Is Skype Microsoft’s Only Chance for Mobile Success?

If you are looking for increased competition in the mobile space, Apple’s cell-phones-talking.jpgrecent and seemingly constant record earnings are bad news. Worse yet for the competition, Apple has transcended its original position of a computer and electronics maker to become a major force in the publicly traded markets and even the US economy. Its phones are status symbols the world over and its tablet is so far ahead of the rest of the market the company can charge hundreds more and consumers will pay for these products with a smile.

So news of Microsoft losing share to in the mobile space should hardly be considered news. In fact even if the company purchased Nokia and RIM the challenge of integration would far outweigh the benefits. Sadly this would be true if both companies were given to Redmond at no charge. How bad is the situation? Well between December 2006 and December 2011 the Microsoft went from having 34% of the US market for smartphones to a paltry 5%! And all this while the smartphone market in the US has been exploding with growth.

Microsoft knows how bad things are. Sadly, they were way ahead in mobile – I used to rely on the HTC/UT Starcom Verizon XV6700 and called it the near-perfect device in March of 2006. It deserved this designation because it was truly a mobile office in your pocket.

I complained at the time that different carriers selling the same device were calling it something else and moreover there was really no branding for the device at all.

I think this phone may have been the last opportunity Microsoft needed to exploit to stay a mobile leader.

Sure, they have the relationship with Nokia but it will be a really tough sell to unseat Apple and Android at this point – unless something dramatic and unforeseen (by others) happens like Android or iOS exhibiting a massive security flaw driving users into the hands of the competition.

But Microsoft still has Skype as its last hope to attain some relevance in the smartphone space. If the software company is serious about the market and we all know they have to be, there will have to be serious handset subsidization. Even then, it is unclear it will be significant player in the market.

But a simple way to subsidize is by bundling Skype credits with phones – there is a huge arbitrage play here between what carriers charge for their voice minute bundles compared to what Skype charges.

To offset some of the cost, Microsoft will have to show ads which could be powered by Bing.

The challenge of course is voice calls are becoming less important each year as consumers use social and text as their preferred method of communications.

But the window is still open for Skype phone which is subsidized heavily – one which consumers would have to consider because the price is so low. Of course the challenge here is carriers like Verizon provide a number of phones for free with a contract such as the LG Enlighten and the Samsung Illusion. So Microsoft would have to potentially give you a free phone as well as unlimited calling or some number of minutes per month, etc. Also this strategy assumes carriers won’t mind Skype becoming the keeper of the carrier relationship. Sure, many wireless providers have partnered with Skype in the past but it is unclear if they are still happy to do so.

In short, Skype may be the last chance for Microsoft to become successful in mobile – and in the US, the subsidized approach to providing phones and service may make it very difficult to find success. Skype integration may be a better option in other countries where devices are generally purchased on their own.

I don’t want to come off as optimistic mind you – this strategy will be expensive and basically bribes consumers to take a product they don’t want. It’s worth pointing out a similar strategy in the past used by Bing to gain share from Google was a failure. But mobile is so important, the company may be forced to give the idea a shot – and if so they better start soon.

Skype may not be the only hope as Microsoft also owns a significant portion of Facebook – tight integration with this social network may be another option for Redmond to attack mobile. But it is unclear that Facebook would be willing to work exclusively or even semi-exclusively with a platform which has limited appeal – unless the price is really right.

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