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HTC takes a gamble with new brand and OS strategy

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Every time Microsoft scores a point in its tortuous quest to become a major mobile player, it seems to suffer a balancing setback. So while the recently announced updates to Windows Mobile made the OS look far more credible on a small device than it had before, the software giant had to endure its primary handset ally, Taiwan's HTC, make a radical strategy shift that seems to sideline Microsoft.

HTC said last week that it would adopt a new global marketing strategy in which virtually all its products would be HTC-branded. This is dramatic because the company had previously been a flagwaver for the trend for handset makers to minimize or erase their own brands in favor of those of the operator.

The cellcos have been increasingly keen to control the branding balance of power and to dictate design terms to their phone suppliers, an ambition that has been fiercely challenged by the handset majors, especially in Europe, where the manufacturers' names carry most weight.

A few years ago, it seemed that the cellcos were winning the battle. Most of the phonemakers submitted to making dual-branded or even unbranded models, though in most cases Nokia has remained adamant. One of the factors that swung the balance in the operators' favor was the option of turning to white label manufacturers, many in Taiwan, for low cost devices - these might not have the R&D and design innovations of a Nokia or Motorola behind them, but the quality of such products has improved greatly over the past years, and this option was a powerful stick with which Vodafone and the others could beat their handset partners into submission.

In this scenario, HTC was particularly important because it was the primary partner for Microsoft in its bid to make Windows Mobile the dominant smartphone platform. Microsoft was determined to exploit the operators' new strong stance against Nokia et al by enticing them towards Windows, with the promise of highly functional smartphones with no manufacturer brand. And HTC was its main ally. The decision by the Taiwanese company to reverse its largely unbranded strategy, then, reflects two shifts in the market, neither welcome to the Windows giant.

One is that Windows Mobile no longer looks like being a sufficiently strong player to support a whole business model. "We are not strictly a Windows house. We are looking at other operating systems," said HTC, in a far cry from its enthusiasm of five years ago over the Microsoft system.

Despite making gains in the enterprise and becoming a fairly robust and well recognized, if relatively minor, smartphone platform, Windows Mobile will clearly be just an element in the mobile picture, and probably a small one compared to Linux and the growing family of Java-oriented OSs like Symbian/Series 60 or Sun's new developments.

Ironically, it is not helped by Microsoft's own branding issues - as in PCs, it may be indifferent to the hardware maker, but it demands control over the user interface and software look and feel. The more this becomes the key differentiator for the mobile internet device, rather than its casing, the more Microsoft it likely to come into conflict with carriers on this issue, as it previously did when it tried to dictate the look and feel of in-car systems to the auto giants.

The second shift that appears to be influencing HTC is the bounceback of the handset brands. After a period where, even in Europe, they seemed to be subordinating themselves to the operators' marketing, the manufacturers are now on the ascendant again. There are many service providers - some newcomers, rather than old-style cellcos - which are now in urgent need of the phonemakers' assistance to help them evolve the new business models they badly need.

Sprint Nextel's push to create a new breed of devices to drive revenues from its WiMAX network investment is a good example. This means that, while the handset makers are under unprecedented pressure to reduce prices and adopt unified approaches in the mass market, they once again hold the reins in the high margin sectors.

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