Microsoft needs to have a successful phone OS to compete with Google and Apple.
MSFT's new Edge browser can help it improve the Web as a platform versus native apps.
A stronger Web helps make the company's phone more competitive.
Microsoft (NASDAQ:MSFT) has struggled to compete with Apple (NASDAQ:AAPL) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL) when it comes to the world of phones and tablets. Recently, the company has had success with its Surface line of tablet computers. Alcaraz Research recently published an article here on Seeking Alpha arguing that Microsoft should take advantage of this and build a Surface phone powered by an Intel (NASDAQ:INTC) chip to leverage its success with the Surface to compete with the iPhone. I respectfully disagree.
Intel x86 chips would allow traditional Windows applications to run on a phone, but I believe that has little utility on a small screen device. Nobody wants to use Photoshop on a phone. Rather, if Microsoft wants to create a competitive phone OS, it should improve mobile Web browsers to the point that native apps matter less. Since Windows Phone has less apps, a world where apps are less important will help Microsoft.
Windows was and still is the dominant desktop operating system. However, recently it has been losing market share to Apple's OS X and Google's Chrome OS. This is because people used to primarily use their computers to run OS-specific software. This changed with the advent of the Web and the cloud. Now instead of using software like Microsoft Office, people are more likely to use cloud applications such as Google Docs. For many, if not most, users, their web browser is the only application they use. Every OS has a web browser, so desktop operating systems started to barely matter. Originally, Microsoft was the best choice for an OS as it had the most software made for it. But, now that the main software people use is web browsers, that no longer mattered. This is why Chrome OS is able to compete despite the relative lack of software made for it.
Despite the fact that the Web hurt Window's advantage in the desktop OS space, it did not kill it. Windows also has good web browsers. Additionally, some programs with high-performance applications like Adobe's (NASDAQ:ADBE) Photoshop still work better as native applications rather than web applications. Windows still has the strongest library of these applications, and this has helped it retain its desktop OS advantage. Chrome OS is much like a car that can only drive on 95% of roads, whereas Windows can drive on 100% of roads. 95% may be good enough for many people, even most, but 100% will do better.
Microsoft's first Surface tablet ran a special version of Windows called Windows RT that ran on ARM processors. This meant it could no longer run all the traditional Windows native applications. This meant that Windows lost its traditional advantage. Windows RT was no better than a more expensive version of Chrome OS. Luckily, MSFT quickly realized its mistake and discontinued Windows RT and started using traditional x86 based Windows on all Surface devices.
With phones, the native apps still reign supreme just they used to on desktops. Native apps can better utilize device-specific features that are inaccessible (or difficult to access) for web apps. For example, things like GPS, Compass, Bluetooth, etc. are all difficult or impossible to access for web applications. Additionally, native apps can work offline and with poor or intermittent Internet connections, unlike web applications that struggle with this. Finally, native apps tend to perform much faster with better animations and have an all around snappier user interface.
Native app dominance on phones is hurting Windows Phone. Windows Phone has fewer apps made for it than iOS and Android do. This is putting Microsoft in the "chicken and egg" problem. People are not buying Windows phones because there are not enough apps for it. Developers are not building apps for it because there are not enough Windows Phone users.
The only way to get out of this problem is to make apps matter less. This can be done by eliminating the problems with web apps that I mentioned above. That will make web apps more important than native apps and help Windows Phone compete. This will be a repeat of what we saw historically on desktops. Ironically, the Web that hurt Microsoft then, will help Microsoft now. Windows Phone will become like Chrome OS is; a sufficient OS for 95% of people. It may not beat Android, but it will be able to better compete with it.
The Web was moved forward as a platform by the browser makers. Google has been making huge strides forward with Google Chrome, as has Mozilla with Firefox. For a long period of time, Microsoft's Internet Explorer lagged behind those two when it came to innovation. Recently, Microsoft released a new browser called Edge. Edge is a huge improvement from Internet Explorer.
Microsoft can use Edge to improve what web applications can do. It can focus on features which give web applications parity with native applications. One example of these features is Service Workers which can be used to build offline and push notification capabilities to web applications. Google is actively implementing it. Microsoft is considering it.
I think Microsoft should release versions of Edge for other operating systems as Google has done with Chrome and Mozilla has done with Firefox. This will increase Edge's influence.
Microsoft is a diverse company with a wide range of businesses. That said, controlling the operating system market has always been a key point in Microsoft's strategy. Also, Google and Apple have shown that controlling the mobile OS can allow you to promote your other businesses (search, music, etc.). For these reasons, I think that Microsoft needs to have a competitive mobile OS. The lack of one may not doom it as a company, but having one will certainly help it.
Edge is one of the most positive developments to come out of Microsoft recently. I intend on waiting to see if Microsoft continues to invest in Edge and expand its reach. I also will watch and see if it uses it to move the Web forward in ways that improve web apps relative to native apps. If MSFT starts making those moves in the short term, then I think we will see Windows Phone succeed in the long term, and I would consider MSFT a buy.
Disclosure: I am/we are long MSFT, ADBE. (More...)I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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Source: Edge Can Give Microsoft The Edge On Phones
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