Original URL: http://www.theregister.co.uk/2011/05/08/microsoft_adds_rim_to_its_anti_google_axis/

Microsoft adds RIM to its anti-Google axis

Both RIM and MS need to cut cords with their mobile OS and soar into cloud

By Wireless Watch

Posted in Mobile, 8th May 2011 08:00 GMT

When Microsoft first burst on the mobile scene with the original Windows Mobile, its strategy was to work around the Symbian brigade by getting close to operators, via mainly white label phone-makers. Hence the rise and rise of HTC, on the back of huge market share in an OS that interested very few rivals, plus the special attentions of its patron. With WP7, the stakes are higher and Microsoft has one final chance to prove itself.

HTC remains the Windows leader but is seeing Android as a bigger growth driver, and the future influence of operator/ODM brands is questionable.

So the old strategies will not work, but as Google has learned from the Microsoft/HTC experience, a couple of co-dependent adopted children are a good way to seed a platform. This time around, though, an obscure Taiwanese supplier won't cut it – instead Microsoft is courting the giants. The Android lovers like HTC, Samsung and LG may be supporting WP7, but the inner circle consists of those with a reason to hate the Google OS – first the Nokia alliance, now a growing closeness to RIM.

RIM and Microsoft ally on web services

With its BlackBerry World conference overshadowed by a profit warning and doubts over the prospects for its flagship Bold and PlayBook lines, RIM looked like the weak pack member, ripe to be picked off by Microsoft as a vehicle to boost WP7's reach and credibility – and perhaps more importantly, to bolster Microsoft's platform for mobile web and cloud services. After all, the Windows giant is more than a device software player. Failure in the smartphone/tablet sector would be humiliating, but arguably not bad for the future strategy of the firm. Microsoft needs to cut the umbilical cord with Windows and go multi-OS, and the stronger its cloud server offering and its all-screen web services, the more irrelevant it can make the client OS.

So the Nokia deal is as much about getting the firm's crown jewel – Navteq mapping and location – into Microsoft's web arsenal as about giving WP7 a key cheerleader. And the new RIM alliance, announced by Microsoft CEO Steve Ballmer in a surprise appearance at BlackBerry World, is not about WP7 at all (at least initially) but about tying the host of loyal BlackBerry users into the Microsoft cloud, and its web offerings.

The first step is to make Microsoft Bing the default search engine for RIM products, though Ballmer's tone made it clear there would be more to come. When he said Microsoft planned to "invest uniquely" in BlackBerry services, it was a virtually uncoded signal that the partnership would develop rapidly, leading to joint cloud services and even, perhaps, RIM supporting WP7 as an overlay in some scenarios, as it will support Android. It also revived a favorite old rumour, that Microsoft could actually buy RIM – especially if further profit warnings dent its usually untouchable stock – acquiring the BlackBerry base and software for its mobile cloud, in a larger version of its purchase of Danger for the Sidekick user interface and social apps.

For now, the goal is to strengthen Bing as the spearhead of Microsoft's overall web attack on Google. The deal will see Bing search and maps (which will soon incorporate Nokia Navteq) into BlackBerry phones at operating system level. The Microsoft CEO added that the new offerings would appear by the end of this year and said: "This goes way beyond a search box."

BlackBerry has a large and loyal base now, especially in the enterprise, and Microsoft clearly wants to tap into that, regardless of its own WP7 push. It said RIM technologies would be integrated deeply into Microsoft cloud offerings, which are increasingly focusing on clients running multiple OSs rather than clinging to a Windows-only past. In February, RIM announced an alliance with Microsoft to tap into corporate clients' increasing use of cloud data services, and from the second half of 2011, cloud services will be an important part of WP7 enhancements, with a Windows Live SkyDrive promised for sharing and storing Office and other documents.

Bing is one of the rare areas where Microsoft has scored significant mobile points against Google, though the latter still boasts a 97 per cent share of the US search revenue market. Bing is already the default search engine for some Verizon Wireless phones, including the Android Samsung Fascinate and several BlackBerry models. However, it has miniscule market share so far against Google and needs more creative partnerships to generate meaningful revenues. In Microsoft's Q1 results, the Online Services Division – which houses the Bing search engine and MSN – was heavily disappointing, despite a 14 per cent rise in revenue, with an increased loss of $726m. This highlighted the desperate need for Microsoft to up its game in web/cloud services, an area where there is – as Amazon has already shown – a genuine opportunity to defeat Apple, which has been slow to move.

