Microsoft’s wireless business was barely out of the news during February and March 2002. At the major technology trade fairs 3GSM and Cebit, the US software giant unveiled alliances with Intel, Texas Instruments, Deutsche Telekom and Vodafone.

Those deals were rich in symbolism. But away from the hullabaloo of Cannes and Hanover, two events in February 2002 that carried more resonance for the future of this key technology sector passed virtually unnoticed.

First, Microsoft co-founder Bill Gates headed for Ericsson’s headquarters in the Swedish capital of Stockholm. Back in New York, meanwhile, a team of Microsoft sales people set up a stand, dedicated to an important new piece of carrier software, in a cavernous hall of the lesser-known Internet Wireless World conference.

Ostensibly, Gates visited Sweden to receive an honorary doctorate from Stockholm’s Royal Technical College. But to coincide with the degree awards, Gates arranged a series of meetings with Ericsson executives working on two important wireless technologies: 3G, or the third generation of cellular systems; and Bluetooth, the personal area networking technique.

His mission was as much about peacemaking as it was about dealmaking. Ericsson and Microsoft shelved plans in October 2001 to establish a wireless applications joint venture. Industry sources believe there had been a disagreement about whether wireless applications should be based on proprietary platforms or open standards, although Microsoft and Ericsson deny this. Certainly the two technology giants have been making efforts in recent months to breathe fresh life into their partnership.

After meeting Ericsson, Gates told the college audience: “As soon as the 3G networks are up and running, companies such as Microsoft will be ready with software and will take advantage of the opportunities that arise. I am certain that 3G will be positive for the personal computing industry.”

That may be the case. But will 3G, or wireless generally, be positive for Microsoft? Most industry commentators suspect that in Nokia and Symbian, Microsoft has met its match. Indeed, closer inspection of the respective wireless strategies of Microsoft and Nokia reveals striking similarities between their aggressive attempts to monopolise the key segments of the mobile-software value chain.

For several years now, Microsoft has been desperately seeking partners such as Ericsson – not to mention customers – in the mobile phone industry. It has been trying to drive a wedge between the shareholders of its arch-rival in wireless operating systems (OS), Symbian. But it has gained little ground. Indeed, the level of distrust felt by wireless equipment vendors towards Microsoft should not be underestimated.

And so, as Gates pursued talks with the Swedes, Microsoft prepared to launch plan B: Talk to the vendors, by all means, but step up efforts to target the service providers themselves.

To win the OS race, Microsoft must do business with handset vendors, yet almost all of the major manufacturers are either members or licensees of the Symbian consortium of Psion, Nokia, Ericsson and Motorola. However, there is an alternative strategy open to Microsoft. If it can get enough network operators to support its service delivery platform, then it could still win the OS race.

Its significant new product, unveiled at Internet Wireless World, was the enterprise version of Mobile Information Server, known as MIS 2002. The product, which resides on the edge of a mobile network, handling the interaction between mobile applications and devices, could ultimately prove as significant to the Redmond, Washington company as the all-powerful Windows OS, say analysts.

Importantly, and in keeping with Microsoft’s traditions, MIS 2002 is compatible only with applications written for Microsoft platforms and devices running Microsoft’s Pocket PC series of wireless operating systems. In essence, any wireless carrier licensing MIS – and many carriers are testing the product (see Microsoft v Symbian: The Origins) – is locked in to a Microsoft future, running applications such as Outlook and Excel on Pocket PC-based devices.

Wireless middleware might lack the excitement of, say, the re-emergence of Wintel or an alliance with Vodafone, the world’s biggest mobile operator. But the lack of media scrutiny of this key product is somewhat puzzling.

Most analysis of the mobile-software market has understandably tended to focus on the highly visible battle to control the device OS market between Microsoft, Palm and Symbian (see tables). It has been widely assumed that this sector is the key battleground of the mobile software industry: control the OS and you control the wider ecosystem. That assessment is not entirely untrue. But there are those who believe that the embryonic network middleware sector – made up of providers of the so-called service delivery platform, of which MIS is one – could be just as significant. “That really is the key area today,” says Steve Ives, CEO of UK-based wireless user interface developer 3G Lab.

Thus, Microsoft’s new strategy seems to be to use MIS as a beachhead into the mobile-device sector. Carriers will be motivated to order more Pocket PC-based devices from manufacturers, thereby potentially destroying Symbian’s business case. This would also play into the hands of the handheld computer makers such as Hewlett-Packard (HP), Toshiba and Compaq Computer, which are firmly in the Pocket PC camp.

Meta Group research fellow Wolfgang Martin believes Microsoft might be on to something. But he has some reservations: “MIS only works inside the Microsoft environment – and then only for companies running the latest version of Microsoft Exchange Server. It does not support Palm OS or other non-Microsoft pervasive devices, nor does it support [groupware such as] Lotus Notes, ACT or other non-Microsoft electronic calendar systems. This is a major limitation.”

From the carriers’ perspective, there is a clear downside from welcoming Microsoft into the fold. They risk precipitating the downfall of their in-house mobile portals – mobile Internet sites that aggregate content and commerce services from third parties – and such sites remain arguably their most important long-term business.

For mobile carriers, after all, the ever-present danger is that they will carry traffic valuable only to partners. Thus, by working closer with Microsoft, the operator portals, such as Vodafone’s Vizzavi and MM02’s Genie, risk losing significant market share to Microsoft’s MSN portal. In this scenario, the carriers face losing billions of euros from messaging services and location-based services and being relegated to the lowest position in the mobile-commerce value chain.

