Why Microsoft Should Make Its Own Handsets

Microsoft?s announcement of the Microsoft Surface tablet bucked the traditional business model of the company; it typically acts as a licensor of it?s software while leaving the manufacturing to others to complete. Which is why Nomura Analyst Rick Sherlund?s sources that Microsoft is providing handset hardware for Windows 8 phones makes news. Typically, these distributed handsets, reference platform devices, are utilized by developers to benchmark their software performance in real life applications.

Prior to the Surface announcement, speculation like Sherlund?s would not hold much weight. However, now that Microsoft is making its own tablets, it would be foolish to rule out the notion that Microsoft wouldn?t at least look into manufacturing its own mobile phones.

In past instances, when Microsoft saw a need to engage in producing its own hardware, it was because it needed to provide services beyond what hardware partners could offer.? Additionally, there were features that needed the entire software-hardware integration to deliver a strong user experience (e.g., Zune and especially the likes of the Xbox platform).

With the Surface set to release in the fall, and a new Windows 8 ecosystem that promises to deliver seamless experiences across desktop computing, mobile computing and now Windows Phone, it doesn?t seem all too distant that Microsoft would like to see a more seamless infrastructure across its entire Windows world. While this model seems eerily close to Apple?s delivery of products, one mainstay that remains a key component of Microsoft?s is that it will still license its software to hardware partners.

Microsoft has licensing agreements with multiple manufacturers to deliver Windows Phone devices, including Huawei, Nokia, Samsung and HTC. Nokia has the lion?s share of the risk when it comes to these agreements. The Finland-based firm has largely dropped its long-standing, home grown Symbian OS in favor of Windows ? save for a few handsets. Recently, Nokia and Microsoft entered in to a long-term agreement to develop its Maps/Navigation software across all Windows mobile devices.

Rumors began to swirl around the type of relationship that Microsoft and Nokia would harbor in the near future (especially as bloggers and analysts awaited what type of announcement would result on Monday).? Would Microsoft and Nokia merge? Would Microsoft buy Nokia outright? After all, Nokia?s stock has been classified as ?junk? by multiple analysts and its stock was priced under $2.50 at the time of publication. With Nokia, Microsoft would attain patents, manufacturing and distribution knowledge that would help bridge the learning curve that is associated with building a hardware platform.

Microsoft making it?s own hardware for mobile phone makes sense, especially if it means jump-starting an ecosystem currently trickling (but showing promise) in marketshare. The Windows RT Surface is Microsoft?s first move in gunning for the iPad as well as the Android Tablet market.

Microsoft is acting more like Apple. The company now has its own Microsoft stores, is attempting to make flashy product announcements, has plans to introduce iPad-like tablets and is in control of product and software design.?Microsoft may actually be trying to ?think differently?. But, it has to.

For quite a while now, Microsoft has been a punching bag to Apple?s largely effective iTunes/iOS ecosystem. Microsoft, with very little firepower, has been left to try and pick-off marketshare, often with little success. Google, too, has taken many swipes at Microsoft, eating into search engine usage (leading to Microsoft having to create something new in the form of Bing), Office applications and email (through Google Docs and Gmail), map tools and so forth. Many of these attacks on Microsoft have resulted in diminishing its core businesses.

Microsoft?s keynote at the Windows Phone Developers event demonstrated a few things:

• It is serious about delivering an ecosystem compatible across its entire windows platform.
• It is serious about hardware and software integration. Announcing, not delivering, all the new flashy upgrades to phones that haven?t been out for more than a few months will be key, however.

But these announcements show that Microsoft is willing to fight back against its competitors. In the past, it would have just brushed them off and said ?Microsoft will be fine.? I dare you to count how many times ?different,? ?re-imagined,? ?re-defined? or any other iteration of ?change? is mentioned in the Surface keynote.

One thing is for sure: This week?s announcements show that Microsoft is willing to rewrite its entire business model to remain relevant.

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