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Microsoft’s Windows Mobile had mixed fortunes last week, losing its top executive, but gaining a Samsung handset launch and strong predictions from Gartner Group. But while Gartner talked about OS features, what Microsoft really needs is to get its phones on to the A list at major operators - something that still seems far away.

Vodafone will be critical, and it flexed its muscles in the phone market again last week, increasing its estrangement from Nokia with plans to rely on Asian manufacturers for its 3G launch. Such politics make Gartner Group’s assessment of Windows versus Symbian look as if it has missed the point. It argues that Microsoft will succeed in the market in the way that it always does – with a couple of poor early releases, but a strong product on version 3.0 – while Symbian, it says, it hampered by its committee status from improving its OS rapidly.

This ignores the politics and the particular decision-making process of the mobile phone industry, which is very different from that of Microsoft’s traditional Windows markets. The launch of Samsung’s first Windows Mobile handset, the SCH-i600, which is being offered by Verizon Wireless, is marketed on these traditional Microsoft terms, as offering a familiar PC-style interface and good synchronization with PCs. Valuable in some enterprise situations, but hardly an argument to win over the mass consumer market, which moved on from PC interfaces long ago.

There is no sign that the SCH-i600 will be one of Verizon’s primary offerings, but rather a niche handset to boost the US carrier’s enterprise ambitions. It is a good move for Windows Mobile, but hardly decisive. A closer relationship with Samsung, which has been ambivalent about the Microsoft OS in recent months, would be highly valuable however, given that many operators are now looking to the Japanese and Korean vendors to lead the way in handset design.

Vodafone sources told the UK’s Sunday Telegraph that Nokia’s current 3G devices do not meet its requirements and it is looking to Japanese vendors. Vodafone, like other European operators, has cited lack of suitable handsets as one reason for the delay in roll-out of W-CDMA services, and the operator turned to Sharp for its first Live! handset. It has indicated in the past that it will spearhead its 3G launch with Samsung and Sanyo phones.

How much this is down to technical considerations and how much is politics is unclear. The Japanese vendors are well known for their innovativeness, but Vodafone is equally well known for wanting to reduce its dependence on Nokia and work with vendors over which it has greater control.

Vodafone wants to emulate Japan’s NTT DoCoMo and create a brand not just for its carrier service but for its whole user experience, closing down the operating system, heavily customizing the handsets and applications, influencing the future developments in cellphones and operating systems. In short, a range of influence that no carrier outside Japan has dreamed of before, but which is now the goal of all the international majors. A happy by-product for Vodafone and the other operators would be to reduce dependence on the big handset makers, which have always held the upper hand in the relationship. This has led to the rise of the white label phone makers, which manufacture operator-branded devices to the carrier’s specifications.

There are several problems in achieving this dream. One is that the handset makers currently have stronger brands than the operators, at least in Europe – well over half of the customers of the Carphone Warehouse retail chain specify a Nokia phone, regardless of whether it has the most advanced features, and Nokia, in particular, is throwing as many dollars and brains as Vodafone at enhancing this asset and transforming itself into a consumer electronics brand à la Sony.

This is why, although Vodafone may score points over Nokia through closer ties with Sharp, Sanyo and Samsung, it is in no position to ignore the Finnish giant altogether. The second problem is that, if operators turn to white label manufacturers directly, they will find companies that almost certainly lag the market in terms of innovation and technological expertise. These companies’ skills lie in efficient manufacturing, leaving the burden of design and engineering with the customer.

A handset customer will provide this with no problem – and most cellphone makers outsource at least some of their production – but operators have no track record in these areas. So while smaller carriers may turn to the ODMs (original design manufacturers), you won’t catch Vodafone doing that for any critical models. Instead, it has lighted on handset makers that have significant design capabilities, but are sufficiently weak in market share terms against Nokia to be prepared to submit to the wishes of the world’s largest mobile operator, sacrificing their own brand for snatching some business from the Finns.

The Asian manufacturers are particularly susceptible as, in Japan, the operators tend to specify designs, while in Europe the phonemakers design the models first and then offer them to the networks. The third problem for the operators seeking to bypass the handset maker is that they have no experience of or talent for selling mass market goods. They are service providers and have no reason to be excellent at the mundane but critical factors that make a phonemaker successful – inventory control, channel management, supply chain integration.

So the best route is the one that Vodafone has the clout to take – taking the upper hand in a relationship with a handset maker that is expert at all these things. This may be a challenge for Nokia, but it is certainly no comfort to Microsoft either. Although it has tied up with Vodafone on mobile web services recently, this is a partnership, once again, targeted at the enterprise, not the mainstream. On other occasions, Vodafone has said it will not adopt a Windows Mobile phone. If it wants to wriggle out of the stranglehold of Nokia, it certainly will not want to become reliant on Microsoft.

The smartphone market will be all about user interfaces such as Series 60/90 for Symbian and the interface for Vodafone’s own Live!. In this market, the benefits of the PC-style interface will not cut the mustard. Note: Juha Christensen, founder of Microsoft’s Mobile division, has resigned to set up his own company in Silicon Valley, apparently concerned with mobile web services. The Dane’s move to Microsoft in 1999 was seen as a great coup, since he had previously led operating systems development at Symbian.

© Copyright 2003 Wireless Watch

Wireless Watch is published by Rethink Research, a London-based IT publishing and consulting firm. This weekly newsletter delivers in-depth analysis and market research of mobile and wireless for business. Subscription details are here.

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