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iPhone and the Future of Microsoft

Posted on Tuesday, May 8th 2007

This is a very strange perspective, but I think in the mobile world, the iPhone is actually driving the market towards Microsoft’s Windows Mobile OS, and away from the current OS leader Symbian. Let’s go through the logic step by step.

Let’s stay with the thesis that one of the key differentiators of the iPhone is the presence of the MAC OS on the device, which makes the possibilities on the application side virtually unlimited, as long as we stay within the Apple eco-system.

Nonetheless, we have also said, that the iPhone is positioned against the laptop, not the cell phone, that Microsoft has a much larger market share in the laptop OS world, and that the number of applications available on Windows is infinitely larger than those available on the MAC OS. (Of course, all this may become irrelevant if the world truly embraces hosted, on-demand applications as presented by Google, Salesforce.com, and others, but as it stands, the world still cares about resident apps on the device.)

The above indicates the increasing necessity for a robust and full-scale OS on this convergence device, making the Palm OS, RIM, and even Symbian, gradually irrelevant. [I simply don’t see Nokia becoming a major player in the OS universe!]

In 2006, Symbian was estimated to have a 73% share of the smartphone OS market, yet ABI Research forecasts that it will fall to 46% by 2012, due to strong competition coming most notably from Linux, but also from Windows Mobile. At the moment, Microsoft, Palm, and RIM, each have very low market share in worldwide Smartphone OS. The MAC OS competition has not even started yet!

If Microsoft strengthens Windows Mobile OS, optimizes it for the killer apps on the convergence device, Apple is definitely providing the momentum needed behind the trend for the handset industry to move away from Symbian, its key competitor.

Thus, Bill Gates’ comments about the iPhone being largely irrelevant to Microsoft’s future appears to me like hogwash, since any of us would be a fool to underestimate the guy’s intelligence!

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I think the argument that Microsoft’s market share in notebooks has some effect on Windows Mobile deployments isn’t quite right. While Windows Mobile phones share a name with Windows, they cannot run Windows apps. Out of the box, for example, all Windows Mobile devices can’t edit Microsoft Office applications; they can only view them. As a result, Microsoft’s market share in notebooks and notebook software is irrelevant, since that software doesn’t run on Windows Mobile devices.

On the other hand, the iPhone does run Mac OS X applications that have been recompiled for the iPhone. While Apple is restricting the deployment of any third-party applications on iPhones, it certainly has the ability to deploy lots of Mac OS X applications on its phones very quickly.

Extrapolating success on phones from Microsoft’s success on notebooks is a bit of a stretch — after all, it hasn’t worked for the last five years, with Windows Mobile devices still constituting less than 1% of cell phone sales, while Microsoft’s market share on notebooks has been largely flat at about 90%. If Apple hits its targets, on the other hand, it will exceed that number in just 18 months, regardless of its growing notebook share. I do believe that Bill Gates is right: the iPhone will be irrelevant to Microsoft’s future. But that’s largely because I don’t see Microsoft actually achieving critical mass in phones any time soon. The only factor I could see changing that would be Microsoft designing and selling its own business phone that would appeal to its traditional business buyers — and in the process alienating its cell phone OEMs the way it has the music player manufacturers with Zune.

Best wishes,
Carl

Carl Tuesday, May 8, 2007 at 9:39 AM PT

So, ‘we have also said, that the iPhone is positioned against the laptop, not the cell phone’ plus ‘Microsoft has a much larger market share in the laptop OS world’ = world domination for MS Windows Mobile OS in the smartphone business.
Gimme a break. Linux has potentially more uptake than Windows Mobile through wider alliances and ‘open’ development possibilities. The lumbering giant that is MS has failed to capitalize to any degree since their Mobile OS was released and they show no signs of persuading the market otherwise.
You fail to mention Apple’s potential for growth and in the light of the iPod dominating the music market from zero presence, that could be a fatal omission. I (amongst many others) have a sneaking suspicion that this is another totally new market waiting to be defined and MS appears to be in a state of denial – not readiness.

GeorgeE Tuesday, May 8, 2007 at 9:39 AM PT

Sramana, I think you are neglecting to consider how poor a competitor Windows Mobile is.

