MoneyWatch Tech

Zune Phone: Microsoft's Only Mobile Hope

By Erik Sherman

Updated on: January 19, 2010 / 2:35 PM EST / MoneyWatch

Any time a tech vendor comes out with a product that competes with those of its OEM partners, danger is in the air. Who wants to buy from someone who is trying to take revenue from you? But if Microsoft (MSFT) wants to emulate Google (GOOG), it might forget the relentless focus on web search (and all the variations of paying to get users that it's tried), take a page out of the Nexus One notebook, and come out with a Zune-based phone as rumors suggest will happen in a couple of months. (I actually speculated back in August on the potential strength of a Zune phone with availability in 2010.)

There is a bevy of reasons why Microsoft needs to take this step:

Its previous strategy of pushing Windows Mobile has blown up to the point that it is a joke. The product still has serious market share, but that's shrinking, and the latest version did nothing to improve its reputation.
When you make an OS, charge for it, and it sucks in comparison to the competition -- and some of that competition is free -- guess what? Your OEM customers will save their money.
Creating a "Zune" phone would allow Microsoft to de-emphasize the Windows Mobile brand and get quickly get itself out of the marketing pit that it's been digging for some time.
Some critical early views of the new Zune won some impressive admiration in comparison to the iPod Touch. Microsoft potentially has a winner that it hasn't been able to get out of the gate because Apple so dominates the portable media player mindshare. This would be a way to break out at a time that other companies have been able to get attention for competing with the iPhone.

Maybe the short way of saying this is that Microsoft badly needs to get unstuck. For years it's been trying to ride the same practices that got it to where it has been. But no strategy lasts forever. And yet, watch this video:

He's still stuck in the "we want to be number one in every market" and not considering that, these days, it's not enough to get HP to make Bing the default search engine. Ballmer mentions that the answer to the Bill Gates question of what the company is doing next is "There's always a Windows 8. After Windows 7, there's always got to be a Windows 8!" It's the same old same old that has actually pushed Microsoft's annual revenue to finally drop year over year. (Or would that be year under year?)

It's not as though creating a device under its own name should be that foreign to Microsoft. After all, it's done tolerably well with the Xbox. But it did so by making deals for content and pushing to come up with something that people might want to buy. The days for trying to lock users into place are over. As Internet-type businesses have shown, what is needed today is the ability to attract and entice users, giving them what they want, and trying to do so in me-too categories is tough. Now is the time for Microsoft to move strongly in smartphones, before the market has moved ahead so far that catching up would only happen in Ballmer's happy dreams.