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Death, tax and Microsoft

IN THE years since the dot-com bubble burst in 2000, Microsoft has retained such a consistent market performance that some would describe it as boring. For investors looking for safe bets, however, Microsoft is described as stable and robust. Now, as the software giant poises to reenter the mobile market, we may see the first real movement on the share in years.

Microsoft has shed 12% in the last 10 years. This was the same decade in which Apple grew by 2197% and Google 400% since the latter first listed in 2004.

In the past few months, Apple surpassed Microsoft in terms of market capitalisation. At time of writing Microsoft has a cap of $213bn and Apple $270bn. In terms of price to earnings multiple, Microsoft is at 11.67 - suggesting fair value. Apple is considered to be overvalued - depending who you speak to - and we need more earnings data based on its current performance to make decisive calls.

Apple has had a series of successful product forays that have bolstered its value. It started with the iPod and more recently has been boosted beyond comprehension by the iPhone and iPad. Even the Mac computers Apple sells are now considered growth points, despite being doomed to obscurity by analysts in 1999.

Mobile is a disruptor. In terms of market opportunities, it is massive. According to independent industry research firm Wireless Intelligence, there are over 600 mobile operators and carriers in commercial production worldwide.

Of these, more than 50 have over 10 million subscribers each and over 150 had at least one million subscribers by the end of 2009. Their reach and growth is where the manufacturers of mobile devices find their loot.

There is contention as to the actual size of the global mobile market, but it is fair to say that a significant number of people do not have mobile phones - probably just less than half of the world's population.

The growth is in emerging markets - that should go without saying. But even in developing markets, there are tides of growth for individual companies as users regularly replace their mobile devices.

For companies like Microsoft this is where the rub lies. And the focus, now, is on the smartphone market where things are less commoditised and margins are healthy. Microsoft wants you to rethink your commitment to Nokia, Apple or BlackBerry when you next upgrade your phone.

Nokia's Symbian operating system currently occupies the top spot in terms of smartphones with a global market share estimated at 47% in the second quarter of 2010, according to research firm Gartner. Research in Motion is second with its BlackBerry platform that occupies 18% of the market, and Google's Android is the fastest growing platform at 17%.

Apple has 14% of the market and is also growing quickly, although not nearly as quickly as Android which is used by many mobile vendors including Samsung, HTC and Sony Ericsson.

Microsoft was one of the first companies to release a mobile operating system for what we now call smartphones, with its Windows Mobile product which entered the market as Pocket PC in 2000. Since then, it has dwindled in market share to now occupying 5% of the smartphone market.

Windows Phone 7, launched on Monday in New York and slated for a November debut in South Africa, is Microsoft's last chance to change its mobile fate according to most analyst I've spoken to. Android, iPhone and BlackBerry are making inroads and Nokia is still number one, shipping more smartphones daily than any other company.

Microsoft is already late in turning its mobile division around - but the Redmond giant has a compelling strategy in terms of ecosystem.

The power of smartphones is in applications and their ability so support other technologies. The iPhone fits into the Apple ecosystem, linking up with the MobileMe set of cloud services, the iTunes content network and forwarding a slew of other services via third party developers.

BlackBerry is reliant on integrating with third parties on a broader level, but is growing its ecosystem with the introduction of the PlayBook tablet computer that will join the stable of exclusive services such as BlackBerry Messenger and the BlackBerry Enterprise Server. And Nokia is pushing its services in terms of the Ovi set of products that includes a music store and mapping technologies.

Microsoft owns the Xbox gaming brand, the Zune marketplace for music and movies that has only been available in North America until now - and it dominated the market for productivity software and personal computer operating systems.

Windows Phone 7 will bring these all together. It plugs into Zune and allows you to access your online music library with an all-you-can eat subscription model. It also links up with Microsoft's Xbox Live gaming service and offers exciting opportunities in the lucrative gaming space. And it integrates with Windows 7 and various other technologies Microsoft owns the market for.

Technology enthusiasts love ragging Microsoft. It's fun punching the giant. They have also widely doomed Windows Phone 7 before it has even entered the market. But when you ask them if they'd like a phone that integrates with their existing Microsoft environments better than any other, they have to say yes.

If the last two decades have taught us anything, it is that you dismiss Microsoft at your peril. While the company may seem to be operating as many disparate units across its numerous enterprise and consumer divisions, it has been just waiting for something to enter the fray and bring it altogether.

Windows Phone 7 is the convergence of everything Microsoft does, bringing it all to your pocket and personal communications device. You'd be naive to think Microsoft has stumbled into this position and timing for launch.

As we transition into a new decade in which Apple is making waves, Google is battling to stay relevant and the market is consolidating around major technology brands, Microsoft may well make the shift upwards and then some.

When we look back over the next decade in 2020, will we see a boring flat line for Microsoft? My bet is that we'll either see strong growth or rapid decline - and Windows Phone 7 will be a big part of the reason for it, either way.

 - Fin24.com

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