Over the past several months, as the battle for the future of the mobile marketplace has heated up, much of the conversation has focused on Apple and Google, while less attention has been paid to the other two giants in this area – Microsoft and Nokia.

In this article, we’ll look at some of the recent moves by Microsoft related to mobile and mobile advertising to see what may be in store for this high profile company.

They have a long track record of success in technology businesses and big ambitions in the mobile area, but given their recent missteps in mobile, time may be running out.

Overall, the past year has been a good period for Microsoft. In their basic line of business, PC operating systems, the new Windows 7 OS seems to be gaining popularity. In the area of online search, their revamped search product Bing and partnership with Yahoo! is emerging as an alternative to Google. In fact, Microsoft just recently reported record revenues and net profits for the 2010 fiscal year of $62 billion and $18 billion respectively.

But there is one noticeable dark cloud in an otherwise sunny outlook for Microsoft: Mobile.

Despite pouring significant resources into mobile, Microsoft has not yet managed to come out with a mobile product or platform that catches the imagination and support of consumers and developers. Over time, as the number of mobile users continues to greatly outpace the number of PCs, and as mobile takes over more of the world’s communications, connectivity, and internet access, this could become a major problem for the company.

Windows Mobile gives way to Windows Phone 7

Windows Mobile launched several years ago, but never became a truly mainstream mobile OS. Over the past 3 years, Windows Mobile has been overtaken in the market by RIM, Apple’s iPhone, and most recently by Google’s Android.

Today, according to the latest Mobile Metrics report from AdMob, Windows Mobile represents only about 2% of the smart phone ad requests that they see on their network. The AdMob chart below also indicates that Windows Mobile users are less active on their phones then, for example, Android or iPhone users. This may be due to a wider variety of apps that are available for the iPhone or Android platforms, or perhaps due to the ease of use and user interfaces of the OS themselves.

Clearly Microsoft understands the weak position of Windows Mobile, and at the Mobile World Congress in Barcelona this year they announced a successor product. Windows Phone 7 is a completely new mobile operating system, much more graphically focused, easier to navigate. It was intended to help users aggregate and manage information from multiple sources, and initial reviews have been basically quite positive. (see Engadget’s Windows Phone 7 in-depth preview).

However, one big problem remains – timing. Windows Phone 7 is not scheduled to appear in handsets before October or November 2010 at the earliest. Based on past experience, it is likely to take at least a year beyond this before everything is in place for consumer demand for the platform to really take hold. (As an example, the first Android handset appeared in September 2008, but it wasn’t until the holiday season December 2009 that a reasonable variety of handsets and applications became available making the platform much more attractive).

This means that the currently most popular mobile platforms such as iPhone and Android will have another 14 to 18 months to continue to build on their lead over Microsoft. At a recent Worldwide Partner Conference, Microsoft CEO Steve Ballmer acknowledged that the company had missed the boat, saying “On the phone side we missed a generation with Windows Mobile.”

Kin: The end of Microsoft branded handsets?

Both of Microsoft’s major competitors in the mobile arena have produced mobile handsets as part of their overall strategy.

In the case of Apple, the iPhone, the iPod Touch, and the iPad all share the same operating system, and can in general run the same applications. This results in a larger installed base which is attractive for developers. These products have all been hugely successful and a big financial contributor for Apple.

At Google the situation is quite different. They launched the Nexus One Android phone in early 2010, reportedly in order to jumpstart the Android platform as well as revolutionize how mobile phones were sold.

Now, about 6 months later, the Nexus One represents only about 2% of the overall Android installed base and Google is quietly stopping the product. However, given the vibrancy and growth rate of the Android market, Google Chairman & CEO Eric Schmidt believes that the product successfully achieved its objectives. In an interview in the Telegraph, Schmidt commented about the Nexus One: “It was so successful, we didn’t have to do a second one. We would view that as positive but people criticized us heavily for that.”

Unfortunately for Microsoft, they have not been able to replicate the handset success of either Apple or Google.

In May 2010, Microsoft released the Kin One and Kin Two phones on the Verizon network in the US. These phones were particularly aimed at the youth market by focusing on functions such as texting, status updates, and video. To a large degree, these phones were the follow-on from Microsoft’s acquisition two years previously of Danger – the maker of Sidekick, a handset very popular with the US youth market.

Unfortunately for Microsoft, in the time between the Danger acquisition and the Kin launch, consumer expectations had greatly moved on. Thanks to the iPhone and Android platforms, consumers had learned how interesting and engaging a full smartphone platform could be, with great web access and thousands of creative to choose from.

And these were features that the Kin could not offer. As a result, the Kin had very limited appeal, and just 7 weeks after launch, Microsoft killed the product. Today the final units are being offered for sale on Amazon for $0.01. In the future, it looks as though Microsoft will have to rely solely on handsets produced by other companies such as as HTC, LG, Samsung, and Dell.

While any major tech company is bound to launch a product which misses the market every once in awhile, a “miss” of this magnitude seems to indicate that Microsoft is still having a hard time understanding the mobile market and building a compelling product strategy.

