The Real Key for Microsoft in the Phone Wars

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The iPhone 5 launch on Wednesday, Sept. 12, is sure to be the most important event for tech investors this year. The Motley Fool will be hosting a live chat where our top tech analysts will answer your questions and break down what the announcement means for Apple and tech investors everywhere. Be sure to swing by at 12:45 p.m. ET next Wednesday for all your coverage of Apple's next big announcement.

Last week, hidden among the debate over the impact of Apple's (Nasdaq: AAPL  ) patent win over Samsung was the release of some interesting new products from the South Korean electronics maker. Samsung product releases have never had the following of an Apple event, but we should maybe start thinking about putting the company on par with Apple at this point. And with the company's flexibility to use any operating system, it may help Microsoft (Nasdaq: MSFT  ) become more than a smartphone afterthought.

Rescuing Mr. Softy
When Samsung announced brand-new smartphones and tablets, it surprised me that Microsoft's Windows Phone 8 software was one of the highlights. Nokia (NYSE: NOK  ) has always been considered Microsoft's main partner, for better or worse, in the smartphone market, but Samsung carries a big stick that may tilt some of the market Microsoft's way.

If Microsoft is going to take any reasonable amount of share in the smartphone business, it won't be because of Apple's patent win, as other Fools have suggested. It will be because the operating system, surrounding ecosystem, and phones themselves are compelling.

As the reigning smartphone market-share leader, Samsung can help in this area. Samsung has a strong brand and the ability to make compelling devices in the fast-moving smartphone market. If this week's stock plunge was any indication, the market isn't terribly impressed with Nokia's phones at the moment. What Microsoft needs to do is provide an ecosystem with capabilities that will make business and retail buyers want its phones.

The ecosystem evolves
Apple was the first to make the cloud easily accessible for users, but the competition is beginning to heat up. Samsung's Galaxy S3 came with free storage from Dropbox, a cloud storage company, and the Galaxy Note 2 as well as the Galaxy Camera will come with 50 GB of free storage.

Microsoft hasn't released the final cloud details of Windows 8 and/or Windows Phone 8, but you can bet that the cloud will be a key. We already know that tools such as calendar, contact lists, instant messaging, and account settings will all be in one place on Microsoft devices now, a step in the right direction. The killer app may be SkyDrive, which will automatically sync to photos but also allows documents to be stored and shared over the cloud. This has been Apple's shortcoming in the mobile market, and it should push business users who have given up on Research In Motion's (Nasdaq: RIMM  ) outdated operating system to Windows Phone 8.

New products are key
This week, Nokia and Microsoft unveiled the new line of Lumia smartphones using the Windows Phone 8 platform, and the reaction wasn't exactly positive. Nokia has gotten financial incentives from Microsoft to make smartphones based on Windows Phone 8, but they may not be the key to the operating system's success.

In July, 25.6% of U.S. mobile users used Samsung devices, and the company has introduced compelling devices in recent months. If it can make desirable devices for Windows Phone 8 as well as Google's (Nasdaq: GOOG  ) Android platform, which is the market-share leader among smartphones, it could help Microsoft and Samsung in the market.

Foolish bottom line
To me, it's clear that Nokia won't be the key to Microsoft's success in smartphones; Samsung will. Both companies are bringing big guns to the fight against Apple and Google as well.

The software and cloud capabilities Microsoft has already announced make me think that this could be an operating system worth keeping a close eye on. It doesn't have the same app ecosystem that Apple and Android currently have, but with the dominant desktop operating system it shouldn't be hard to attract developers.

For more on this smartphone battle and how Microsoft can compete, check out our premium report on the stock. It comes with a year of updates when breaking news happens and much more. Find out more about the report.

Fool contributor Travis Hoium manages an account that owns shares of Microsoft and Apple. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw.

The Motley Fool owns shares of Microsoft and Apple. Motley Fool newsletter services have recommended buying shares of Google, Apple, and Microsoft, creating a synthetic covered call position in Microsoft, and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.

Read/Post Comments (8) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 08, 2012, at 2:52 PM, plange01 wrote:

    the key to msft in the phone wars is to get out of phones and replace balmer!!

  • Report this Comment On September 08, 2012, at 4:11 PM, RandomMeaning wrote:

    Two of the major elements holding back Windows phones are the fact that they run Windows and they're visually unappealing.

    Pretty much everyone in the world who uses a computer has used a Windows machine and are quite familiar with its capabilities and limitations. Most view it as a tolerable necessity like gassing up the car. No one enjoys it but its just the way things are so you do it and move on. As a result, very few (beyond the most devout of the Temple of Windows) have any desire to experience that on their tablets let alone their phones.

