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Why is Microsoft dancing with Danger?

Behind Redmond's other big bet

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Analysis The world may have missed it in the fuss over the Yahoo! bid, but last week Microsoft announced it had agreed to acquire Danger Inc, for a reported $500m. The purchase is indicative of Microsoft's aspirations as a provider of back-end services to the mobile industry, and could point to a new model for the future of Windows Mobile.

Since the ridiculed first few versions, Windows Mobile has shaped up to be a reasonable operating system. Massive support for developers has led to a healthy market in third-party software, and the platform is starting to make inroads into the mid-range handsets so appealing to the smartphone crowd.

But then came the iPhone, and Microsoft found itself dropping into third place in the USA, behind RIM and Apple. According to analysis from Canalys their worldwide share of the smartphone market during 2007 was 12 per cent, putting them in second place, but Apple managed a respectable seven per cent despite only being launched in a few markets (though both pale beside Symbian's 65 per cent).

Even more important is the way in which Apple goes beyond selling people handsets; it maintains an exclusive relationship (through iTunes) via which it sells products and services, while further locking the customer into the brand. Even Nokia can see the value in that, and is trying to do the same through its Ovi portal - though it can't get exclusivity without pissing off the network operators who still pay for most of the Nokia handsets.

Microsoft would like to be in that market too, providing after-sales services including software and media content, as well as optimised services and device management. The new Windows Live Mobile Developers Program demonstrates how Microsoft sees itself moving away from the client and into the background, while recent handsets from Sony Ericsson demonstrate Microsoft's acceptance that the Windows Mobile UI is preventing many people buying Windows Mobile.

According to the Opinion Research Corporation (pdf) over a fifth of smartphones bought in the USA (excluding the iPhone and BlackBerry) are returned, with the most common complaint being the customer's inability to use the thing.

Some have suggested that Microsoft's purchase of Danger indicates the imminent launch of a Zune phone, but that seems unlikely when the Zune service is more likely to migrate to a PlayReady platform, and thus become available on a range of devices including those from Microsoft.

The Danger Connection

Danger Inc is best known for the SideKick range of devices, the most recent of which is designed and manufactured by Motorola. These devices feature an interface many find intuitive, as well as some innovative hardware designs. But Danger also maintains a relationship with its customers - all mail and messaging is routed through centralised servers. Even web browsing is done through Danger's proxies which optimise the content to suit the device - not to mention having the potential to control which sites the user is allowed to visit.

Part of the purchase of Danger is no doubt to bolster Microsoft's back-end services. We can expect to see hosted email aggregation as well as hosted messaging aggregation and email push solutions, all coming from rebranded Danger servers and sold to consumers.

Some form of network backup - perhaps integrated with Microsoft Spaces - would seem likely too, offering simple, idiot-proof services that ordinary punters can understand and use, and will (eventually) be available for any Windows Mobile device.

Meanwhile, the interface experts at Danger will find themselves creating shell interfaces for Windows Mobile devices; either working with manufacturers to customise the interface (as Sony Ericsson has done), or creating a new, pluggable, look and feel that Microsoft can supply as an option to device manufacturers who don't want to create their own consumer-friendly interface.

So Windows Mobile will become a much less visible OS, with the manufacturer (or operator) providing the on-device branding, and users able to access and use the vast majority of applications without recourse to the Start Menu.

There is precedent here - back in the days of Windows 3.1 a plethora of shell interfaces could make the Windows experience marginally less painful, and for a while every PC manufacturer had their own graphical layer running on top of Windows. Over time those all vanished, a process which Microsoft no doubt eventually hopes to see repeated on Windows Mobile.

As for the Java-based Danger OS and the Sidekick devices, they are unlikely to survive assimilation and will have to find space beside the Newtons, One Per Desks, and Java Stations as good ideas that just couldn't compete. ®

The smart choice: opportunity from uncertainty

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