson Learned

Yet there is some hesitancy among carriers and third parties to support the Microsoft initiative. Handset suppliers fear that Microsoft will eventually dominate the cell phone OS market as it does the PC OS, and that would eliminate the differentiation that handset hardware, rely on to generate their profits.

While Microsoft is making progress, it still has work to do. "The handheld OS market is in an early stage of development, so it is now clear which vendor -- or vendors -- will emerge as market leaders," concluded The NPD Group's Strother. "Because of its recent momentum, Microsoft has as good a shot as any of the companies vying for that position."