Verizon, Microsoft In Pathetic iPhone Play

Verizon and Microsoft are in talks for a new iPhone rival, according to a report in the Wall Street Journal. By seeking to emulate their rivals, both companies are tacitly admitting to having lost significant share in their respective markets.

The device, code-named Pink by Microsoft, would transform the staid, business-oriented Windows Mobile operating system into a more consumer-friendly user interface, while providing Verizon with an answer to AT&T’s success with the iPhone at the retail level.

Verizon is salivating over the prospect of selling a version of the iPhone using its wireless technology, and may be hoping that news of such a deal could give it leverage in the negotiations it is currently engaged in with Apple. AT&T currently has an exclusive deal to market the iPhone in the U.S. that runs through 2010.

AT&T is equally desperate to extend the deal under current terms, particularly as the iPhone provided the sheen to its decent financial performance last quarter. Dow Jones reported,

nearly three quarters of AT&T’s new wireless contract customers last quarter were iPhone users - an extremely large amount of influence that one product has over AT&T.

Verizon’s positive results, announced yesterday, were equally dependent on wireless as the world moves away from fixed land-line telephony, but faces increasing competition in the smartphone market.

Verizon, by playing footsie with Microsoft, is trying to put pressure on Apple to give it a portion of telecom’s golden goose, but it’s unlikely that Apple will feel capitulate. Its relationship with AT&T has been very fruitful, especially as AT&T resolved early activation snafus. AT&T also offers more global coverage and uses a more globally ubiquitous technology than Verizon.

Where Microsoft is concerned, though, you really have to wonder what this says about its confidence in its Windows Mobile offering. A new version of the mobile operating system was well received by reviewers, and the company has maintained that mobility is an important part of its plans. Pink will likely be sold in parallel with other devices using the more traditional Windows Mobile OS.

This wouldn’t be the first time it has aped Apple. It’s impossible to believe, however, that Microsoft will abandon Windows Mobile the way it did the old mouse-less DOS; most likely, it will offer an iPhone-like device for consumers and single-proprietorships, taking comfort in a recent study indicating that most iPhone owners don’t use the device primarily for business purposes.

But that report is misleading — a better question would be how many people own iPhones for personal use and own another device for business, and compare that number to the number a year ago. More importantly, that kind of thinking is exactly what has hastened Microsoft’s decline and loss of relevance. Customers increasingly want devices that correspond to their entire lives, particularly as difficult economic conditions cause work to encroach increasingly on their personal lives.

The most likely outcome of these maneuvers is that Microsoft will introduce a new device with a limited exclusivity for Verizon, just as Apple negotiated with AT&T, while Apple will string Verizon along, extending AT&T’s deal for another year or two while it sees how the market for the next generation of wireless broadband develops.