Imagine you run one of the biggest tech companies in the world. Smartphones running your operating system are used by millions of people, but your new OS just isn’t catching fire the way you’d hoped it would, and shareholders are breathing down your neck.
So is it time to innovate? That didn’t work — at least not in the short-term, despite a massive promotional campaign. The competition is still running away with the market.
No … it’s time to turn to this century’s most widely used weapon: litigation.
That’s the current scenario for Microsoft (NASDAQ:MSFT), which is looking increasingly desperate in its bid to crawl out of fourth place in the smartphone platform race and is running out of options.
Microsoft launched a massive promotional campaign for Windows 8 and Windows Phone 8 last fall, reportedly spending north of $1.5 billion on ads. It’s been paying Nokia (NYSE:NOK) hundreds of millions of dollars to adopt Windows Phone 8 as its smartphone platform. And recently, it has been trying to tempt developers with a $100 bounty for submitting Windows Phone 8 apps with hopes of boosting the offerings of its Windows Phone Store.
Despite its efforts, Microsoft’s Windows Phone stubbornly remained in fourth for worldwide smartphone platform sales in Q4 2012, the most recently reported quarter. That all-important third-place spot — the sweet spot where carriers and customers tend to look at you as the alternative, worth supporting to prevent an iOS/Android hegemony — remained in BlackBerry’s (NASDAQ:BBRY) control.
Things could change by the time Q1 2013 data is released. BlackBerry was on a long and steady slide through 2012, slipping from 9% overall market share to 4% over the course of the year, while Microsoft gained ground from 2% to that 3%. Pretty much all those BlackBerry users were captured by the smartphone giant, Google’s (NASDAQ:GOOG) Android, which surged from 51% of the market to 70% over the course of the year.
Thus, if BlackBerry slips further, it could be Google — not Microsoft — snapping up those users. But BlackBerry is in the midst of an attempted comeback campaign with its own new OS, smartphones and corporate rebranding in 2013, so its bleeding might well stop.
Third place is therefore far from sewn up, so it makes sense that Microsoft would turn to the next weapon in its arsenal: its lawyers.
An industry coalition called Fairsearch Europe — made up of 17 companies, including Microsoft, Nokia and Oracle (NASDAQ:ORCL) — has filed anticompetition allegations against Google in the European Union. The group contends that Google unfairly forces Android smartphone OEMs to give prominent positioning to Google mobile apps like YouTube and Gmail, making it more difficult for consumers to use competing apps.
If this sounds like deja vu, it’s not just you. Tech companies have bashed each other in court for decades, but that activity really has ramped up in the past few years to the point where research and development has begun to take a back seat to litigation when it comes to the battle for market share. Apple (NASDAQ:AAPL) and Samsung (PINK:SSNLF) have been beating the heck out of each other in the courtroom spotlight for the past few years (The Verge’s update page on this legal morass now stands at 160 entries).
Lately, Microsoft has begun using the courts to go after Google.
- In 2011, Microsoft filed an antitrust lawsuit against Google in Europe, claiming the company’s refusal to release a YouTube app for Windows Phone 7 was unfair and that Google was limiting search results on Microsoft’s platform.
- In 2012, Microsoft attacked Google again, this time over accusations that it and its Motorola Mobility division were abusing wireless patents.
- In January, Google settled an antitrust investigation by the FTC, ending with what Microsoft decried as a wrist slap. Google will no longer use scraped data to enhance search content and will remove restrictions on ad data APIs, but there still is no native Windows Phone YouTube app. EU settlements have not yet been finalized, although Google has submitted a proposal.
Given Microsoft’s lack of success against Google to date, will the latest legal salvo have any effect?
Well, since the antitrust complaint was filed two days ago, Microsoft stock is up 5.7%. Makes sense — it might actually win some concessions from Google this round.
But what’s with Intel (NASDAQ:INTC), whose shares are up nearly 7% in the same time frame?
On the PC front, Microsoft and Intel have been joined at the hip, but when it comes to smartphones, the only thing they share is a lack of meaningful market share. Intel was famously late to the mobile party and has had limited success in trying to claw its way into contention against CPUs based on ARM (NASDAQ:ARMH) architecture.
It doesn’t appear that Intel stands to gain much of anything from the Microsoft vs. Google battle, and in fact, it could actually lose a little. The latest version of Android runs on Intel’s mobile chips, and a few smartphone manufacturers are now offering Intel-based models. At the moment, Windows Phone 8 doesn’t run on Intel’s mobile architecture. So, if Microsoft is successful and a favorable ruling moves the needle a few notches in Windows Phone 8’s favor, that could actually cost Intel some volume.
However, there have been potential clues dropped in recent months, including an Intel job posting for Windows Phone engineers and comments from senior Microsoft representatives at CES 2013 that seemed to leave a door open for eventual Intel support.
As for the current somewhat unusual situation of both Microsoft and Intel posting big moves, I’d say it’s likely coincidence.
Microsoft might be getting a bump from its latest Google attack, but Intel’s move is probably attributable to new mobile chips, an expanded line of data center processor products, hype related to the Intel Developer Forum (which kicked off in Beijing today) and hope that its earnings report (due April 16) might be better than expected.
So while INTC investors have plenty of headlines to follow in the coming weeks, Microsoft’s court fight probably isn’t one of them.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.