Microsoft Short on Time to Shake Up Mobile with Google Fear, Nokia Reach—VCs

For the first time since the early 1980s, Microsoft didn’t dominate “intelligent devices” worldwide through its operating systems in 2011, said RealNetworks Chairman Rob Glaser, a venture partner at Accel Partners: It’s a “sea change that’s unbelievably powerful [and] profound in its implications.” With its mobile partnership with Nokia, Microsoft has a year to make mobile a “three-horse race” with Google’s Android and Apple’s iOS, and if it doesn’t claim significant market share by then, Microsoft’s mobile position is “perilous,” he said.

Don’t underestimate Nokia’s distribution power outside the U.S., said Bruce Chizen, former Adobe CEO and now venture partner at Voyager Capital. Microsoft will expend “significant amounts of money” to get developers to write applications for the platform, and Nokia’s “life” is now “dependent” on the partnership, he said. Chizen predicted “double-digit” market share for new shipments of Windows mobile devices. He was less sanguine about Microsoft’s chance of success in the “ultrabook” market -- thin ultraportable Intel-based laptops that compete with Apple’s MacBook Air.

The “strategic fear” of Google’s deal to buy Motorola Mobility -- and Google’s presumed favoritism toward Motorola handsets -- will make Microsoft the default alternative for carriers, said Dan Rosen, chair of the Alliance of Angels, and whose eponymous firm leads early-stage investments. But “I never underestimate the ability of Microsoft to screw something up,” he said to laughs: “If they get it right, it’s 20 percent” mobile market share by new shipments, but single digits otherwise. Glaser said the figure was dependent on Nokia’s execution, predicting 3 percent in the U.S. due to Google “momentum,” 12 percent in Europe where Nokia dominates, and 5 percent in Asia. Chizen predicted 17 percent globally. The “best available move” for Microsoft -- purchasing the struggling Research In Motion, whose BlackBerry retains strong corporate enterprise loyalty -- would “freak out” carriers, Glaser said. A RIM purchase only makes sense “if Nokia fails,” and by then it would be too late, Chizen said.

Despite Amazon’s dominance of the cloud through Amazon Web Services (AWS), there’s “nothing inherently matched” to its platform, said Frank Artale, partner at Ignition Partners, whose portfolio is heavy on cloud businesses. Microsoft or another vendor still has the opportunity to “own the backend” cloud architecture that other businesses rely on, but Microsoft’s Azure platform “does need to step up and be as good as AWS” to simply meet the “table stakes” of operating a cloud efficiently. Given Microsoft’s weakness in enterprise applications, a purchase of SAP “at some point” could make sense, but not next year, Chizen said. Microsoft should double down on its Skype purchase and Nokia partnership and target Google and Apple’s hefty mobile-purchase commissions, Rosen said: If Microsoft didn’t take a cut of that revenue, “boy, would that win them a lot of favors” with developers and content providers.

The resolution of AT&T’s purchase of T-Mobile could depend on the judge who hears the case, Chizen said: Adobe’s purchase of Macromedia was on the ropes with the Justice Department until Microsoft introduced a competitor. The AT&T and Verizon market share would be 80 percent if the deal goes through, a tough bar to clear, Glaser said, saying he assumes AT&T is focused just as much on how to avoid paying T-Mobile a breakup fee as getting the deal through. But the right judge can indeed make the difference, Glaser said, pointing to the death of RealNetworks’ RealDVD product under copyright infringement litigation from movie studios.