Still No Answer to the iPhone
"Microsoft is certainly at risk of getting shut out of the mobile market," says Matt Rosoff, analyst at independent research firm Directions on Microsoft.
"After more than two years, it still has no answer to the iPhone, and has allowed a thriving ecosystem of third-party applications to grow up around Apple's platform. Microsoft succeeds when it wins platform wars, and here it's losing."
Rosoff adds that the perception of Microsoft in the mobile space is so bad that it's not even mentioned in most surveys of the smartphone business, despite having almost 15 percent market share.
"Palm and Google, both of which are minor mobile players, get far more press and respect than Microsoft," he says.
If Microsoft were to make a big mobile acquisition, Rosoff says that RIM (Research in Motion) is the most likely candidate because, "it would be the quickest way for Microsoft to increase its mobile market share and get more mobile hardware and software expertise."
Mobile a Tough Market to Buy Into
Veteran tech analyst Roger Kay, president of research firm Endpoint Technologies, downplays the power of the smartphone market and the need for Microsoft to make an acquisition.
"The phone market is bigger, but almost 300 million PCs will ship in 2010. That's no market to sneeze at," he says. "Content creation is largely going to be done on PCs, even if phones are the place for content consumption."
Kay adds that Microsoft will have trouble buying its way into the mobile phone business. "It can't buy a carrier - they're too big. It won't buy an operating system because it already has one. Buying applications is not really worth the trouble if you don't have the platform, and Microsoft is all about platform."
Microsoft's best chance in mobile, says Kay, is to reduce Windows so it can run well on phones, much like Apple did with Mac OS X. "Then Microsoft could leverage that position by connecting to the existing Windows ecosystem," he says.
Major Acquisition a Last Resort
Industry analyst Rob Enderle, president of tech consulting firm the Enderle Group, believes that small purchases for specific technologies will serve Microsoft well in mobile or any other market. A large-scale acquisition such as the much-discussed-but-never-closed deal to buy Yahoo, he says, will look desperate.
"Look for point technology purchases from Microsoft if they are doing their homework right," says Enderle. "A big acquisition would indicate a 'Hail Mary' play. That's why most didnt think Yahoo was a good idea."
Rosoff agrees that Microsoft is not likely to make a major acquisition to assuage its struggles in various markets, adding that Microsoft is probably not convinced yet that the threat from netbooks and mobile devices is real enough to warrant a major move.
"Microsoft may believe that Windows 7 will dominate on netbooks and that the mobile market will continue to be fragmented with no chance of a competitor moving upstream," say Rosoff.
Rosoff envisions a smartphone/netbook hybrid as the computer of the future. If such a market grows and starts to cannibalize the consumer PC market, he says, Microsoft's margins on Windows are likely to decline and a major acquisition will become more of a possibility.
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