Sunday, Oct. 19, 2003
What do you get when you combine Microsoft, the planet's biggest software company, which is desperate to move into the mobile phone industry, with Vodafone, the planet's second biggest mobile operator? Would you guess a) a mobile phone based on a Microsoft operating system, or b) a dongle? When Microsoft boss Bill Gates jetted into Geneva's ITU Telecom World Conference last week, he came up with answer b).
That's right, a dongle. About the size of a small travel alarm clock, the dongle attaches to a desktop PC or a laptop and lets users charge small cyberpurchases to their Vodafone bill. Gates did not deign to use the D word himself a Vodafone lieutenant joined him on stage to show off the nubby thing but raved on about visions of "magic advances of hardware and software" that will "make the mobile experience even better than it is today."
Of course, Gates would love to have announced answer a), and said that Vodafone, with its $48 billion a year in revenues (only China Mobile is bigger), was committing to phones that use a Microsoft operating system something that Redmond has been struggling to get European operators to do. And he would have liked to have added a line about Vodafone deploying Microsoft Network (MSN) Internet services on its phones. But none of that was said.
And so, while analysts were tantalized by the prospect of a direct line between two of the world's most important technology companies and by an announcement by Orange last month that it will sell a Motorola-made Microsoft-based phone they remained perplexed. Has Microsoft finally established a beachhead into the lucrative but elusive European mobile market? Or is the dongle just one more vaporware announcement?
For years, Microsoft has tried to find a new way into the hearts and pocketbooks of European consumers. Of course its computer software is as dominant in Europe as everywhere else. But the company sees untapped gold in the Internet and mobile markets, and to date they've been less than welcoming. Despite widespread promotion, the Internet service MSN has not been wildly popular in Europe (neither has its rival, AOL, which is owned by the company that publishes TIME). Only one major mobile phone operator, Orange, has marketed a phone based on Microsoft software (its new Motorola handset follows an earlier version made by Taiwanese contract manufacturer HTC). And some other deals have gone nowhere or worse (see sidebar on page 2).
Hence the dongle. Microsoft and Vodafone hope the device will spur people to buy things online that cost pennies or a few dollars. These "micropayments" are often too small for credit-card companies to handle efficiently, yet they seem to hold the key to reaching consumers who want to buy a single song or game. Microsoft senior vice president Pieter Knook claims that the emergence of a micropayment infrastructure will unleash a torrent of software development activity that will deliver as yet unimagined programs to the market. This, he says, will transform the mobile-phone industry into one that is software powered. Gates told the Geneva audience that such synergies will "bring [voice and data] together in ways that people eventually will just take for granted."
From the companies' point of view, this is a win-win deal. To Vodafone, the dongle represents an entrée into the fixed-line world, since most PC or laptop users connect through a traditional telecom operator like BT or Deutsche Telekom.
For Microsoft, the dongle is part of a broader push to control how software developers construct their games,
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maps or anything deliverable to a mobile phone that users might want to pay for in small chunks of dosh. The idea is that if all developers abide by a common industry standard say a Microsoft standard then any downloadable product (such as a ring tone) would work over any network on any brand of handset.
Ultimately, these issues are less about technology than they are about billing. Microsoft's Knook envisions a world in which developers of mobile-phone games, music and services abide by Microsoft's blueprint, and tie their offerings into a telecom company's billing system, allowing operators like Vodafone to deliver a neat monthly bill. The project is a radical departure for Microsoft, in that it gets none of the revenues. "We should not be in the middle,'' says Knook. "This is a different approach.''
So what's in it for Microsoft? For starters, it helps the company push its ongoing ".Net" initiative, a major focus of Microsoft's $6.8 billion R and D this year. Dot Net is Microsoft's approach to an industrywide interest in "Web services," in which any application works on any computer through the Internet. With last week's Vodafone announcement, Microsoft hopes to expand ".Net" to the mobile world. Microsoft also hopes to sell a lot more software for back-end "server" operations that will handle billing and processing for mobile services. More immediately, the Vodafone alliance represents one more step in Microsoft's long, slow march against dominant European players like Nokia.
But most mobile operators have resisted Microsoft's overtures. Other than Orange, no major European operator has marketed a Microsoft-based phone, although some, including T-Mobile, O2 and Telefónica Móviles, are selling a Microsoft-based "personal digital assistant" which has phone capabilities.
MSN is another prong of Microsoft's push. Ideally, customers would go back and forth seamlessly between MSN on the computer and MSN on the phone, primarily for
e-mail and Web surfing. But MSN has progressed slowly in Europe. Several operators have licensed MSN services over the past two years, but so far have stopped short of loading an MSN "portal" onto their phones. Despite promises from T-Mobile and others to offer such a portal as early as later this year, Jessica Figueras, an analyst with the London based research firm Ovum, says mobile operators launching an MSN portal "would be like turkeys voting for Christmas,'' because it would siphon users away from the operators' own portals.
The Vodafone initiative could yet backfire if the industry objects to Microsoft and Vodafone attempting to impose their will. Gates made it clear that that's what the two companies are up to, noting that "Microsoft and Vodafone want to drive these standards forward and make that a platform for the industry."
Others wonder how such a tentative deal as the dongle is going to gain traction and enter widespread use. An appropriately vague Microsoft statement calls Gates' speech an "outline of a vision." Vodafone chief executive Arun Sarin didn't even show up for the announcement, sending a lieutenant instead not the diplomatic courtesies to which Gates is accustomed. Knook said he did not know who will make or sell the dongles. Neither did Vodafone "strategic relationship executive" Paul Davey, who said dongle-related services won't surface until the second half of next year at the earliest.
The alliance will at least advance Microsoft's mind share in the European mobile industry. But that's the easy part. Gates will have to wait to find out whether his trip to Geneva actually advances sales, or is left dongling in the wind.
- MARK HALPER
- Bill Gates aims at Europe's mobile biz