Is Windows Mobile headed for failure?

[1]Although Microsoft has long faced concerns over its position in the smartphone operating system market, and industry watchers have predicted its demise seemingly every year since its entrance into the space in 2002 [2], the company's current situation looks about as dire as anything it has faced in the space so far.

Consider: Microsoft recently lost two high-profile licensees: Palm and Motorola. Further, Microsoft is getting undercut by two major efforts--Symbian and Android--both of which are now free. Couple these actions with Microsoft's perceived foot-dragging in the smartphone arena [3], white-hot competition from the likes of Apple and BlackBerry, and a market that it does not dominate (unlike in the desktop space), and it's safe to say Microsoft should be a little worried.

Research firm CCS Insight brings up many of these issues in a recent report to clients. The firm noted that Windows Mobile may get a boost from the release next month of version 6.5 [4], but that "we question licensees' long-term commitment to Microsoft's platform."

Let's go through the list:

• To the surprise of no one, Palm confirmed it dropped support for Windows Mobile [5] in favor of its new webOS platform. Palm had previously made Treo and Centro smartphones with Windows Mobile and Palm OS software, and its support of Windows Mobile represented a notch in Microsoft's cap.
• Motorola is betting the farm on Android, a decision notable in light of the company's heavy reliance on Windows Mobile for its previous smartphone efforts (think the Moto Q). The message from Motorola's leadership is clear: Windows Mobile can't turn us around. (I realize that Motorola is still technically a Windows Mobile user [6], but based on the company's massive Android push I think it's safe to remove the company from the Windows Mobile column for the time being.)
• HTC--Microsoft's first and largest Windows Mobile licensee--continues to pour energy into Android at the expense of Windows Mobile. "CCS Insight predicts that sales of HTC Android devices could outnumber those of its Windows Mobile products in 2010," the firm said. "This is undoubtedly a worrying prospect for Microsoft given its current reliance on HTC as its biggest licensee."
• Sony Ericsson's latest smartphone, the Xperia X2, sports Windows Mobile, though the company also supports Symbian products and has stated its intent to build Android devices [7]. CCS Insight predicts Sony Ericsson's new management will abandon Windows Mobile in favor of platforms it has more control over, like Android. A Sony Ericsson spokesman however reiterated the company's support for Windows Mobile, and declined to speculate about Sony Ericsson's future platform plans.
• LG, the world's third largest cell phone maker and a latecomer to the smartphone game, recently promised to produce 50 Windows Mobile phones. However, the company also recently announced its first Android device [8]. "Microsoft may have offered LG preferential licensing terms in order to offset weakening commitment from HTC," posited CCS Insight.
• As for Samsung, the world's second largest handset maker, it remains a Windows Mobile licensee, though it too has worked with Android lately and has dabbled in Symbian as well.

Interestingly, perhaps the newest and largest Windows licensee is Microsoft's longtime rival in the smartphone space: Nokia. Nokia's new "Booklet 3G [9]" netbook runs the desktop version of Windows, a reflection of Nokia's relaxation on all things Symbian as well as Microsoft's assumed dominance of the netbook market.

So why is Microsoft, the world's best-known software company, suffering defections in a market widely acknowledged as the future gateway to the Internet for a majority of the world's denizens? I think there are two contributing factors:

First, Apple's iPhone. The device has lit up the mobile sector like nothing before, mainly by highlighting the shortcomings of other smartphones in the market, including those running Windows Mobile.

Second, it's hard to compete with free. Symbian, and more notably Android, are both free for companies to use and modify, while Windows Mobile continues to carry a per-unit licensing cost and stipulations on alterations (in order to ensure application support). What's interesting is that one of the clearest threats to Windows Mobile--Android--was created by the company (Google) that is most directly threatening Microsoft's efforts in the Internet space; wireless is just one of the many fronts in the escalating war between Google and Microsoft for control of computer users. Google Docs is the alternative to Microsoft Office, Gmail the answer to Exchange, and Google is even cooking up competition to Windows with its recently announced Chrome operating system [10] (initially targeting netbooks, of course).

To be sure, it would take dramatic marketplace upheavals to unseat Microsoft from any of these sectors. After all, today Windows Mobile runs on more than 200 phones manufactured by 56 different device makers (including four of the top five) that are sold by more than 160 mobile operators (from AT&T Mobility to Vodafone) worldwide. Nonetheless, there are clearly reasons for Microsoft to be concerned.

Thus, the stage is set for the release of Microsoft's Windows Mobile 7 next year, a move the company surely hopes will boost its flagging fortunes in wireless. Will it be enough? "By the time Windows Mobile 7 is available ... Microsoft's licensing terms may have already irrevocably damaged Windows Mobile's long-term future," according to CCS Insight. But as with anything Microsoft, it's not over until the company says it's over. --Mike [11]