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Friday, September 26, 2008, 02:05 pm PT (05:05 pm ET)

Ballmer changes tune while dancing around Apple's success

Microsoft chief executive Steve Ballmer, who's watched his company's PC business come under immense pressure from Apple, used a forum this week to discount the Mac maker's potential for future share gains and designate its mobile phone business as a doomed initiative that will "lose out" in the long run.

Microsoft aims at Apple integration

In July, Ballmer issued a widely publicized email to employees acknowledging the looming threat presented by Apple, in which he outlined a cause of action that, among other things, suggested Microsoft follow the example set forth by its rival in providing the same "narrow but complete" experience to its customers going forward.

Among the changes he proposed were a shift in relations with Microsoft hardware vendors designed to mimic the experience offered by Apple's tightly-controlled Mac platform. Likewise, he called for a similar approach in the mobile phone arena, vouching to create "great end-to-end experiences" akin to that of Apple's closed ecosystem, where it maintains tight control of nearly every aspect of a product's design.

Ballmer's 180 on integration

Ballmer was quick to criticize those same strategies during a dinner at the Churchill Club in Silicon Valley this week. He said Nokia, Research in Motion and Apple will all lose out as the market expands over the next five years, because they control their own proprietary software, which is then tied too closely to their own hardware.

Today, Nokia leads the worldwide smartphone market with a 30 percent share. "If you want to reach more than that, you have to separate the hardware and software in the platform," he said, suggesting that the same strategy that helped Microsoft dominate the PC market will inevitably win out in the mobile space as well.

Of those mobile platforms left standing and battling for the biggest piece of the pie will be the open source Symbian OS, mobile versions of Linux, and his very own Windows Mobile, Ballmer claimed.

The market indicates otherwise

According to mobile market tracker Canalys however, it has been Microsoft's Windows Mobile share of the market that has slid precipitously, falling from 23% in the first quarter of 2004 to 18% the next year, and 12% in 2006, where it remained through 2007. In the fourth quarter of 2007, Apple grabbed 7% of the worldwide smartphone share, despite being limited to one model and primarily one provider in one country. It's expected that Apple will match or overshadow Windows Mobile sales worldwide this year, and the iPhone has already trounced Windows Mobile in the US and as a browsing platform.

Symbian's smartphone platform has similarly fallen from a commanding 72.8% lead share in late 2006 to today's 55% share under the assault of integrated phones including RIM's BlackBerry, Apple's iPhone, and Motorola's closed Linux phones sold in Asia. Symbian partner Sony Ericsson is struggling with weak sales, and Symbian itself reported earlier this month that revenues had tumbled 14% as its software royalty payments per phone continued to fall. Nokia is buying out its Symbian partners to take the platform open source for the very reason that there is little business model left in selling the phone software.

Add in Google's free Android platform, and Microsoft is left as the last vendor trying to sell a commercial software platform for smartphones. This has led many observers to expect that Microsoft would attempt to release its own 'Zune phone' model, but the company has said no such product is the works, and instead has pointed to the release of Windows Mobile 7 late next year.


Ballmer dismisses the iPhone in 2007 while touting Windows Mobile


Microsoft expects Mac to do as poorly as iPhone

Ballmer similarly argued that Apple will fail to see further Mac share gains or make strides in the enterprise market because it won't license the Mac OS to third-party hardware vendors.

"Apple's a good company, I won't take anything away from them, but they have a certain kind of strategy," Ballmer said. "They believe in putting the hardware and software together, they don't believe in letting other people make it."

"I'm not saying there isn't a threat" he added. But if we "do our jobs right, there's really no reason Apple should get any footprint in the enterprise."

Just a month ago, Benjamin Gray of Forrester Research pointed out that the Mac had taken 4.5% of the enterprise market in June, despite Apple's apparent lack of any targeted efforts to push its systems. Microsoft's Windows Vista, a year and a half after launch, had still only reached 8.8% deployment in the enterprise. That was far short of Microsoft's original goal of 20% Vista adoption by the end of 2007.