Newcomers to mobile OS space Android and Palm's webOS make life increasingly difficult for Windows Mobile.
As computing goes mobile thanks to the emergence of more powerful devices, Microsoft Corp. is finding itself increasingly threatened by new rivals - and some old ones, too.
The company's mobile technology has suffered in comparison to both the iPhone, from traditional foe Apple Inc., and Research In Motion Ltd.'s BlackBerry. Meanwhile, device makers that have normally been big supporters of Microsoft's mobile operating system software, such as Motorola Corp. and Palm Inc., have been moving toward the use of different technology.
"Other operating systems got a heck of a lot more intuitive" compared to Microsoft's, said IDC analyst Ramon Llamas. A major update to Microsoft's mobile operating system expected to provide a boost, Windows Mobile 7, has long been anticipated - though its timing remains unclear.
Meanwhile, Microsoft's grip on the computing business, and on the Internet, is likely to increasingly depend on the adoption of Windows Mobile.
But the software giant isn't enjoying nearly the same dominance in mobile that it's had in personal computers. In the U.S., the BlackBerry operating system from RIM holds more than 48% of the total smartphone market, according to data from IDC. The Mac OSX, which powers Apple's iPhone, is in second place with 19%. Windows Mobile, meanwhile, holds 15%.
Perhaps more troubling for Microsoft is the growth anticipated for two newer arrivals on the market. The Android operating system developed by Google Inc. has only 7.5% of the market now, but is expected to grow to 15% in the next five years, according to IDC.
And the new webOS operating system from Palm Inc., which powers the recently launched Pre phone, is expected to have an 8% share in five years.
Walter Pritchard, an analyst with Cowen & Co., added that while Microsoft's place atop the personal computing industry is safe, it may be threatened if phone sales continue outpacing those of PCs.
"If the phone replaces the PC, these guys would have a problem, and there are shades of that going on," Pritchard said. Focus Of Investment
A relatively low-key product for Microsoft, Windows Mobile is nonetheless a focus of investment.
In the quarter ended in March, Microsoft's Entertainment & Devices division reported that research-and-development costs jumped 18% to $66 million,"primarily reflecting increased headcount-related expenses associated with the Windows Mobile device platform," according to a Securities & Exchange Commission filing.
In addition, Microsoft is bearing down on mobile Internet services that can run separately from an operating system. It recently outbid rivals for a spot as the default search service on Verizon Wireless, for example.
However, a loss of market share for its operating system could threaten Microsoft's ability to stake out bigger territory on mobile devices."If they don't have a nice footprint with the operating system, they won't be able to push certain applications for mobile users," said Sandeep Aggarwal, an analyst covering Microsoft for Collins Stewart LLC.
Part of Microsoft's challenge may be that it hasn't committed to making a mobile device of its own to pair with software, analysts say.
That stance has come under scrutiny as some of Microsoft's key manufacturing partners have shifted away from the company. Palm, historically a strong supporter of Windows Mobile with its Treo line of smartphones, is now throwing all of its weight behind devices built for its own webOS platform. In a recent earnings call, Palm executives evaded a question about whether the company still plans to build new devices for Windows Mobile.
Another traditional Microsoft partner, Motorola, is focused on building new products for Google's Android platform. Those devices are expected to be announced later this year. Update Unclear
Windows Mobile 7 is widely expected to bring Microsoft more in line with peers in developing consumer-friendly features.
IDC's Llamas noted that recent months have seen the debut of Palm's Pre, a new iteration of Apple's iPhone, and new BlackBerry devices from RIM."And we're all sitting here saying, Windows Mobile, you're up," Llamas said.
A Microsoft representative, however, said the company has yet to assign a firm release date for Windows Mobile 7, as the company is currently focused on the release of Windows Mobile 6.5.
Llamas said that Microsoft hasn't innovated much since issuing Windows Mobile 4, while rivals such as Google, with its Android operating system, have zeroed in on the market. That, Llamas said, is why "everyone is holding their collective breath" for the next big Windows Mobile upgrade.
As long ago as early last year, Microsoft Chief Executive Steve Ballmer was touting Windows Mobile 7 as a key product release. At Microsoft's MVP Summit held in April, 2008, Ballmer said Windows Mobile 7 is "an area of major excitement and innovation for the company as we move forward."
While the anticipation for Windows Mobile 7 has been "insatiable," said Forrester Research analyst Charles Golvin, it's also been unrealistic.
"I think the idea of getting Windows Mobile 7 this year may have been setting expectations a bit too high," Golvin said. Playing Catch-Up
As users have waited for Windows Mobile 7, they've had an increasing number of other options.
In early June, Palm released the Pre following months of anticipation. The first batch of the devices made available quickly sold out.
Palm and others have made a point of modeling themselves after Apple's success in at least one key respect, by making applications for their devices available through a marketplace.
Apple has seen tremendous demand for the thousands of iPhone applications made available through its App Store, and Google has followed suit by making thousands of applications available for Android phones. Palm has now made dozens of applications available through a digital catalogue.
Microsoft, compelled to keep pace, has committed to delivering mobile applications through a "Windows Marketplace for Mobile" in the autumn. While a company executive was recently quoted as saying the marketplace will feature some 600 applications, the Microsoft representative said "it's too early to know for sure" how many will initially be available.
Apple now offers more than 50,000 applications through its App Store.
Though the success of Apple and others developing their own devices is apparent, it remains unclear whether Microsoft will one day also see fit to develop its own phone to pair with mobile software.
"Microsoft is in the software business," the Microsoft representative said.
Cowen & Co.'s Pritchard said the company is likely to at least have mulled making a device, though it now seems unlikely."These other devices have been out for years, and they haven't done anything," Pritchard said.
IDC's Llamas said Microsoft may not feel much pressure to develop its own device, as it has fared well enough by making its software available for phones from the likes of Samsung, HTC Corp., Motorola and others.
"Microsoft in the mobile arena is simply operating systems, that's their DNA," Llamas said."For better or worse, it's done well. To say you're No. 3? That's nothing to shrug off. The only other piece of that is, where do you go from there?"
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