It's no secret that Microsoft faces a host of challenges as it attempts to shift its focus from the traditional and desktop-bound to a more cloud-centric, mobile-focused model. For companies with tens of thousands of employees and decades' worth of institutional memory, recoding the corporate DNA to meet new challenges is an undertaking with a lot of risk, and a high potential for failure.
Given its size and cash flow, as well as the solidity of its traditional product lines, such as Windows and Office, Microsoft could have walked that path to the cloud and mobile alone. Instead, the company seems determined to join in massive, broad-based partnerships with other tech giants-saving it some cash and effort, but also placing some part of its fate in the hands of those companies' ability to execute.
It started, in many ways, with Yahoo. After trying-and failing-to buy the Web portal company for $44.6 billion, Microsoft took a different approach in the summer of 2009, inking a 10-year deal in which Microsoft's Bing search engine would power Yahoo's back-end search. The two companies expect all Yahoo customers and partners to move to Bing by 2012, provided the integration itself continues to proceed smoothly.
According to analytics firm comScore, Bing owns 13.6 percent of the search-engine market, versus Google, with 65.4 percent. When you combine Bing's share with Yahoo's 16.1 percent stake, then Microsoft's total market share rises to 29.7 percent. While those numbers don't exactly pose an existential threat to Google, they solidly refute some pundits' early expectations that Bing would die a quick and messy death soon after its rollout in summer 2009.
The Yahoo deal also allowed Microsoft to gain many of the benefits of an outright merger at a fraction of the cost.
Perhaps encouraged by that development, Microsoft moved to enact a partnership with another massive player in the tech space: Nokia. Under the reported terms of the agreement between the two companies, Microsoft will pay the Finnish manufacturer some $1 billion over five years to manufacture handsets running Windows Phone 7. In return, Nokia will apparently pay Microsoft a licensing fee for every copy of Windows Phone 7 installed on a smartphone.
News of the deal came just as a comScore report suggested that Microsoft's share of the U.S. smartphone platform market dipped 1.7 percentage points between October 2010 and January, from 9.7 percent to 8 percent. That lagged behind Google, which ended January with 31.2 percent of the market, Research In Motion with 30.4 percent and Apple with 24.7 percent.
Microsoft is hoping that its new Windows Phone 7 platform, which aggregates Web content and applications into six subject-specific Hubs, will eventually gain traction with consumers and businesses as a viable alternative to Google Android, BlackBerry and the iPhone.
But in the United States, one of Windows Phone 7's chief areas of market focus, the Nokia deal, is unlikely to have a substantial effect. According to comScore, Nokia fails to place in the U.S. top-five rankings for either OEMs or smartphone platforms. In the OEM scenario, it ranks behind Samsung, LG, Motorola and others; in platforms, it's behind even Palm at 3.2 percent.
The global scenario is markedly different. According to data from analysis firm StatCounter, Symbian holds some 30.7 percent of the global market, ahead of Apple iOS at 24.6 percent, Android at 15.2 percent and RIM at 14.5 percent. Should Nokia and Microsoft manage to transition the former's software platform to Windows Phone 7 with relatively little bleed-off, those sorts of percentages could translate into a very significant gain for Microsoft as it seeks to re-establish its smartphone bona fides.
Despite competing with RIM in the smartphone arena, Microsoft is reportedly prepping a partnership with the Canadian firm over cloud services. According to a March 17 Bloomberg report, Microsoft will assist RIM in porting customers' data to the cloud.
"It's a more efficient model for everyone," Jim Tobin, a RIM executive, told Bloomberg in an interview.
Microsoft has adopted an "all-in" strategy with regard to cloud services. However, the roadmap for those initiatives' adoption and revenue remains unclear.
"We obviously haven't given any guidance on the revenue of that and how fast it's going to ramp up," Peter Klein, Microsoft's chief financial officer, told analysts and media during a Jan. 27 earnings call. "It's one of those things where it's going to happen, and the exact sort of speed of the ramp is uncertain. I do believe that once it starts to accelerate, it's going to accelerate pretty fast."
Microsoft's cloud efforts have largely focused on initiatives such as Office 365, whose subscription-based model-allowing organizations to stay up-to-date with the latest versions of Microsoft Office, SharePoint Online, Exchange Online and Lync Online-is one shared by other services such as Azure.
Partnerships in the cloud space, obviously, could help Microsoft greatly as it seeks to take on Google, Oracle, Salesforce.com and other companies determined to carve out their own territory. But as with Nokia and Yahoo, it remains to be seen whether such partnerships-despite the cost savings versus an all-out acquisition-translate into longer-term victory.