    So Mr. Balmer has decreed that all Windows devices must have a united interface regardless of how they are used. There are some advantages (unified code) and pitfalls (the use cases of phones, tablets, and computers are very different). OK, a nice goal. Kind of like Longhorn (the predecessor of Vista, not the steak house). Then why hold it back with such a garish interface? Why make everything into primary school color blocks? Some supporters are so happy that Microsoft did something different that they forgot to ask if that was really the best solution. Or even a tolerable one.

    Why saddle the desktop with an interface designed for phones? Marketing. Pure marketing. There's no inherent advantage. And many disadvantages are created. Billions of options and that's the way Balmer wants it. Because he hopes he can use indifferent acceptance of Windows on the desktop to force people to accept the Metro interface on all screens.

    Astounding. If he pulls it off, he should be hailed as the marketing genius of the year.

  • Report this Comment On September 08, 2012, at 4:16 PM, RandomMeaning wrote:

    "Billions of options and that's the way Balmer wants it."

    To avoid confusion, that should be:

    Billions of options to create a new interface for the new desktop and Balmer wants the phone interface built out primary color stacking blocks from some elementary school in his forgotten past.

    Does no one have the clout to stand up and say "no, we can do better than this"?

  • Report this Comment On September 08, 2012, at 4:46 PM, BillWindows wrote:

    Microsoft already won the phone wars. Windows has 3.5 billion users, and nearly all will buy Windows Phones. Just like every other market in tech, Microsoft will be the one to take smartphones mainstream.

  • Report this Comment On September 08, 2012, at 8:49 PM, H3D wrote:

    "...Nokia (NYSE: NOK ) has always been considered Microsoft's main partner, for better or worse, in the smartphone market,..."

    What short memory you have!

  • Report this Comment On September 09, 2012, at 1:24 AM, RandomMeaning wrote:

    "Microsoft already won the phone wars. Windows has 3.5 billion users, and nearly all will buy Windows Phones. Just like every other market in tech, Microsoft will be the one to take smartphones mainstream."

    And here we have another example of Microsoft's marketing plan. Remember Balmer claiming 400 million Windows devices? This way Microsoft can claim huge numbers in any category by lumping them all together regardless of how inappropriate that may be. Again, marketing takes precedence over actual usefulness.

    Oh, and in response to the amusing comment I quoted above:

    a. Smartphones are already mainstream

    b. By your "logic", people would already have bought Windows phones a long time ago if using Windows led to Windows phone sales. Windows phones have been around for many years. And their market share has been dropping. Maybe Windows Phone 08 will see an increase. Goodness knows Microsoft is willing to lose billions to make small gains as seen in XBox and Bing. And Windows phones to a lesser extent so far. But Windows on desk tops doesn't guarantee success in smartphones. Hasn't for many years now.

  • Report this Comment On September 09, 2012, at 1:40 AM, RandomMeaning wrote:


    a. Smartphones are already mainstream with very little help from Microsoft. Perhaps you've heard of Apple and Google? Familiar with how many 10s and 20s of millions of smart phones they are selling each quarter? Ignoring their success is no badge of honor and calls into question . . . other character elements.

    c. "Just like every other market in tech" - oh, like Tablets? Oh that's right, Microsoft pushed that for about a decade with repeated failures. Until Apple made it mainstream with 10s of millions of tablets sold. Or revenue from ads on the internet? Oh, you missed again, so sorry. That would be Google. But Microsoft did manage to hobble Yahoo by partnering with them. Or maybe you're referring to mp3 players? Surely they dominate there? What, they cancelled the Zune after dismal sales and knifing their Plays for Sure partners in the back? So sad. And now Windows phones. Boy, Microsoft sure has helped Nokia maintain their dominance . . . what? In just a few years after partnering with Microsoft, Nokia has gone from the largest cell provider to a rounding error? Microsoft sure knows how to watch a partner's back!

    I have no problem with giving Microsoft credit where they've earned it but blind devotion from certain posters does not further Microsoft's cause. Indeed, it undermines it by reinforcing the idea that Microsoft and its devotees are detached from reality, unworthy of consideration.

  • Report this Comment On September 10, 2012, at 5:46 PM, RenegadeIAm wrote:

    ** Then why hold it back with such a garish interface? Why make everything into primary school color blocks? Some supporters are so happy that Microsoft did something different that they forgot to ask if that was really the best solution. Or even a tolerable one.**

    That's an EXTREMELY limited view of Metro.

    I use the "live tiles" of Metro in Netflix and ESPN on the XBOX every day. I LOOOVE it. I have an AppleTV and use it just for music.

    I love the interface. It communicates so much so easily.

    It's going to be a winner.

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