I had quite a bit of backlash on my first part of the series, despite the fact that I gave a high score to Microsoft’s productivity suite. Wait until you read this part!

Mobile:

After Google declared at Mobilebeat conference that app stores are not the future – citing the power of HTML5 as the new platform for web apps, Microsoft also decided to join the HTML5 standard. Soon after, Microsoft announced a native version of Office 2010, the latest version of Microsoft’s ubiquitous productivity software on Nokia smart phones, a big diversion from its traditional approach of creating a lock in with its own operating system. Is Microsoft conceding defeat in mobile operating systems race?

RIM in enterprise space

Research In Motion (RIM)’s BlackBerry smart phones are the first that come to mind when buying a device for office use. They gained popularity with their easy to use trackball based push email application – a great example of how a simple application can be so powerful and popular. They are still considered device of choice for many professionals. iPhone despite its hype and popularity among consumers, never gained strong traction among serious office users, who are on their emails all the time. Email is not as fast or seamless, finding contacts in a large address book is hard, and typing – though very well done for a soft keyboard – is not as smooth as many professional users would want it to be.

Microsoft in mobile

How Microsoft succeeded in dominating desktop computing market is no secret. It created strong network effects by opening up its operating system to a plethora of developers, thus making Windows platform useful for end users and creating a positive feedback loop between application developers and consumers, i.e. the more the consumers have software available for Windows, the more they are going to buy Windows, and the more users there are the more developers would write software for Windows. Mobile phones is an altogether different story though. The market is much more fragmented than it was ever in desktop: according to a report by Admob, Symbian by far has the highest market share, close to 50%. On top of it, cell phones never had the kind of network effects that PCs had for an obvious reason: primary usage of phones has always been making calls, and only in the last few years has the usage of “smart phones” really become more widespread. Technology wasn’t ready enough to support useful apps on phones, however the landscape has considerably changed in the last couple of years, especially with launch of iPhone.

Google going web apps

Google has built its empire on web apps: it started with its search engine, and then ventured into other apps such as Google Apps, Google Docs, Gmail, Google Maps and several others. It’s no surprise that Google has vouched for a stronger HTML and stronger browsers, and even launched its own browser Chrome. Google has come closest to delivering the promise of a “thin” client, where most software resides on the servers and user computer has minimal software. Google believes in web apps and HTML so strongly that it has announced launch of Chrome based netbooks. Google also believes that web apps will be similarly stronger on mobile. It recently called Microsoft irrelevant in the changed world of web apps. “What we clearly see happening is a move to incredibly powerful browsers,” said Vic Gundotra, Google Engineering vice president and developer evangelist, at the Mobilebeat conference in San Francisco last month. He added: “We believe the web has won and over the next several years, the browser, for economic reasons almost, will become the platform that matters and certainly that’s where Google is investing.”

What it means for Microsoft?

It seems like Microsoft is being threatened at multiple ends: (i) its market share in mobile operating systems is weak and likely to lose further to Android and iPhone, (ii) Microsoft Office, its cash cow, is losing out among low end users who prefer to use free and simple to use Google Docs, (iii) with Android and HTML5, Google is poised to make Google Docs even more popular, and (iv) Blackberry is by far the leading platform when it comes to productivity apps. I think that Microsoft is launching a two pronged counter attack.

Microsoft’s HTML5 response

Last month Microsoft jumped on the HTML5 train by announcing its strong support for the standard (though it is still unclear what Microsoft’s HTML5 strategy is). While so far Microsoft has closely coupled its software with its operating system, by supporting HTML5 (assuming it is true) it is eventually going to allow its software to be run within browsers such as Safari and Firefox, which can be run on any operating system including Linux. This can obviously result in reduced usage of Windows Mobile, an outcome Microsoft seems ready to face, in exchange for increased market share of its software and applications. Microsoft is unlikely, at least in the short term, to make a deal with Google or Apple to run native apps, however it can still target Android or iPhone users by supporting Office on HTML5.

Microsoft and Nokia deal

Unlike Google, who completely bets on web apps. Microsoft despite its HTML5 announcement, is deeply vested in native apps. Most of its revenue comes from Office and Windows, so it is unlikely that it will give that up anytime soon. On one hand it announced support for HTML5 (which makes sense for Android and iPhone platforms, where Microsoft has little control), and on the other hand it struck a deal with Nokia to enable Office on Nokia’s phones. This is in sharp contrast to its earlier approach of trying to create a lock in between its applications, including Office, with its own operating system. With Google trying to enter Microsoft’s turf by launching Going Google campaign, it shouldn’t be a surprise that Microsoft is launching Office for HTML. However, Microsoft’s deal with Nokia is particularly interesting because it will allow Office to run on Symbian, a rival to Windows Mobile. It is important to note however that Microsoft-Nokia deal perhaps means more for Nokia than it does for Microsoft, since Nokia faces a significant threat in smart phone market – according to recent Economist article, almost all phones will be smart phones by 2015. This obviously does not bode well for Nokia, which has traditionally been strong in feature phones.

Microsoft ceding control on its OS

By supporting HTML5 and striking a deal with Nokia, Microsoft is likely to concede control on its mobile operating system (despite their announced ongoing commitment to Windows Mobile). This, however tough, makes sense when you consider that WM only contributes about 1-2% of their total revenue, while Office contributes a large percentage. Question for Microsoft is whether people are more likely to use Office or Windows Mobile, and I think the answer is clear: few people I know really care about having a Windows Mobile phone, whereas there are several who would want strong compatibility with Microsoft Office and millions of documents available in Office. Moreover, Symbian has the biggest market share, and by launching Office on Symbian, Microsoft can substantially increase its reach.

Summary and future

Is it enough to fend off Google and RIM? Windows Mobile has not the nearly same hype and momentum as Android, and is completely proprietary unlike Android. So instead of creating a lock in with Windows Mobile and winning market share that way, Microsoft now is trying Google’s approach: leverage their strongest asset (in this case MS Office) just the way Google leveraged its search engine. By creating a dominant search engine, Google was able to use its strong web presence to launch and popularize other web-based apps. Similarly, by “opening up” Office, Microsoft is trying to increase its mobile presence, even if not in terms of Windows Mobile. Not only that, it also is counter attacking Google Docs, which, despite having limited functionality, are growing in popularity. Microsoft obviously has a leg up in Office software and if it can create a strong case for Office usage on smart phones (for now, Office usage on mobile is still limited and Google docs satisfy most users.), it can certainly build some momentum.

In order to compete effectively against RIM, Microsoft needs to do two things really well: (i) make a strong use case for productivity apps that extend beyond Blackberry’s email application, and (ii) make software simple and nimble enough to be attractive on mobile.

The road ahead for Microsoft is challenging, not only it needs to compete with Google and RIM, it will perhaps also have to learn to compete as an underdog in mobile space, where its operating system is nearly not as strong as it is in desktop.

Score: 2/5

Scoring Explained:
1 -> in deep trouble
2 -> in bad shape, but there are chances of recovering
3 -> can’t say
4 -> in good shape, need to execute well
5 -> in great shape

PS: It did not help that newer release of Windows Mobile got a terrible review from TechCrunch today. However, this column was written prior to the review, so the review did not affect my analysis.