Apple beats Microsoft on profits

And the RIM alliance is, of course, about Apple as well as Google. Indeed, the Mac maker was the darkest shadow over Microsoft's solid figures, because the latter's $5.23bn profit figure fell behind Apple's $6bn, the first time it had earned less than Apple since 1991 (though the Windows maker retains far higher margins). Apple epitomises the Windows giant's problems in two ways – its slow progress in mobile, compared to that of the iPhone; and the possible erosion of the traditional Windows PC by tablets, where Microsoft has yet to play a convincing hand. The firm was hit by slowing PC sales, blaming a shift to cheaper laptops and netbooks running cheaper versions of Windows.

But some analysts could already see the tablet being a factor too, particularly consumers choosing an iPad over a notebook upgrade. "You have to live underneath a rock not to know that the iPad has taken share from the netbook," Pat Becker, principal of Becker Capital Management, told Bloomberg. "It's a problem on the consumer side, and that's a market where Microsoft continues to give up territory to Apple."

In fact, the Entertainment and Devices division, which houses Windows Phone 7, was the brightest spot in the results, with operating income up 50 per cent year-on-year to $225m and revenue up 60 per cent to $1.9bn. However, the star performer was not the new mobile OS, but the Xbox games platform, currently Microsoft's most important revenue driver. Its other key strength, Office, was more grounded in past patterns, and therefore may be more vulnerable going forward.

Overall, Microsoft reported revenue up 13 per cent year-on-year to $16.43bn and profit up 31 per cent to $5.23bn, both ahead of Wall Street forecasts despite the much headlined Apple comparison. PC slow-down saw the Windows division falling back by 4 per cent in revenue terms, even though Windows 7 sold 350m licences in 18 months. Office delivered a 21 per cent revenue boost for the Business Division, which overtook Windows as the top profit generator among the five business units. It had $3.2bn in operating income on revenue of $5.3bn.

RIM's new direction

For RIM's part, getting closer to Microsoft – and possibly, by association, another old frenemy Nokia – is both a humiliation, for a firm that has insisted it could thrive purely on its own merits, and a strong opportunity. It has seemed clear for a decade that RIM would eventually need to fall back on its BlackBerry back-end services and famous messaging technologies (newly relevant in the era of non-stop social networking), and abandon its own device platform and brand. Against all odds, that day has not arrived, and is unlikely to in the immediate future.

But once RIM acknowledged that BlackBerry OS was exhausted as a modern mobile system for the web world, by adopting a whole new system for the tablet, the die was cast. It then acknowledged this would have too high a mountain to climb as a new entrant, by supporting Android apps. BlackBerry will become a niche player like Palm did, and the firm needs to recast its role, as HP is doing with webOS, to tap into a multivendor cloud era. Here is has chances to outwit Apple, whose isolationism will cause problems in the cloud, and whose need to control its platform from head to toe will limit its freedom of action. Apple will make a huge impact, of course, but here is a better place for Microsoft/Nokia/RIM to attack than on the iPhone.

RIM was once in Apple's position of being able to spurn friends, and maintained equally obsessive control of its platform and its primary relationship with the end user. Every email went though its data centres (a policy that is now biting it in security-sensitive countries such as India) and its crown jewel was the licensing of BlackBerry Enterprise Server (BES). The core push email and enterprise services remained locked tightly away in the BlackBerry, with brief flirtations with more open policies largely fizzling out.

The new world in which RIM operates was epitomised by one announcement at BlackBerry World. Not the Bing deal, which was unsurprising given that RIM has never got to grips with its own apps and web services (one of its problems). No, the opening up of BES, first signalled at Mobile World Congress in February, which will extend the BlackBerry's core device management, provisioning and push synchronisation technology to iPhones, iPads and Android.

On the PlayBook, RIM is showing its new open credentials, even while making a last-ditch attempt to preserve its device brand. It knows it will not amass a huge native developer community, but it will support Adobe AIR, Android, and porting solutions including the Unity Game Engine. This will dilute RIM's visibility to consumers and programmers, but keep the all-important BlackBerry services intact by ensuring the PlayBook and BlackBerry are still viable devices with plenty of software.

RIM is finally doing what has seemed inevitable for years, relying on its services rather than its devices – and in a wholehearted way rather than through the half-baked approach of BlackBerry Connect. It is accepting that enterprises with large investments in BES now want their employees to carry iPhones.

This is a lesson Microsoft needs to learn too. It must acknowledge that, slowly but surely, enterprise workers and consumers will carry phones and tablets, not PCs, and those will frequently not be running Windows. That does not stop Microsoft from controlling the back-end services, whether directly in the enterprise or in the cloud. Ballmer's desperate clinging to the front-to-back Windows dream must end quickly, and the RIM announcements suggest that it finally has.

Copyright © 2011, Wireless Watch

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