By the standards of its US$45 billion offer for Yahoo, Microsoft could have found the $500 million it is rumored to have paid Danger in Steve Ballmer’s couch.
With no disrespect to the smart folks at the innovative Danger, a decade-old developer of a Java-based “hiptop” operating environment used in the T-Mobile Sidekick and other devices, Microsoft’s return on the investment will probably be commensurate with what it spent: not much.
By that, I mean Danger isn’t likely to help Microsoft gain much traction in the mobile phone market against the likes of Apple and Research in Motion. “What they are doing, what the advantage is, is just not obvious,” Ken Dulaney, vice president of mobile computing at Gartner, told me.
In the enterprise software world, big players such as Oracle acquire companies that have a large installed base and a fast-flowing stream of revenue. In this world, intellectual property is everything, and to a large extent, that means the developers and other brainy folks. Given that everyone expected Danger to go public, those employees had lots of reason to stick around. Now they don’t.
Dulaney wonders how many key employees will stay with the new owner. He notes the Danger culture is one of opposition to Microsoft. Some of its developers have roots at the old General Magic, a mid-1990s Apple spin-off that lived to fight the Redmond giant. At this point, why not join Danger co-founder Andy Rubin at Google?
Whether or not the employees jump ship — or especially if they do — it’s not clear what Microsoft is actually buying from Danger.
What would Microsoft do with the Danger OS?
Maybe Microsoft wants to use the Danger OS as part of the next iteration of the not-so-great Windows Mobile. Given that the Danger OS is Java-based, it doesn’t seem likely that Microsoft would take the huge leap required to make it a foundation for a new Windows Mobile.
Perhaps Microsoft would want to move some of the good features of the OS (such as parts of the UI) to the next version of Windows Mobile, which Dulaney thinks is due in 2009. Given the wide differences in the environments, it would not happen quickly or easily. “It might have been cheaper just to hire the developers,” he said.
Microsoft is “not going to throw away” Danger’s UI expertise, Microsoft Mobile group product manager John Starkweather said during a press conference. But he wasn’t more specific than that.
Does Microsoft see something we don’t?
His boss Robbie Bach made some references to Danger as a “services” company. “When you actually dig into what they [Danger] do, the vast majority is actually about the social networking and communications services they provide on top of those devices. That’s where we’ll expand what they do,” Bach said.
I have no idea what Bach means. I thought Danger was in the business of developing software for mobile phones and the like. That’s what it’s done to date, after all.
Or maybe Microsoft wants to sell the hardware in the same way it sells mice and keyboards. Bad idea, and Microsoft probably knows better than to compete with its Windows Mobile device partners.
I have trouble seeing the advantage here — and so does Dulaney, who has been around the mobile world a long time.
Microsoft’s incentive: Windows Mobile isn’t doing well
Despite the lack of clarity on what Microsoft is hoping to get from Danger, it’s obvious why Microsoft is looking for help with its mobile business. After six iterations, Windows Mobile is not at all a success.
Research firm Canalys reported last week that Apple took a 28 per cent share of the US converged-device market (smartphones and connected PDAs) in the last quarter of 2007. RIM was in first place with a 41 per cent share. Adding up the share of all Windows Mobile device vendors gives Microsoft 21 per cent, with Palm at nine per cent.
At first blush, that 21 per cent sales figure sounds decent. But it turns out that those consumers who do buy a Microsoft-based smartphone are returning them in droves, never a good sign. David DeJean, who blogs at Computerworld.com, saw a press release from Opinion Research Corporation, which said (and I’ll quote directly, because as DeJean points out, the wording is interesting),”Smartphones [excluding iPhone and RIM BlackBerry] were the most returned electronic technology products of the holiday season, with slightly more than one-fifth (21 per cent) of smartphone buyers returning their purchase to the retailer.” Right. We know who that leaves.
There you have it. Microsoft is way behind Apple and RIM, so it makes a not-too-expensive buy of an innovative company. But how do these players fit together? What value does Danger really add to Microsoft, since even retaining the programmers is not certain?
The more I think about it, the more it irks me, both as a commentator and a (very small) Microsoft shareholder. We all know that Microsoft is racing to catch up with a raft of nimbler competitors as the desktop becomes less significant to the computing world. It’s probably not a lot of money, but it could be a distraction — and even chump change should be spent well.
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