Should Microsoft Buy RIM? It May Be Time For An XPhone

At first glance, my idea of Microsoft (MSFT) joining the iPhone market by buying Research in Motion (RIMM) may seem preposterous, however let us dig into this a little deeper. With no growth rates or year over year earnings comparison here at this time, let us try to think this scenario not only by thinking outside the box but by smashing the box inside and out.

The Case

After playing a secondary role to Apple (AAPL) in the iPod space, Microsoft could tackle Apple, Nokia (NOK), Motorola (MOT), Samsung and Palm (PALM) head on in the iPhone world. If Microsoft were to buy Research In Motion (RIMM), it would give the former immediate access to the worldwide mobile communications market expanding its portfolio as a designer, manufacturer and marketer of wireless solutions – an area that is the core of RIM’s business model.

Apple's iPod was released in October 2001; Microsoft's Zune was release in November 2006. During the five-year lag, Apple captured nearly 80% of the market share. Microsoft could save millions of dollars in research money in trying to find the next “big” product and reduce the product cycle by couple of years. The integration of Microsoft’s products like IE, Windows Media Player, Office, and Vista into RIM’s products is promising. The Big Softee would have arrived in the consumer and corporate phone market.

The Product

With Microsoft and RIM together, the integration of Zune with BlackBerry Pearl becomes a reality. The combined product would have Phone, Email and Text Messaging, Internet, Instant Messaging, Camera and MP3 Player as well as multi-media player capabilities. Throw in a condensed version of Xbox video game console and you have a complete package perfect for todays X, Y and Z generations.

The Name

Replacing the letter “Z” from Zune with other letters from the English alphabets, the most appealing were “Tune” and “Xune”. Although, “Tune” closely rhymes with iTunes, it would be a funny name for a phone. “Xune” would be in line with “Zune”. Apple is the undisputed leader of the “I” series, with iPod, iPhone and iTv. Microsoft will try to capture the letter “X” since Xbox is already popular and name its product as “XPhone” or simply leave it as BlackBerry Pearl.

The Price

Current iPhone pricing is at $499 and $599, by the time Microsoft’s phone arrives in the market, say two years from now, Apple would have probably gone through a series of price cuts selling their phones at $399. This will compel Microsoft to target their product in the $349-$399 range.

Conclusion

The thinking box has been crushed.

Disclosure: Author own shares of RIMM and own mutual funds that might invest in all three companies listed.

Comments

[Jeff Reston]

If they do this, they need to get a lot more creative than simply combining RIM's email devices (fine as they are) with Microsoft's mediocre MP3 players or Windows CE devices. Otherwise, the results will be disappointing -- likeMicrosoft's UMPC reference designs.

I think they should focus on making a fundamental improvement in full scale Web access on pocket size devices. iPhone is a mall step forward (though it is basically the same zoom & pan solution Picsel has demonstrated for many years). But I have seen prototypes in Silicon Valley labs that make the mobile Web experience much more compelling than that.

[Jon T]

Symbian has the market so far and I can't see the innovation MS and RIM would bring. MS can't leverage its Win/Office monopoly in this arena of course.

Join two failing companies to make a good one??

Fat chance as they say.

[Tom B]

I hope they do it. I'd enjoy seeing Apple humilate them in a new arena.

[Chris Thomas]

I can't help but disagree.

I get the feeling that Microsoft is drifting as a company, getting away from its true competitive advantages - your proposal would most likely be the final nail in the coffin.

Microsoft is a software company. The reason why they got involved in the console market, I presume, is that the true value-add (as well as source of margin) in the industry is the games themselves - which Microsoft has performed extremely well. The Zune, in my opinion, will never even touch the iPod. I think you'd be living under a rock to think otherwise.

If Microsoft were smart, they'd focus on software. Apple will fail, over time, in the electronics market for the same reason that they failed in PCs: incompatablity. Apple seems to have this utopian vision of a world where everyone buys media at iTunes, downloads it to their iBook, transfers it to their iTV to watch at home and their iPhone to listen on the go. And that's all well and good, and they may indeed lead all of these areas. But it could have also been argued that the original Macs were better than the original PCs. Companies will no doubt copy the iPhone's interface, just as they copied the Mouse. But when you can't transfer your iTunes to your newest RIMM made portable widget, or your DVR or XBox 360 - people will be frustrated and Apple will invitably be crushed under the weight of the competition. They've been on a hot streak, but it might not last forever. Jobs needs to be more flexible.

That brings us back to Microsoft. They could waste their time and money coming up with a responce to iPhone - or they can let the RIMMs and Nokias of the world do it for them, and focus on software (such as a great OS) to go with them. The reason Microsoft won the war of Operating systems was because it had the flexibility that Apple did not have. Microsoft should be competing with Apple in the world of Operating systems - not MP3 players, not DVRs, and certainly not Phones.

[Tom B]

"Apple seems to have this utopian vision.... "

The Utopian vision they have, actually, is that you should be able to pick up their products and start to use them, right out of the box, without wading through a thick manual. And that the products would work, unobtrusively and reliably. Mostly, they succeed at these goals. Jobs originally set out to design "the computer for the Rest of Us", but traditionally, the Mac has proved more popular with professionals than with the masses. If you earn your daily bread in prepress or doing digital video production, you don't want to get sidetracked calling Dell's India call center to solve some stupid driver problem.

As for MSFT-- I don't know what they should do. Their best product, ever, the XBox, loses money. Their OS is certainly widely used, and will be for at least the next PC replacement cycle, but they spent 5 years on Vista without managing to come close to addressing the key problem with Windows: it is a legacy OS in a world where their competitors are all UNIX-based. Their creaky old code, which multitasks poorly, is pretty unsuited to the modern demands of the YouTube generation. Don't get me started on their inability to design a decent User Interface or to get any kind of handle on security.