Digital Noise: Music and Tech

As one of my colleagues put it the other day, Microsoft killed the rumors that it's building a Zune phone, but it didn't drive a silver stake through their heart and bury them at a crossroads at midnight. In other words, until Microsoft makes some kind of phone-related announcement, misinformed analysts and news outlets will continue to speculate that there's going to be a Microsoft-built Zune phone, and Microsoft spokespeople will continue going on the record with vehement denials.

Danger built the Sidekick, but Microsoft was mostly interested in the company for its services expertise.

(Credit: CNET Networks)

This is getting silly. I've been saying since February that the most likely course of action for Microsoft to take is to build a Zune client for Windows Mobile. Not a Zune phone.

Why? Because Microsoft--unlike Apple, and Research in Motion, and Nokia--isn't a hardware company at its core. Microsoft only builds hardware when it can't get a partner to do so (Xbox--who'd take the per-console loss?), or when it feels that partner products aren't getting enough traction and thereby letting a competitor build a threat to Windows. It built Zune because the iPod was slaughtering all the Windows Media-based players, revitalizing Apple and getting consumers to take another look at the Mac. (Sure enough, Apple's now the fastest-growing computer manufactuer in the U.S. and has taken a couple points of market share away from Windows-based PCs.) Microsoft briefly built wireless home routers because it felt partners weren't making them easy enough to set up on Windows, especially compared with Apple's Airport. And way back when, the company originally built keyboards and mice to promote Windows, and found that it was a profitable little business.

Windows Mobile may have stalled in the water while the iPhone and RIM phones have continued to take market share, but to Microsoft, 11% global market share and 16 million units a year isn't unsuccessful enough to kill the platform and change strategy completely.

So let's assume the rumors are based in fact and that Microsoft is going to make some sort of phone-related announcements at CES. (I haven't been briefed on any such announcements, so this is all speculation on my part.) Befitting Microsoft's new self-image as a software plus services company, I would expect the company to announce new and refreshed software and services for mobile phones. Specifically, a Zune client that connects to the Zune Marketplace, plus a revamp of the historically lame MSN/Windows Live services for mobile.

Recall that Danger--the company Microsoft acquired last February--has some expertise in services. The company's Danger Service automatically backs up e-mail and photos in an online repository, pushes e-mails out to the device, offers remote storage for games and other apps, and synchronizes everything between the mobile device and a PC. In other words, everything Microsoft's been saying under the "software plus services" rubric for the last couple years.

I imagine something like this Danger Service renamed under Windows Live for Mobile brand, with more connections to relatively new services like Windows Live Photos, and perhaps new client pieces as well. Music will be part of the picture, but this is more about mobile than Zune.

That said, Microsoft might not announce any of this at CES, but might wait for a more mobile-specific conference.

A quick follow-up to my earlier post about the lack of Zune mentions in Microsoft's presentations to financial analysts today. Mobile market follower James Kendrick blogs that Microsoft is holding its first serious internal meetings to coordinate the development of a Zune phone.

A completely unofficial mockup of a possible "Zune Phone," put together by a fan in the ZuneScene forums.

(Credit: ZuneScene)

I don't have any inside knowledge about these meetings, but I don't doubt it for a second. Kendrick's posting, which is based on an unsourced rumor, suggests that any such phone will be based on Windows Mobile 7, will have a touch screen, and will feature connections to Windows Live services.

My guess: there will be plenty of Windows Mobile 7 phones in lots of form factors, and all will feature built-in connections to Microsoft's online services--that's the best chance they have to step ahead of the iPhone, whose MobileMe service is drawing flak even from big Apple fans. At the same time, the company will probably create hardware reference designs for one or two phones specifically designed for consumers, and meant to compete against the iPhone. These phones will connect to the Zune PC client software and Zune Marketplace, but otherwise will bear little resemblance to Microsoft's MP3 player. Touch screens are a must, but Microsoft will probably contract the manufacturing out--just like Danger did with its Sidekicks. (Microsoft acquired Danger earlier this year.) Likely timing will be 2009--I don't think they can get it out this year, unless this project's a lot farther along than Microsoft's letting on.

How long have we been reading these Zune Phone rumors? Microsoft still hasn't officially announced any plans to build an iPhone, but yesterday's corporate reorganization clearly points that way.

This mockup of a smartphone UI appeared in a June 2006 Microsoft patent filing.

(Credit: Microsoft patent application)

Microsoft has reason to be worried. After about five years of plugging away with Windows Mobile, Microsoft's managed to create a reasonable competitor to Research in Motion for e-mail-enabled phones. But that's about it. In contrast, Apple launched the iPhone in June 2007 in the U.S. and by Q4, it was already the number-two provider of smart phone (or "converged device") OSs in the U.S., with 28 percent market share--ahead of Microsoft's 21 percent and behind RIM's 41 percent. Worldwide, despite an October European launch and a smaller global footprint than its competitors, Apple managed to reach 7 percent share worldwide, just behind RIM's 11 percent and Microsoft's 12 percent , although all of these folks are bit players compared with Symbian's 65 percent share. (All numbers courtesy of a February 2008 report by Canalys.)

Microsoft's acquisition of Danger has already been the subject of much speculation on CNET and elsewhere, so I won't spend too much time pondering how long it will be until Microsoft kills the Sidekick and its Java-based OS (as long as it takes to build a Windows-based version) or guessing about the acquisition price ($500 million sounds high, but possible given the premiums Microsoft has been offering lately).

The interesting part is buried in yesterday's press release announcing the latest Microsoft reorg: the company has appointed Roz Ho to lead the Danger integration. Ho has spent the last few months in an unspecified "special projects" role under J Allard, Mr. Zune himself. But before that, Ho was the longtime leader of Microsoft's Mac Business Unit, which means there's probably no Microsoft executive more familiar with Apple. Connect the dots and they spell iPhone.

So how will Microsoft go about it? My guess is they'll whip out some sort of Zune client software for the current iteration of Windows Mobile as a stopgap measure, while simultaneously building a completely new device that combines a consumer-oriented UI, mobile services, and an associated hardware reference design. They will probably brand it as a Microsoft product (like Zune and Xbox), instead of merely licensing the software (Windows Mobile) or software+reference design (the short-lived Portable Media Centers). Sidekick's manufacturing partners, Sharp and Motorola, might be involved. Timeline: probably not until 2009, although the Windows Mobile Zune client could come out this year.