Microsoft has spent more than eight years and millions of dollars developing both its Windows Mobile smartphone technology and an enterprise marketplace for it.
Despite that hefty investment, the company says it is now poised to push into consumer markets -- but not using Windows Mobile.
Instead, it plans to turn to Danger, Inc., a vendor of consumer smartphone software. Microsoft said Monday it would acquire the privately held firm for an undisclosed sum.
Since its founding in 2000, Palo Alto, Calif.-based Danger has established a platform, a reputation and an audience for its popular consumer handset technologies -- embodied in the Sidekick, a phone sold by wireless carrier T-Mobile, built by Motorola and powered by Danger's systems and applications software.
Now, Microsoft has decided that Danger is a must-have purchase if it wants to speed up its quest to become a heavy-hitter in the high-volume, less-expensive realm of consumer smartphones and their accompanying services.
"We're broadening our customer base, trying to nail the business requirements [for enterprise customers] and we also know we need to address the consumer space," Scott Rockfeld, group product manager with Microsoft's mobile communications group, told InternetNews.com.
Long road ahead for Microsoft
The announcement comes on the heels of a report last week by analysis firm Canalys that put Windows Mobile-powered phones in a distant second place globally for 2007.
The report found Windows Mobile held 13 percent of the market, far behind Symbian OS devices, at 67 percent.
On top of that, in the higher-end smartphone and "converged devices" category, Microsoft actually came in behind Apple's iPhone during the fourth calendar quarter of 2007, the report states.
Canalys' figures nearly match numbers from analysis firm Gartner, which found Symbian held a 62 percent share during third quarter, while Windows Mobile had only 12.7 percent.
In what might help Microsoft gain a greater foothold in the market, Danger is primarily a software and services company. As a result, it could fit tightly into both Microsoft's emerging software-plus-services initiative, while boosting its consumer-focused mobile device strategy.
It's unclear how the deal with T-Mobile and the Sidekick itself will figure into Microsoft's plans. Part of that may also be contingent on whether Motorola spins off its mobile phone business -- a move it's considering.
For now, however, Microsoft plans to continue the T-Mobile deal.
"We have no plans to change those relationships, but what we do want to do in the future is take those consumer assets and combine them with the enterprise apps and provide a unified device -- one phone for your entire life," Rockfeld said.
Microsoft has made significant headway in recent years with Windows Mobile, carving out a niche in the smartphone marketplace, even out maneuvering established rivals in what has primarily become a market for high-end phones with enterprise applications such as corporate e-mail.
In that regard, the company has done well recently. For example, Gartner puts Research in Motion's Blackberry -- a popular device with business users -- at 10 percent share for the third quarter of 2007. (Canalys lists a similar figure for the entire year.)
However, due to the relative expense of the devices and the services, as well as Microsoft's focus on enterprise customers, the company has been largely stymied in marketing Windows Mobile devices to consumers so far.
That may change with the purchase of Danger.
"If you're Microsoft and you have a big pot of money, you can start investing in some alternative systems," Roger Kay, president of consultancy Endpoint Technologies, told InternetNews.com. "Buying their way into consumer electronics is an interesting play for them."
That's in contrast to other Microsoft consumer electronics ventures, such as the Xbox game consoles and Zune music players. In both cases, the company developed and built the devices itself, while also writing the software.
Meanwhile, the Danger acquisition signifies a willingness for Microsoft to buy its way into the consumer mobile handset software market, jumpstarting its efforts with an already-established player.
"One of the big things is Danger brings an immense knowledge of young consumers [to the table]," Rockfeld said.
Among the capabilities that Danger's software and services provide are instant messaging, e-mail, Web browsing, social networking and personal information management -- all in a consumer-friendly device, he said.
"We realize that we need to capture consumers' hearts and minds," he added.
Additionally, Microsoft recently moved to beef up its executive ranks to strengthen its push into the consumer phone market. Among other changes, Microsoft in late January hired Todd Peters, a former Staples exec to serve as vice president of marketing for Microsoft's mobile communications business.
While at Staples, Peters championed the office supply firm's "easy button" marketing campaign.
Danger will be integrated into Microsoft's Entertainment and Devices Division, headed by division president Robbie Bach, who Peters reports to, according to a Microsoft statement.
Alongside those changes, Microsoft also is setting aggressive sales targets for itself, even within the coming months. Rockfeld said the company expects to have sold 20 million new Windows Mobile-based phones during its current fiscal year, which ends June 30 -- an increase from 11 million a year earlier.
The Google factor
Perhaps more than a little ironically, one of the original co-founders of Danger, Andrew Rubin, sold his latest startup, Android, to Google in 2005.
These days, Google and Rubin are behind the Open Handset Alliance. The group has adopted Android technology as its integrated, open source mobile operating system stack -- a threat to Windows Mobile, and possibly to Danger, in the future.
Google has yet to signal that it plans to mount a challenge to the Danger acquisition on antitrust grounds -- as it has Microsoft's separate purchase offer for Yahoo. Even if it doesn't contest the Danger bid, Google's growing clout in mobile and the burgeoning interest in Android may spell trouble ahead for any competing offering.
Additionally, another fact about the Danger acquisition might make Microsoft swallow hard as it gobbles up the company: the smaller firm's software is built on Java -- anathema to Microsoft.
Despite assertions that longer-term, Microsoft is looking to create a unified offering, how Microsoft will deal with Danger's reliance on Java remains unresolved question.
"Those decisions have not been made yet," Rockfeld said.
Details of the Danger sale were not disclosed, nor was a timeframe for when the deal will be finalized.
Rockfeld said the proposed acquisition is currently under regulatory review.
This article was first published on InternetNews.com.