Last February when Microsoft announced it had purchased Danger, makers of T-Mobile’s consumer friendly smartphone the Sidekick, I suggested that rumors of a Zune-branded phone would quickly resurface. Today, CNBC’s Jim Goldman claims that a new device from Microsoft, codenamed ‘pink’, is indeed in the works and that it will combine the company’s Zune with technology from Danger, with an end goal to develop a viable competitor to Apple’s iPhone.
All of which seems perfectly plausible. Both the Zune and Danger teams fall under the company’s Entertainment and Devices Division, which also overseas the XBox 360 — Microsoft’s most successful foray into the consumer electronics space — and is all about what the company calls “connected experiences”. As I wrote at the time, it’s in this context where the Danger acquisition made most sense, with Microsoft citing Danger’s mobile Web browsing, instant messaging, games, multimedia, and social networking applications, which in combination with MSN, Xbox, Zune, Windows Live and Windows Mobile technologies, would help it deliver “industry-leading entertainment and communication experiences”.
And while Danger’s expertise would certainly lend itself to Microsoft developing a consumer-facing smartphone, it would also signal a major change in strategy from Redmond, whose mobile strategy to-date has been to develop an eco-system made up of hardware partners who license the company’s Windows Mobile operating system. It has also been a strategy that has focused on the enterprise rather than consumer market, despite recent efforts by handset makers to put their own consumer lick of paint on the aging Windows Mobile User Interface.
But how would those partners feel if Microsoft released a phone of their own, playing the role of both partner and competitor? It wouldn’t be the first time, of course. After years of trying to compete with the iPod, and failing, through its PlayForSure ecosystem made up of third-party hardware makers, Microsoft decided to go it alone with the Zune, thereby becoming an overnight competitor.
Would Microsoft risk alienating its existing Windows Mobile partners in a similar move? That now looks like a real possibility and will likely depend on which strategy can yield the most profit. On that note, Dan Frommer from Alley Insider has done some back of the envelope math. By his calculation, if Microsoft could sell 1 million Zune-branded phones next year at a $300 wholesale price, it could equal the $300 million in estimated Windows Mobile revenue based on selling 20 million licenses.
“Plus commissions on app sales, a few pennies of search revenue from built-in Live Search, potential Xbox tie-ins, etc. Not the dumbest idea we’ve ever heard”, writes Frommer.
Agreed. Not a dumb idea at all.