Microsoft goes Mobile

What do you get when you combine Microsoft, the planet's biggest software company, which is desperate to move into the mobile — phone industry, with Vodafone, the planet's second biggest mobile operator? Would you guess a) a mobile phone based on a Microsoft operating system, or b) a dongle? When Microsoft boss Bill Gates jetted into Geneva's ITU Telecom World Conference last week, he came up with answer b).

That's right, a dongle. About the size of a small travel alarm clock, the dongle attaches to a desktop PC or a laptop and lets users charge small cyberpurchases to their Vodafone bill. Gates did not deign to use the D word himself — a Vodafone lieutenant joined him on stage to show off the nubby thing — but raved on about visions of "magic advances of hardware and software" that will "make the mobile experience even better than it is today."

Of course, Gates would love to have announced answer a), and said that Vodafone, with its $48 billion a year in revenues (only China Mobile is bigger), was committing to phones that use a Microsoft operating system — something that Redmond has been struggling to get European operators to do. And he would have liked to have added a line about Vodafone deploying Microsoft Network (MSN) Internet services on its phones. But none of that was said.

And so, while analysts were tantalized by the prospect of a direct line between two of the world's most important technology companies — and by an announcement by Orange last month that it will sell a Motorola-made Microsoft-based phone — they remained perplexed. Has Microsoft finally established a beachhead into the lucrative but elusive European mobile market? Or is the dongle just one more vaporware announcement?

For years, Microsoft has tried to find a new way into the hearts and pocketbooks of European consumers. Of course its computer software is as dominant in Europe as everywhere else. But the company sees untapped gold in the Internet and mobile markets, and to date they've been less than welcoming. Despite widespread promotion, the Internet service MSN has not been wildly popular in Europe (neither has its rival, AOL, which is owned by the company that publishes TIME). Only one major mobile — phone operator, Orange, has marketed a phone based on Microsoft software (its new Motorola handset follows an earlier version made by Taiwanese contract manufacturer HTC). And some other deals have gone nowhere or worse (see sidebar on page 2).

Hence the dongle. Microsoft and Vodafone hope the device will spur people to buy things online that cost pennies or a few dollars. These "micropayments" are often too small for credit-card companies to handle efficiently, yet they seem to hold the key to reaching consumers who want to buy a single song or game. Microsoft senior vice president Pieter Knook claims that the emergence of a micropayment infrastructure will unleash a torrent of software — development activity that will deliver as yet unimagined programs to the market. This, he says, will transform the mobile-phone industry into one that is software powered. Gates told the Geneva audience that such synergies will "bring [voice and data] together in ways that people eventually will just take for granted."