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Microsoft Poised To Dominate Mobile Phone OS Market

By John P. Mello Jr.
Sep 29, 2004 7:00 AM PT

A demand for more robust mobile phone operating systems will increase Microsoft's presence in the market at the expense of existing players, according to a report released yesterday by ABI Research of Oyster Bay, New York.

Microsoft Poised To Dominate Mobile Phone OS Market

Branding will play a key role in Microsoft's market grab in the mobile OS realm, maintained ABI analyst Brian Pellegrini.

"If you ask people with smart phones which operating system they have, people with operating systems like Symbian, or proprietary systems generally, won't know it, but they generally know if they have Microsoft," he told TechNewsWorld.

Bargain Basement Licensing

He noted that the mobile operating system market is so small compared to Microsoft's other markets that the software colossus can build share with bargain basement licensing at very low cost to its mammoth bottom line.

"The amount of money that's involved in the handset operating business is so small that it's really nothing to Microsoft," he asserted. "So they're charging almost zero licensing fees per handset.

"The idea behind that," he continued, "is that they can make the money back by selling applications they create directly to consumers."

That model contrasts with the current leader in the market, Symbian, which is only in the OS business and doesn't produce applications, he said. Attempts by TechNewsWorld to obtain comment from Symbian on the report were unavailing.

However, an advantage operating systems like Symbian and Linux have in the mobile market is that they allow developers to work in an open source environment, Pellegrini contended. "That makes it easier for developers," he said. "Microsoft is totally closed source, and they pretty much dictate the methods of application development that designers can use."

Compete With Developers

"And Microsoft is probably going to be developing a lot of applications natively so developers will be facing a large amount of competition directly from Microsoft," he added.

Microsoft, though, played down that competition. "With its Windows Mobile software, Microsoft is committed to enabling partner success, providing a consistent and familiar platform for developers to build upon and delivering a great software experience to provide increased business value to key industry players and exciting experiences to end users," a spokesperson, who asked not to be identified by name, told TechNewsWorld via e-mail.

The mobile market will be tough to crack for any vendor who eschews open standards, averred Eric Chu, director J2ME business and marketing for Sun Microsystems in Santa Clara, California.

Ridiculous Amounts of Cash

"There is a strong desire in the industry -- both by the carriers and the device manufacturers -- to make sure they drive mobile data services using open standards," he told TechNewsWorld. "From our perspective, we think it would be a challenge for any company to come in with a proprietary solution and get any traction."

But that might not be the case with Microsoft. "They're a threat in everything they do," said Jonathan N. Schreiber, CEO of Xingtone, a handset software maker in Los Angeles. "They have a ridiculous amount of cash in the bank."

"As phones become more of extension of the PC, consumers will want to buy things that they're comfortable with," he noted. "If Microsoft can offer an experience... [similar to] what you're used to on a computer, it seems to make sense that they will be a significant force."

Old Nemesis Linux

Just as Microsoft couldn't ignore computer gaming, it can't ignore the handset market, he contended. "Microsoft can't give up on this space," he said. "They're going to do what they have to do push their ability in this market."

Asked if Microsoft will have to compete in the mobile OS market with its old nemesis Linux, Pellegrini noted, "Linux's biggest chance is in China. Given the socialist government there, it gives them a lot of power over how things are set up. And it's cheap. But it isn't on the radar screen so much yet."

As for Microsoft, it appears to have adopted a wait-and-see attitude toward Linux's fortunes in the mobile arena. "With the incredible level of innovation occurring in the mobile space, comes an incredible level of competition and choice -- which is good for the industry," the company spokesperson said. "Time will tell whether Linux will gain traction in this market."

Standard OS Wanted

Most mobile phones in the market today have operating systems designed by their manufacturers, but that will change as more robust capabilities are built into handsets. Greater handset sophistication will drive the market toward third-party OS makers, Pellegrini maintained.

Consumer demand for greater interoperability between phones will also contribute toward adoption of third-party operating systems.

"Users want to be able to send pictures and instant messages to one another and not have any nonsense to put up with," Pellegrini said. "For that to happen effectively, you need a standard operating system."

Proprietary operating systems will continue to dominate the market, he added. "For the foreseeable future, proprietary systems will be in the majority of total handsets," Pellegrini said. "Standardized systems will sit primarily in the smart phone and PDA space. For the most part proprietary systems will handle the cheaper phones."

Should government regulators force the breakup of big tech companies?
Yes -- it's the only way to restore competition.
No -- breaking them up would make them less useful to consumers.
Yes -- it would encourage entrepreneurship and innovation.
No -- but some regulation is needed to restrict their power.
Yes -- but only the firms that function as utilities.
No -- the government should keep its hands off and let the market decide.