Monopolies Could Kill Microsoft

After a disastrous Kin experience, Microsoft is doubling down on the launch of Windows Phone 7 this fall. The question is whether the same problems that plagued the Kin might also torpedo Windows Phone 7. One of those problems is something that used to help Microsoft: monopolies.Microsoft still enjoys a near-monopolistic lock on desktop computers. That view from the top of the market-share heap has influenced the way the company thinks, the way it's organized, and the way it does business. Many other companies may manufacture PC hardware, but the experience is defined by Microsoft. Just about every major hardware advance on the desktop has to be sanctioned and shepherded by Microsoft and supported by Windows, or it won't succeed.

The mobile market is a territory where Microsoft is still both an outsider and a small player; they don't get to define anything. That's the privilege of a small set of carriers: Verizon, AT&T, Sprint, and T-Mobile. These four carriers may technically compete with each other, but they do business in very similar ways. Their way.

Since most cell phones are sold and financed through the carrier in the USA, the carrier can dictate the kind of equipment they want. They can also dictate the kind of monthly plan, features, and pricing that must be paid so the phone can be used on their network. In the case of the Kin, its exclusive carrier Verizon required that the phone be sold with an expensive data plan, as if it were a smartphone. However, its features didn't compete with smartphones. Verizon's pricing made the Kin unattractive, and there was nothing Microsoft could do about it.

The salespeople at Verizon stores no doubt realized what a bum deal the Kin was, and they must not have been offered any incentive to sell the phone. A New York Times article reported:

This is not just a Microsoft problem, either; Google has had success getting Android phones into the carriers but not in selling its Nexus One directly. The Nexus One is not locked to a particular carrier, and has free tethering via its wireless access point feature. Verizon offers the Android-based Droid but not tethering, which it offers only at additional monthly charges on other smartphones. As long as Verizon sells and controls the phone, it can lop off whichever features might threaten its profits and pricing plans.

It comes down to this: Four carriers control the entire mobile communication ecosystem in the USA. Microsoft is entering this market so late that it has absolutely no leverage, so therefore no power to control the overall experience on the phone. They'll need to kowtow to the demands of the carriers. If Windows Phone 7 fails to take off, the carrier monopolies may be what kept it on the ground.