My wife and I suffer daily using our Windows Mobile HTC PDA phones (O2 Mini and O2 XDA IIs). Windows Mobile is a terrible phone OS with tiny on-screen buttons for choosing contacts to phone, horrible SMS texting and is as flaky as Windows 95 with regular freezes and required resets and the number of convoluted steps required to connect to our campus wireless LAN is unbelievable. I’m growing to hate it more and more every day. The Windows mobile-based PDAs used by upper management at our campus cause an out-of-proportion number of support problems with synching faults, connectivity issues etc. It’s been 5 days and counting to fix the Vice Chancellor’s Windows Mobile PDA synching problem – sheesh.

The iPhone’s OS X is a far more robust, capable OS than Windows Mobile and being a direct subset of the desktop Mac OS X promises to be far more powerful and flexible than the shoddy Windows CE (Windows Mobile) which bears no relation to Windows XP other than superficial looks and that horrible Start menu (on a tiny screen – why for the love of Pete!). Heck Windows Mobile is crammed into only a dozen or so MBs on the O2 while OS X on the iPhone is a fully featured 500MBs in size.

As far as hardware is concerned, half the chromed plastic buttons don’t work anymore on my XDA IIs, the WiFi reliability is horrific, the flimsy speaker grill has snapped off, the phone only rings once and then drops calls, the stylus falls out all the time (I’ve lost 4 of them) and the slide-out keyboard is a total joke. I always use the on-screen keyboard as a result. The elegant touchscreen design of the iPhone is a revelation in comparison.

I’m pretty certain Windows Mobile powered phones are going to suffer marketshare losses not gains due to the iPhone.

-Mart

Martin Hill Tuesday, May 8, 2007 at 10:18 AM PT

I think you’re fundamentally right that as these converged devices essentially become handheld, full blown computers in terms of capability and power (like the iPhone), Microsoft is better positioned long term than Nokia or anyone other competitor to challenge Apple. MS is, after all, the only company that makes a full blown computer OS.

Trouble is, MS’s current offering in this market, Windows Mobile is only “windows” in name. It bears more resemblance to Symbian and other phone OS offerings than the iPhone OS.

Further, because for years apple was stuck with subpar CPUs, OS X runs on much lighter weight hardware than MS Windows (the real, desktop Windows). That is particularly true for Vista, which won’t even run well on desktop hardware a few years old. I’m running the newest version of OS X very well on a 4 year old powerbook, with an 867 mhz processor. I think mobile processors are pushing that speed now. Plus the iPhone OS will be trimmed down some and the phone will be less demanding than a desktop or laptop computer (no need to run photoshop, push around pixels for a big screen, etc.) It’s easy to see now why OS will run on a phone.

MS no doubt has a secret project to create a new OS like the iPhone OS. One thing they are probably struggling with right now is whether to base it on windows Vista (and all the decades of baggage that entails), or start from scratch with a unix based OS.

cesman Tuesday, May 8, 2007 at 10:25 AM PT

Yes, everyone here seems to understand the basic flaw in your theory, Sramana. If Windows Mobile was truly a mobile version of the their desktop OS, then they would crush Symbian and Linux (and likely OSX) in the phone space, but even though it contains the name “Windows”, Windows Mobile is not related to the desktop Windows in any way, shape or form. It is a completely separate development environment for MS. In fact, Intel has quite publicly berated Microsoft for its repeated and utter failure in trying to move even the core elements of XP and Vista to a mobile platform.

It will be very interesting to see how all of this shakes out, but it does seem obvious that Apple (through OS X) will overtake Miscrosoft’s marketshare (and installed base) in this space very quickly. Linux and Symbian, however, are another matter.

And now for a personal pet peeve: can we try to put an end to the usage of the all-caps MAC whenever a Windows user is referring to the Macintosh? Mac is not an acronym for anything, it is just a name 🙂 Thanks! I enjoy reading your blog.

David Tuesday, May 8, 2007 at 11:18 AM PT

Apologies for a brief response, I am on vacation in Rome, and writing from a beautiful hotel room above the Spanish steps …

Well, yes, if Windows Mobile sits still, and doesn’t use any of Microsoft’s OS capabilities, then all your above points are correct.

I assume, however, that Microsoft is not stupid. They are, indeed, working on a full-blown but lightweight OS that can compete on the convergence device market.

