Microsoft and Symbian form Agreement, RIM the Obvious Target

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Microsoft and Symbian sell rival operating systems for mobile computing devices and have been fierce competitors in this arena for some time. They’ve poached employees from one another and worked hard on enticing consumers from each other.  So for two companies that have a history of simply hating each other, it was rather odd to see them shake hands on a deal today.  But this is a smart move for both companies nonetheless.

The major part of this deal was Symbian announcing it will license Microsoft’s Exchange Server ActiveSync. The ActiveSync feature allows users of smart phones to access corporate e-mail and scheduling programs that run on Microsoft’s Exchange Server 2003.  But why is Symbian doing this? Basically it’s because Symbian can’t do without this ActiveSync feature. The global mobile workforce is growing fast, and at the same time, Microsoft Exchange’s popularity is growing as well: While 33% of corporations use Exchange e-mail, Microsoft’s leading market share should rise to 39% by 2009, according to market researchers at Radicati Group. For this reason ActiveSync is essential for Symbian if it wants to continue appealing to corporations, the largest market for the pricey smart phones, which can cost as much as $700.

And so how is this agreement good for Microsoft?  Well, the partnership could certainly give Microsoft a lift in its server software sales, which already contribute 20% of total revenue, says Matt Rosoff, an analyst at consulting firm Directions on Microsoft.  Also, Microsoft will get more license fees.  Industry insiders believe that, eventually, Symbian could also license Microsoft’s Media products, which would help it with digital-rights management and playing audio on cell phones. Cell-phone maker Nokia, the big player in the Symbian market, has already announced such interest.

The licensing agreement could also jolt Microsoft’s mobile business. Industry analysts predict that it will help Microsoft gain market share from another rival, Research In Motion maker of the popular BlackBerry devices. If customers want to connect to their Exchange servers, and RIM doesn’t offer that capability, those customers will now have more alternative devices — based on Windows Mobile and Symbian — to choose from.  An interesting note, RIM shares fell 3%, to $79.71, on word of this deal between Microsoft and Symbian.

As that SmartPhone market continues to expand, so will Microsoft’s share of it. Already, the Windows Mobile division ranks as Redmond’s fastest-growing business.  Although the Windows Mobile division is a small one and accounts for less than 1% of total revenue, that is sure to grow. After only two years on the market, Microsoft’s Windows Mobile OS is used by 40 device manufacturers, who sell to 67 wireless service providers in 48 countries. While Microsoft still places third — after Symbian and Palm OS — in the mobile market, it’s closing in on No. 2 and they would certainly covet the No.1 position.

In the SmartPhone market, as it has in so many other markets, the big M appears like it’s starting to reel in its rivals.

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