Windows phone 7: Developer love, Monetization, & Mobile Ads

Given Microsoft’s current position and history in mobile, many people believe that Windows Phone 7 (WinPho7 for short) is the company’s last real chance to be a major competitor in this market. Microsoft has a long history of persistently pursuing their objectives, and has often been able to slowly wear their competitors down while improving their own products. In this case however, with the likes of Google and Apple as competitors, this strategy is unlikely to work.

When WinPho7 finally arrives, one of the biggest factors determining its success – or lack of success – will be its attractiveness to developers. Developer interest leads to more interesting applications, and this of course leads to more customers. Attracting new developers will be especially important for WinPho7, as the old Windows Mobile apps will not work on the new platform.

There are quite a few things that influence the level of developer interest in a platform, but clearly one of the most important is the ability to monetize an application. This in turn depends greatly on a couple of key factors:

• Installed base: Whether the application is distributed free or for a fee, having a large base of consumers on a platform gives the developer more opportunities to make money.

  Unfortunately for Microsoft, it will take quite a long time for WinPho7 to build up a significantly large user base. Android, iPhone, and Symbian are already well established, and other new platforms have already launched in the market (e.g. webOS from HP-Palm and Nokia’s MeeGo).

  We suspect that in the early days, Microsoft will need to pay developers to bring their applications to WinPho7 as there won’t be sufficient pull for them to make the commitment themselves.

• Mobile Advertising: Advertising is likely to be one of the primary sources of revenue from applications, and as such the ability for a mobile platform to support great advertising may be one of the key factors for its success. This certainly seems to be a focus for both Apple and Google who have both been spending a lot of time and energy in the area.

Microsoft was one of the first of the big PC/internet companies to get involved with mobile advertising, acquiring mobile ad network ScreenTonic in May, 2007. They have acquired a number of other advertising related companies – including aQuantive, AdECN, Rapt, and YaData – and have rolled them together into a division called Microsoft Advertising. So it is clear that the company sees the long term importance of being a part of the advertising value chain, although much of this activity has been in the online advertising area.

So one of the big questions that is now surrounding WinPho7 is how well it will support monetization through advertising.

Tiles, Apps, and Toast

To date there has not been much information released about advertising in WinPho7, but recently at the Cannes Lions conference in France Microsoft’s GM for Strategy and Business Development – Corporate R&D, Kostas Mallios gave a presentation intended to shed some light on this question.

In the presentation, Kostas showed off the three key advertising related features of Windows Phone 7, and said that he expects the product to be “an ad serving machine that marketers will love”!

Overall we’re not convinced that these features will provide the competitive differentiation the Microsoft needs to succeed in this market. Here is some information about the 3 key features as explained by Kostas, and you can view the presentation itself down below.

• Apps: Of course the new OS will run apps, but Kostas explained that the Microsoft difference will be that the download of apps will be more seamless for consumers, and will better preserve the brand experience.

  Although the App Store for WinPho7 was not running yet so there was no actual demonstration, he explained that when a consumer is browsing a brand’s mobile site and finds an app they want to download, the download will happen directly without the need to go first to any app store, thus providing a better, more consistently branded experience.



• Tiles: These appear to be similar to application icons, but they have an additional feature which makes them relevant to advertising.

  According to Kostas they are actually “dynamic tiles that you can push information to as an advertiser to stay in touch with your customer.” Basically, after an app has been downloaded, if the customer decides to “pin” the application to their homescreen, then the brand can dynamically send messages which will appear on the tile.

• Toast The third means of communication with a consumer is through a technology called “Toast.”

  This is useful when the downloaded application is not running and the consumer has not set up his tile to be dynamic. In this situation, the advertiser is still able to push an advertising message to the consumer, but it appears above the array of tiles instead of within a tile.

Here is the presentation itself.

While all 3 of these features look interesting, they seem to be primarily focused on allowing advertisers to “push” information at consumers, rather than enabling advertisers to engage or entertain or be useful for consumers.

By comparison, Apple’s iAd system is all about trying to provide a seamless, rich, engaging experience (see MobiAD article on iAd), while Google is working on ways to improve mobile search, fully integrate location, and add technologies such as image recognition (see Google Goggles).

Given what we’ve seen from other mobile advertising platforms, it is hard to see at this stage how the WinPho7 features recently announced will provide the necessary competitive advantages to let Microsoft win the mobile advertising battle.

What does the future hold?

It is clear that Microsoft is still willing to invest significantly into their mobile business, and as Microsoft remains a very strong company with enormous resources, they can never be completely counted out of any market.

However, it seems that time maybe be quickly running out for the company: their main competitors are each rapidly building a base of users and developers which is very large and very enthusiastic. In addition, there is already an incredibly wide range of compelling applications available on each of the other platforms.

Windows Phone 7 maybe Microsoft’s last real shot at being a presence in the mobile market. However, to overcome the disadvantage of no-installed base, they will have to come up with some incredible features to excite developers and consumers alike. Although Windows Phone 7 is clearly a much improved mobile platform, from what we’ve seen so far, it doesn’t seem to be the “game-changer” that Microsoft needs to become a top competitor in the emerging mobile market.