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What Firefox Means to Microsoft

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Just when Microsoft (NASDAQ: MSFT  ) may have thought it had securely secured the No. 3 mobile OS spot for itself behind Google (NASDAQ: GOOGL  ) and Apple (NASDAQ: AAPL  ) , along comes Moziila with its Firefox OS to throw its hat in the ring. While it would be unusual for a newcomer to pose a real threat to any of these increasingly established names, the fact that Firefox will target the low end of the smartphone market, specifically in emerging markets, means that it must be taken seriously. Ultimately, while Apple and Google will be forced to react, Microsoft has the most to lose and must keep pressing forward with its strategy to grow its user base.

The new OS
On Feb. 24, Mozilla unveiled its new operating system, which has gained an impressive following from carriers right out of the gate. The new OS will target the low end of the smartphone market, competing primarily in emerging markets against offerings that run on Microsoft's Windows 8 and Android. Apple has a very small footprint in this space but will almost certainly watch the rollout as it develops its own strategy to gain deeper market penetration. The Firefox OS is driven by the Web experience, which makes sense when you consider that these devices will often be competing against feature phones owned by those with very tight budgets.

African strategy
While Google is well established as the leading OS on a global basis, competitors are pushing very hard, particularly in regions such as Africa. Nokia (NYSE: NOK  ) just released its lowest-cost Windows Phone, the Lumia 520, which is expected to make a difference for both companies. The device is expected to cost consumers just 139 euros, making it a very competitive option at the low end.

Microsoft isn't resting on a one-partner model, however. Mr. Softy has also partnered with Huawei Technologies to deliver the 4Afrika Windows phone with a price tag of $150 in seven initial markets. This is a critical step for Microsoft, because Huawei is the leading consumer-electronics manufacturer in Africa and also recently announced that it will bring a Firefox device to market in the near future.

Broadcom CEO Scott McGregor was recently quoted by Bloomberg touting the prospects for the emerging markets: "The population of the emerging markets is extremely large, and that's an attractive factor right there." He further noted: "[T]he world is mostly going to go to smartphones. If you can bring that into the hands of people in these markets, it's just a huge opportunity." Given the adoption rate in most of these regions, it's little wonder that the scramble to establish a presence is so frantic among all of the major players.

The Google twist
In the company's characteristic need to do things its own way, Google is focusing on the payment methodologies available in these regions, rather than concentrating solely on devices. Given the reality that many potential customers don't have access to a regular bank account, alternative payment options are a critical piece of the puzzle. Through the Google Play store, the company is exploring ways to allow customers to use gift cards to pay for services, thus opening up options that will help put services in the hands of consumers. This twist may affect how Microsoft attacks the problem, particularly since its ecosystem is far less developed than those of Google and Apple.

The Huawei angle
While Huawei has made a strong indication that it will be an early adopter of Firefox as an option for its devices, Device Chairman Richard Yu points out that "ecosystem support" is a vital element, among other concerns: "Whether the consumers will accept it or not, it is difficult to say." Initial devices could be priced as low as $100 but are not expected to be available in the U.S. until 2014. Depending on the adoption rate and general success of the OS, that date could be delayed or accelerated.

The impact on Microsoft
Unlike Apple, which has done little to even try to compete at the low end of the market, or Google, which essentially owns this segment for the time being, Microsoft stands to be the most significantly affected. The company is doing an admirable job attacking its competitors at every level, but getting established in the explosive emerging-market segment could have significant revenue implications that are vital. The fact that the company is looking for partners beyond Nokia is a great first step to competing in this segment, but it will have to be sure that its devices -- those that run Windows 8 -- are both competitively priced and more feature rich. As Yu contends, it's too soon to know what impact Firefox will have, but Microsoft investors will need to be aware.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

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  • Report this Comment On February 27, 2013, at 10:38 PM, techy46 wrote:

    Microsoft's Windows Phone license fee can go very, very low especially if each user become a subscriber to Office apps and XBox games. I'd rather pay Microsoft for an OS that not based on invading my privacy for advertising click revenue.

  • Report this Comment On February 28, 2013, at 7:12 AM, pcparadigm wrote:

    More than likely Microsoft was not going to capture these users anyway. Most of them have no use for Office, so there is nothing compelling them. These are feature phone users not smartphone users. They don't have the bandwidth for smartphones. Will there be a real viable ecosystem develop for the Firefox OS? I doubt it.

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