MSN is not the only significant threat to the operator portals. Nokia’s fledgling portal strategy, such as it is, indicates that it too might eventually seek to leverage its position in the device-supply market to the detriment of operator portals and independents. Its web-based portal, called Club Nokia, which is predominately used today for downloading games and ring tones to handsets, could be extended to include mobile commerce services and to come pre-installed on the phone’s subscriber identity module (SIM) card. This measure could enable Nokia to gain a bigger share of mobile commerce sales, and represent a further blow to operators.

To partly offset the threat to carriers’ portals, Microsoft is understood to be preparing to give them a fresh incentive to back its MIS-led strategy – one that will appeal particularly to smaller carriers, which are often weighed down with large debts and want to reduce spending on IT and systems integration. “We believe that within the next year Microsoft will bundle MIS into Exchange Server, providing MIS essentially for free and forcing IBM to do the same for Notes users,” says Martin. “This will put great pressure on the third-party vendors who have been providing this functionality.”

Microsoft is by no means having things its own way in the service delivery platform sector, however. Many carriers prefer to work on bespoke ‘solutions’ with their wireless systems integrator partners, such as Logica and CMG; Palm has a rival software product of its own, called i705 enterprise; HP provided the service delivery platform for Japanese operator NTT DoCoMo’s operational 3G network; and the big handset manufacturers, such as Nokia and Ericsson, are also developing such platforms of their own.

The official line from executives at Ericsson is that its Moso-branded product is “complementary” to MIS – despite many analysts regarding the two as rivals. “There is going to be a proliferation of devices out there and the operator can support multiple platforms if it wants to,” says Patrick Kane, Ericsson’s VP for strategic business development of partnering. That sentiment may be political, however, keeping in mind Ericsson’s fresh attempts to court Microsoft.

Many observers, however, believe that debt-laden operators will balk at the idea of integrating a plethora of service delivery platforms, applications and devices. According to this school of thought, most operators want to restrict their IT expenditure and simplify enterprise-based sales and marketing strategies on end-to-end solutions from the fewest possible number of suppliers. If true, this could clearly play to Microsoft’s – and Nokia’s – strengths.

Operating systems
Four years on from the creation of the Symbian joint venture, little, despite much publicity to the contrary, has moved on in the critical wireless OS sector. Microsoft, with its suite of Pocket PC-branded operating systems, is still frozen out of the big manufacturers’ camp and has been left to strike relatively insignificant licensing deals with lower-tier phone makers. It has had more success licensing Pocket PC to handheld computer makers, however.

Microsoft may trail behind Symbian, but many analysts consider that it will ultimately fare better than Palm. The US vendor currently enjoys an unrivalled 80% share of the PDA OS market. But Meta Group’s Martin believes that its best days are behind it. “We believe that Palm is becoming the Apple Computer of PDAs,” he says. “Just as Apple’s early strong position on the desktop faded rapidly, we expect Palm to fade to a minority position in the consumer market and never capture a significant corporate market share.” He says “inadequate” investment in the Palm OS caused the decline.

Symbian seems positioned better than Palm and Microsoft combined. It still seems well placed to win significant licensing fees from sales of advanced GSM and 3G handsets. It charges a one-off payment of either $5 or $10 (€5.71 or €11.42) per handset, depending on the type of device. (Microsoft, in comparison, has never publicly disclosed its licensing fees for Pocket PC – suggesting they are negotiable.) As a point of reference for possible future revenues, by 2005 there will be 191 million phones sold in western Europe, of which the vast majority will be advanced devices, according to researchers at the European IT Observatory. Epoc-based operating systems are likely to be installed in at least 50% of those phones – indicating that Symbian could generate hundreds of millions of euros a year in Europe alone.

The winners
Controlling the OS in the PC sector proved critical to Microsoft’s dramatic success. But will it be as significant in the wireless sector?

“Controlling the [mobile handset] operating system is essential,” argues Julian Hirst, analyst at UBS Warburg, the Swiss investment bank. “Microsoft and Palm will not succeed in getting their applications into the wireless market unless the OS of the handset is compatible.”

Microsoft wants .Net, its programming and web services environment, to power the most “exciting” next-generation mobile developments, such as the ability to get access to and use third-party software for games and entertainment products. “This is why Microsoft is so excited about .Net and is so committed to the success of this strategy,” he says.

Analysts at Nomura agree. “Without Microsoft on board, mobile data is unlikely, in our view, to ever gain widespread acceptance,” the Japanese bank argues in a March 2002 research note. “Sun and the mobile industry might be lined up to a man behind Java, but Microsoft will try to rally the millions of Visual Basic programmers.”

But Microsoft could still use some partnerships within the wireless industry. Those are distinctly thin on the ground at present. So it has recently turned to its few remaining friends in the PC sector. It is extending its long-running ‘Wintel’ alliance with semiconductor giant Intel to develop reference designs for PDAs and smartphones, and at the same time is helping to develop application-rich chipsets for mobile devices with Texas Instruments. But these deals in isolation do not seem likely to persuade the licensees of Symbian or Palm to adopt a Microsoft platform instead.

Far more significant seems to be its MIS-based sales drive. Mobile carriers have endured years of strong-arm negotiating tactics from the likes of Nokia and Ericsson, and may welcome a fresh start with Microsoft and its Pocket PC partners. “Nokia have had things their own way for too long,” says a procurement manager at one European carrier.

Such sentiments will be music to the ears of Steve Ballmer, Microsoft’s ebullient CEO, who is apparently so concerned about developments in the wireless sector that he ordered the company’s mobility group to report directly to him on a regular basis from the start of 2002. Given the company’s various mobile-sector challenges, Ballmer may end up wishing that he had been kept in the dark. But in MIS 2002, at least, his technologists have given his sales people a fighting chance.