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Google, Microsoft Make Peace With Their Partners

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In an unexpected plot twist, the two tech giants are now making overtures toward their angry partners.

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So many smartphones, so many betrayals.

It was in 2010 that the mobile era first began to take after a soap opera-- the year that Steve Jobs called Android a "stolen product," and pledged to destroy it. That spring, Samsung Electronics (OTCMKTS:SSNLF) released the first Galaxy S smartphone, which would later become the subject of a contentious legal battle with Apple (NASDAQ:AAPL). It was also in 2010 that the smartphone patent war went global, with the number of lawsuits increasing tenfold over the previous year.

More back-stabbings followed. Google (NASDAQ:GOOG) bought Motorola in 2011, threatening to compete with partners like Samsung. In turn, Samsung threw its resources behind competing operating systems like Bada and Tizen, threatening to leave Android. Similarly, Microsoft (NASDAQ:MSFT) angered hardware vendors by diving headlong into computer gear with the Surface tablets. The OEMs (original equipment manufacturers) responded by abandoning netbooks, embracing Android, flirting with Chromebooks, and more recently, experimenting with Steam Boxes.

But in an unexpected plot twist, Microsoft and Google are now making peaceful overtures toward their angry partners. Google has reportedly reached an agreement with Samsung that would have the Korean multinational dial back its rebellion against Android-- an agreement that was almost certainly made possible by Google's sale of Motorola. Last month, the two companies signed a 10-year global patent cross-licensing deal, signaling their newfound commitment to each other.

While Microsoft hasn't given up on the Surface tablets, there's significance in the fact that new CEO Satya Nadella is a veteran of the company's cloud and enterprise divisions. Microsoft appears to be sending a message about its priorities, and hardware isn't high on the list. The company has run damage control with the Windows 8.1 update, giving PC makers an operating system that comes closer to satisfying the traditional computer market. Nokia's (NYSE:NOK) rumored Android phone suggests that Microsoft is even willing to work with Android, so long as hardware manufacturers throw in Redmond's software and services.

Why the change? For starters, Google and Microsoft have largely accomplished what they set out to do. Samsung has been humbled, not so much by Google but by changes in the smartphone market; commoditization has dampened sales of the Galaxy S4, and given an edge to low-cost competitors like Huawei Technology (SHE:002502) and Lenovo Group (OTCMKTS:LNVGY). With help from Intel (NASDAQ:INTC), Microsoft has pulled the PC industry out of its beige-box rut, and spurred the sort of innovation that will, the hope goes, provide a future for the platform.

Now, both companies face challenges that they can't hope to tackle on their own. Google has lost much of its control over Android. Fragmentation of the mobile operating system remains a problem; three months after its release, the latest version -- KitKat -- has yet to reach 2% adoption. Perhaps worse, ABI Research claims that nearly a third of new Android devices run "forked" versions of the OS, which have been stripped of Google's apps and services. That's up from a fifth of Android handsets one year ago. With its short reach, Motorola was the wrong tool for reasserting Google's influence. A close partnership with Samsung will be more effective.

Microsoft took the long view with Surface and Windows 8, trying to ensure a future for the operating system; but the collateral damage has been awful. Acer (TPE:2353) and Asustek Computer (OTCMKTS:ASUUY) have abandoned much of the market. Sony (NYSE:SNE) recently sold its computer division, and the big players - Lenovo (OTCMKTS:LNVGY), Hewlett-Packard (NYSE:HPQ) and Dell (NASDAQ:DELL) - now consider Microsoft a competitor.

These vendors are exploring alternatives to Windows, like Chrome OS. Its huge user base should see Windows through this rough patch, but Microsoft's other software franchises might not be so lucky. Google's Web suite is perfectly suited to this type of broken environment, and could spell trouble for Microsoft products like Office and Azure. Preserving these cash cows means getting them bundled onto new devices, and convincing hardware makers to say "yes" when a growing number of them are saying "no."

In other words, it's time to start mending fences.

See also:

Google to Manufacturers: 'Use a Recent Version of Android, Or Else'

Apple's iPhone 6: Three Fresh Rumors

iTunes Could Tear Up the Fortune 500 Just on Its Own
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