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Mighty Microsoft Aims for Niche Status

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As I read the details of Microsoft's (Nasdaq: MSFT  ) Kin platform, I couldn't help feeling a little sorry for the monopolistic, cash-rich colossus. After all these years, the company's finally developing wireless-phone software that could appeal to people other than business users and gadget junkies. Alas, it's doing so much too late.

The shoe's on the other foot
If you look at Microsoft's history with software development, its late-bloomer status in wireless seems perfectly natural. The company has rarely "gotten things right" with the first release of an important software product ... and often not with the second one, either. The first releases of Internet Explorer and Windows Media Player couldn't hold a candle to Netscape Navigator or RealNetworks' RealPlayer. For that matter, the first release of Windows wasn't anything for Apple (Nasdaq: AAPL  ) to get too worried about. But by constantly hammering away, and taking advantage of its dominant position in the PC operating-system market, Microsoft was gradually able to turn the tables on its rivals.

The problem with the wireless-phone market? At this stage in the game, the shoe is squarely on the other foot for Microsoft. Instead of leveraging a leadership position, the way it did with PC operating systems, the company is fighting an uphill battle against four different competitors – Apple, Google (Nasdaq: GOOG  ) , Research In Motion (Nasdaq: RIMM  ) , and Nokia (NYSE: NOK  ) – which have more users, greater consumer mindshare, and superior app bases. Other than its success with the Xbox 360, where the company took advantage of Sony's missteps with the PlayStation 3, it's hard to think of a situation where Microsoft has succeeded under similar conditions.

Why Kin comes up short
The company's defenders might argue that the Kin platform isn't meant to be a true rival to the iPhone or Android. Instead, it's designed to be a relatively cheap solution targeted at teenagers and young adults looking for a phone with decent social-networking and messaging features. But I see a few different problems with this logic:

  1. The Kin is targeted at two relatively affluent markets: North America and Europe. Plenty of teenagers and young adults in these places are able to afford a device such as an iPhone or Motorola (NYSE: MOT  ) Droid – especially with the growing popularity of family service plans – and I'm sure these phones will remain the most popular hardware for status-conscious kids. Meanwhile, Microsoft currently has no plans to offer Kin phones to Asian carriers.
  2. The competition has its own cheap stuff. Phones such as RIM's Blackberry Pearl line and (in Europe) lower-end Nokia Symbian devices are also aimed at consumers who can't afford high-end smartphones and/or the costly service plans that often come with them. In addition, cheaper Android phones are now becoming more visible. Unlike Kin, all of these platforms have the ability to install third-party apps.
  3. Social-networking integration is nothing new. Motorola offers similar capabilities through its MOTOBLUR user interface for Android, and Nokia is making the social networking features of its just-announced C3, C6, and E5 phones a big selling point.

Combine all of these factors with Microsoft's current also-ran status, and it looks like the Kin will control nothing more than a niche within a niche market. Its release is good news for NVIDIA (Nasdaq: NVDA  ) , whose Tegra chips will power Kin phones. But for a $265 billion company like Microsoft, it's not much for investors to get excited about.

Fool contributor Eric Jhonsa owns no stocks listed above. Microsoft and Nokia are Motley Fool Inside Value recommendations. Google is a Motley Fool Rule Breakers selection. Apple and NVIDIA are Motley Fool Stock Advisor picks. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletters today, free for 30 days. The Motley Fool has a disclosure policy.

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