Sramana Mitra Tuesday, May 8, 2007 at 12:53 PM PT

It appears Linux is the better choice as Intel is taking that route.

https://news.bbc.co.uk/2/hi/technology/6634195.stm

lantzn Tuesday, May 8, 2007 at 1:49 PM PT

The big problem – what is that OS. Stay with the crippled windows mobile? no. Use Vista? not lightweight enough. XP? not advanced enough graphically to duplicate the iPhone.

Go with unix or linux, and build an API on top of that (kind of like OS X)? huge PR problem, and if the OS is open to third-party development, folks could run unix/linux apps on it and skip the proprietary MS API. That won’t work, because they need the proprietary API for lock-in.

They may have to wait for handheld hardware to catch up to vista, but that could take years.

My guess – in the end (for the next couple ofyears at least) they will stick with windows mobile and try to slap a fresh coat of paint on it.

cesman Tuesday, May 8, 2007 at 1:51 PM PT

[…] Mitra has an interesting perspective on the Apple vs Microsoft game. Today, she posted an interesting piece on her blog regarding the future of Microsoft and how the iPhone is affecting […]

iPhone and Microsoft at iPhone Alley Tuesday, May 8, 2007 at 2:54 PM PT

Underestimate the Bill Gates intelligence? Didn’t Bill Gates say that no one would ever need more than 64k or RAM?

Tony Martin Tuesday, May 8, 2007 at 4:21 PM PT

Oh the correct statement is as follows:

“640K ought to be enough for anybody.” — Bill Gates, 1981.

I guess I underestimated him.

Tony Martin Tuesday, May 8, 2007 at 4:24 PM PT

The last thing MS wants at this time is yet another front to which it must wage a war. It’s already quickly losing mindshare with Generation and a successful iPhone will all but bury them in a casket.

And less face it, the last thing the PC industry wants is another 800 pound gorilla grunting around looking for victims!

lrd Tuesday, May 8, 2007 at 6:13 PM PT

First, Carl says, “the iPhone does run Mac OS X applications that have been recompiled for the iPhone.” I’d like to see an explicit reference to this. Nowhere did I ever hear that the iPhone runs Mac OS X applications. The iPhone runs a version of OS X (Note that nowhere did Steve ever say that the iPhone runs “Mac OS X”).

Consider the differences between Mac OS X and the iPhone interface that we have seen and it’s obvious that there’s a bit more involved than just a recompile. Take one simple example: What about an app that uses the menu bar? Oops. Much like people’s comments about Windows Mobile, just because the iPhone’s web browser is named “Safari” doesn’t mean it’s the same thing as what you find under Mac OS X.

OS X (as Apple refers to what is running on the iPhone) is a stripped down version of Mac OS X. At one point, Steve showed a slide of various technologies available on the iPhone. One thing I noticed was that “Carbon” was missing (though “Cocoa” was included). Since there are lots of Carbon apps out there, I assume they’re not invited to the party.

That said, I somewhat agree with Sramana. People have been really impressed with the “look” of the iPhone’s interface. Companies that want to compete with the iPhone will want to adopt a similar look–Something that, last I saw, Symbian is not providing. About the only people in this space will be…Apple and Microsoft. Will Apple license OS X to the Sonys, Motorolas, and Nokias of the world? Doubtful. That leads those companies to choose Windows Mobile for their devices if they want to provide anything close to an iPhone experience.

The wildcard here, of course, is linux. The Sonys, Motorolas, and Nokias of the world could end up building on linux rather than licensing Windows Mobile. This way, they control more of the user’s experience (a la Apple) and don’t have to deal with Microsoft. Palm is already moving in that direction, from what I understand.

Peter Tuesday, May 8, 2007 at 7:45 PM PT

I long for a day when people, all people everywhere, will finally know that MAC is for ethernet addresses and Mac is for the funky fruity computer.

John Koetsier Tuesday, May 8, 2007 at 10:30 PM PT

Symbian will continue to rock and Linux will slowly rise.

Windows mobile will rise but that is not due to iPhone!

vinu Wednesday, May 9, 2007 at 3:45 AM PT

BTW Bill Gates never said iPhone is irrelevant to MS plans..He always welcomed iPhone because its basically a software intensive device.Software thats where MS has its mouth…

Oz Saturday, August 11, 2007 at 4:29 AM PT