With the $7.2 billion agreement to buy Nokia's mobile phone business, Microsoft is gathering what it needs to build an enterprise-class mobile platform that surpasses rivals Apple and Samsung in security and integration with back-office applications. But despite having the technology, and soon the manufacturing facilities, Microsoft could still fall flat on its face.
The Microsoft advantage
Microsoft announced Tuesday its plans to become a hardware and software maker in the mobile market, a model that has made Apple one of the most valuable companies in the world. The acquisition, expected to be completed earlier next year, is a bold move for Microsoft. The tech giant has decided to go for broke with the Windows Phone platform rather than have it continue in limbo with roughly 3% of the smartphone market, according to the latest figures from Gartner. Google Android accounts for a whopping 79% and Apple iOS about 14%.
When it comes to selling to large companies, Microsoft has the advantage, because the majority of them have been running its software for years, including Windows, Office and Exchange. In addition, most enterprises are already running ActiveSync as a key component of whatever mobile device management software they are using. ActiveSync, released in 1996, is Microsoft's technology for synchronizing data between mobile devices and desktop computers.
To convince enterprises to use Windows Phone smartphones, Microsoft will have to provide outstanding integration between hardware and software on the device with applications behind the corporate firewall. Along with tight integration, Microsoft has to fill the security gap left by BlackBerry, which set the standard for mobile security before the company became irrelevant with the popularity of Android smartphones and the Apple iPhone.
"They don't have the security model that BlackBerry has in place today, and if you talk to companies that build third-party security solutions for devices, they tend to say, 'We can't do as much with Windows Phone as we'd like to,'" Stacy Crook, analyst for International Data Corp. (IDC), told me.
Microsoft is already working on making Windows Phone a security standout for large companies. In the first half of next year, Microsoft plans to release a feature pack for the mobile operating system that includes such enterprise features as signing and encrypting email, certificate management for user authentication and better support for virtual private networks.
Industry observers I talked to see Microsoft going much further with security once it starts making its own smartphones. For example, the company could work with Intel at adding security at the chip level. Such hardware-based technology makes it much more difficult for criminals to install malware to commandeer a smartphone.
Because Apple and Android phone makers focus primarily on consumers, businesses have to cobble together products from other vendors to lock down their devices. Microsoft could go a long ways toward making mobile security a lot easier.
Microsoft's Achilles' heel
The biggest obstacle Microsoft faces is the consumer. People want Apple and primarily Samsung on the Android side, not Windows Phone. This is a major problem, because businesses often let employees use their own smartphones for accessing corporate networks. As much as IT departments may love the simplicity of having Windows in the back office, the desktop and the smartphone, they often do not dictate the device employees use.
So, no matter how good the security and integration features are between the smartphone and corporate applications, "unless the provider has a great consumer device first it isn't going to have a chance," Gartner analyst David Cearley told me.
Except for the Xbox videogame console, Microsoft has a dismal track record in making consumer devices. The company is hoping Nokia's designers can change that.
Potential tablet success
Nevertheless, Microsoft is unlikely to take the smartphone market by storm. Sales will take time to build. In the meantime, Microsoft could see much faster growth in the tablet market. That's because more people are willing to let their employers buy the expensive devices.
In cases where companies are buying the tablets, IT departments will have more of a say and will likely choose devices running the familiar Windows.
While its true Microsoft has taken a big gamble in buying Nokia's handset and services business, it's the company's best chance at winning in the mobile market.