Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Google and Microsoft Have an HTC Problem

It's been a terrible year for HTC investors. The Taiwanese handset maker has seen its value more than cut in half following a string of disappointing results, including a recent first-quarter loss. Although it has made devices running Microsoft's (NASDAQ: MSFT  ) Windows Phone in the past, the vast majority of HTC's smartphones are powered by Google's (NASDAQ: GOOGL  ) Android, putting it in competition with deep-pocketed rivals like Samsung (NASDAQOTH: SSNLF  ) .

According to Bloomberg, Microsoft wants HTC to offer phones that can dual-boot -- devices that use both Windows Phone and Android. While it isn't clear if HTC will go down that route, it does highlight some interesting strategic problems that both Google and Microsoft face when it comes to their mobile strategies.

Despite making the best Android phone on the planet, HTC is in trouble
HTC's One is, according to some critics, the best Android smartphone on the market. Its chief rival, Samsung's Galaxy S4, lacks the front-facing speakers, proprietary interface and gorgeous design of HTC's flagship phone.

Still, Samsung has managed to be far more successful than HTC, due in large part to Samsung's enormous advertising budget. Last year, according to analyst Horace Dediu, Samsung spent over $4 billion advertising its mobile devices. For comparison, HTC's entire company is worth just $3.7 billion.

Google gives Android away for free, making it available to all would-be phone manufacturers, but with Samsung's unparalleled vertical integration, it has been able to dominate Google's operating system: about 60% of Android smartphones in the wild are Samsung-made.

Nokia saw this coming
This is precisely why Nokia (NYSE: NOK  ) decided to go with Windows Phone instead of Android. In an interview with The Guardian, Nokia's now-former CEO Stephen Elop explained that, back in 2010, he foresaw Samsung's dominance:

What we were worried about a couple of years ago was the very high risk that one hardware manufacturer could come to dominate Android. We had a suspicion of who it might be, because of the resources available, the vertical integration, and we were respectful of the fact that we were quite late in making that decision. ... Now fast forward to today and examine the Android ecosystem, and there's a lot of good devices from many different companies, but one company has essentially now become the dominant player.

Though he did not mention it by name, Elop was obviously talking about Samsung. But did he really make the right decision? Like HTC, Nokia's smartphone business has lost a lot money in recent years; still, at least Nokia shareholders were able to recoup some cash in the form of a Microsoft buyout -- HTC might not be so lucky.

Microsoft's operating system model has been ruined
If HTC does decide to offer a dual-booting phone, it will have a unique device -- probably the only such phone on the market. As part of Microsoft's push to get HTC to make that decision, Microsoft is allegedly offering to license its Windows Phone operating system at little or no cost.

Historically, Microsoft has embraced a licensing model for its operating systems -- PC OEMs pay Microsoft a fee to install Windows on their machines. Microsoft has attempted to extend that strategy into the mobile phone arena, but Google has more or less destroyed that model.

By giving Android away for free, smartphone makers have little incentive to buy an operating system from Microsoft. Android is just as capable, and in many respects better, than Windows Phone.

HTC remains strategically important
Although HTC itself may be of little importance to investors, its ongoing struggles highlight the challenges both Google and Microsoft are facing in the mobile space.

Google wants a variety of hardware manufacturers to use its operating system, but Samsung has totally dominated. With HTC on the ropes, Samsung's control could only intensify, making Google's concerns over Samsung even more valid.

For its part, Microsoft was hoping to collect licensing fees for Windows Phone, but that strategy doesn't appear to be viable anymore. Given that Android is free, Microsoft will have to make its phones in-house (which it will do now that it's purchased Nokia) or else follow Google and give Windows Phone away.

HTC's importance as a handset maker may have faded in recent years, but investors in the mobile space should definitely continue to keep an eye on the company.

Are you thinking about investing in Google?
If someone asked you, "Why invest in Google?", could you truly answer them? To be honest, few investors could. That's because most of the company's secrets -- the ones that make savvy market-watchers rich -- often fly below the radar. If you want an edge on other Google investors, be sure to check out "5 Secrets to Google's Future" from The Motley Fool. This 100% FREE guide includes actionable advice that you can put to use right now! Just click here now for instant access!

Read/Post Comments (0) | Recommend This Article (2)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2672525, ~/Articles/ArticleHandler.aspx, 9/30/2016 12:56:01 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,336.71 193.26 1.07%
S&P 500 2,170.43 19.30 0.90%
NASD 5,319.23 50.08 0.95%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 12:40 PM
GOOGL $806.24 Up +3.60 +0.45%
Alphabet (A shares… CAPS Rating: *****
MSFT $57.63 Up +0.23 +0.40%
Microsoft CAPS Rating: ****
NOK $5.81 Up +0.09 +1.57%
Nokia CAPS Rating: **
SSNLF $1550.00 Down +0.00 +0.00%
Samsung CAPS Rating: No stars