In a move seen as strengthening their respective weaknesses in the wireless industry, L.M. Ericsson and Microsoft Corp. said they plan to create a joint venture designed to develop and market end-to-end solutions for wireless Internet services.
In addition, Microsoft introduced its long-awaited dual-mode microbrowser, called Mobile Internet Explorer. Ericsson said it will adopt the microbrowser into its Wireless Application Protocol stack on certain phones.
The two companies have fallen behind somewhat in their respective interests in the wireless space-Ericsson losing handset market share to rivals Nokia Corp. and Motorola Inc., while Microsoft has seen the wireless industry adopt smart-phone and microbrowser technology from rivals Symbian and Phone.com Inc. Both announcements are considered a way for Microsoft and Ericsson to reverse these trends by better positioning themselves for the future market of wireless Internet products and services.
The joint venture itself is fairly similar to the Wireless Knowledge partnership Microsoft formed with Qualcomm Inc. last November-from which no service or products have yet reached the commercial market. However, Wireless Knowledge operates more as a service bureau-offering wireless Internet services like e-mail and content through a network operating center connecting the enterprise network and carrier network.
The Microsoft-Ericsson venture will offer much of the same services, but Ericsson’s wireless infrastructure business will allow the new company to act more as a system integrator, offering a direct link between enterprise and carrier networks.
“We want to create seamless communications between the office environment and the carriers’ networks,” said Jan Uddenfelt, Ericsson’s senior vice president of technology.
Ericsson will hold the majority stake in the joint venture, to be headquartered in Sweden. It will combine Ericsson’s WAP technology and wireless infrastructure expertise with Microsoft’s NT and Exchange server platforms. Exactly how much each company will invest in the venture will be made more clear when it is formed, expected sometime next year. Actual products and services are not expected until at least 2001.
“The big thing is that this joint venture allows Microsoft to work with a partner like Ericsson,” said Bob Muglia, group vice president of Microsoft’s Productivity Group. “The key distinction for us is Ericsson opens up marketplaces not available to us before.”
Despite this partnership with Microsoft, Ericsson said it remains committed to its part in the Symbian venture, which aims to create smart phones based on Psion plc’s EPOC operating system, a competitor to Microsoft’s Windows CE. The agreement calls only for Ericsson to integrate Microsoft’s Mobile Internet Explorer browser in handsets.
Ericsson has been falling behind steadily in the mobile handset race, and therefore needed something to light a spark under sales. Jeffrey Schlesinger, analyst at Warburg Dillon Read, said the mobile phone industry has become a two-horse race between Nokia and Motorola, with Nokia gaining market share as Ericsson loses it.
In his third-quarter analysis, Schlesinger said Ericsson lost 2 percent of its market share. In that same period, Nokia produced almost three times as many phones as Ericsson, and Motorola more than 80 percent more.
The partnership with Microsoft may help Ericsson regain some of that lost ground, given Microsoft’s marketing strength and recognized brand name worldwide.
But Microsoft needs Ericsson as much as Ericsson needs the software giant. Many analysts see the deal as a way for Microsoft to play catch-up with its software rivals. The wireless industry to date has rejected Microsoft’s Windows CE operating system as being too big and bulky for the type of small, lightweight phones it wants to create. Manufacturers in the Symbian initiative consider Psion’s EPOC OS much lighter, yet still strong enough to power the next generation of smart phones.
As for microbrowsers, Microsoft originally shunned WAP technology and intended to create its own microbrowser based on HTML. But the WAP standard progressed passed Microsoft’s ability to surpass it and left the company with no choice but to integrate the standard.
Although the Mobile Internet Explorer supports both HTML and WAP, Ericsson is the only manufacturer to adopt it. Phone.com Inc., meanwhile, has licensing agreements with 26 phone manufacturers for its UP.Browser microbrowser technology. Microsoft’s entry is expected only to help Phone.com by growing the market in which it dominates.
“We continue to believe that Phone.com is winning the mobile Internet race,” said Marc Cabi, director of equity research at Credit Suisse First Boston. “Although the deal positions the Microsoft browser on some Ericsson handsets … Microsoft will need to strike further deals to become a standard browser for the wireless industry.”
Which is exactly what Microsoft said it plans to do.
“We’re trying to focus on deep, deep partnerships,” said Kevin Dallas, group product manager for Microsoft’s Wireless Telephony unit.
The Ericsson partnership in effect is a concession by Microsoft that it must work with, and not against, the wireless industry if it is to have any future in it. This spirit of partnership is a far cry from Microsoft’s business practices of the past. The fact that Microsoft is allowing Ericsson to use its browser technology integrated with a competitor’s operating system illustrates the profound difference between Microsoft’s role in the mobile device industry vs. the desktop computer market.
Microsoft’s leverage in the desktop computer space allowed it to demand PC manufacturers bundle both its Internet Explorer browser and Windows operating system in their products. Wireless handset vendors, while acknowledging the marketing power Microsoft could give them in the wireless Internet and smart phone market, refused to give up that same degree of control.
“This is a lot different than the PC space,” admitted Dallas. “In the mobile handset space, there are many elements to producing a compelling application. We as an industry are still learning. We have to learn how our customers deliver value and share the risk with them. Once we understand how to deliver value, then we can create the appropriate licensing structure.”
However, while Microsoft may be following the WAP banner by including the technology in its microbrowser, it is by no means helping to carry it. Microsoft is concerned mostly with applications, not protocols, and Muglia’s comments suggest that Microsoft is committed to WAP only for as long as WAP remains the prevailing method to deliver Microsoft applications to the wireless environment.
“As this market matures, our focus will shift to solutions and applications delivered to the user, not on the protocol,” he said. “We see the current state of wireless data applications as embryonic. I think we’ll see it evolving much like the Internet evolved in the last five years-on the applications that can be delivered.”
Although Microsoft said it teamed with Ericsson to help make this happen, analysts have expressed some doubt.
“The deal also calls for Microsoft and Ericsson to jointly develop server solutions,” Cabi said. “We see the motivation behind this as a way for Microsoft to protect its enterprise customer base, but not necessarily providing true value for carriers … WAP services will be the primary mode of the mobile Internet access for the foreseeable future.”
