The Real Key for Microsoft in the Phone Wars


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Last week, hidden among the debate over the impact of Apple's (NAS: AAPL) patent win over Samsung was the release of some interesting new products from the South Korean electronics maker. Samsung product releases have never had the following of an Apple event, but we should maybe start thinking about putting the company on par with Apple at this point. And with the company's flexibility to use any operating system, it may help Microsoft (NAS: MSFT) become more than a smartphone afterthought.

Rescuing Mr. Softy
When Samsung announced brand-new smartphones and tablets, it surprised me that Microsoft's Windows Phone 8 software was one of the highlights. Nokia (NYS: NOK) has always been considered Microsoft's main partner, for better or worse, in the smartphone market, but Samsung carries a big stick that may tilt some of the market Microsoft's way.

If Microsoft is going to take any reasonable amount of share in the smartphone business, it won't be because of Apple's patent win, as other Fools have suggested. It will be because the operating system, surrounding ecosystem, and phones themselves are compelling.

As the reigning smartphone market-share leader, Samsung can help in this area. Samsung has a strong brand and the ability to make compelling devices in the fast-moving smartphone market. If this week's stock plunge was any indication, the market isn't terribly impressed with Nokia's phones at the moment. What Microsoft needs to do is provide an ecosystem with capabilities that will make business and retail buyers want its phones.

The ecosystem evolves
Apple was the first to make the cloud easily accessible for users, but the competition is beginning to heat up. Samsung's Galaxy S3 came with free storage from Dropbox, a cloud storage company, and the Galaxy Note 2 as well as the Galaxy Camera will come with 50 GB of free storage.

Microsoft hasn't released the final cloud details of Windows 8 and/or Windows Phone 8, but you can bet that the cloud will be a key. We already know that tools such as calendar, contact lists, instant messaging, and account settings will all be in one place on Microsoft devices now, a step in the right direction. The killer app may be SkyDrive, which will automatically sync to photos but also allows documents to be stored and shared over the cloud. This has been Apple's shortcoming in the mobile market, and it should push business users who have given up on Research In Motion's (NAS: RIMM) outdated operating system to Windows Phone 8.

New products are key
This week, Nokia and Microsoft unveiled the new line of Lumia smartphones using the Windows Phone 8 platform, and the reaction wasn't exactly positive. Nokia has gotten financial incentives from Microsoft to make smartphones based on Windows Phone 8, but they may not be the key to the operating system's success.

In July, 25.6% of U.S. mobile users used Samsung devices, and the company has introduced compelling devices in recent months. If it can make desirable devices for Windows Phone 8 as well as Google's (NAS: GOOG) Android platform, which is the market-share leader among smartphones, it could help Microsoft and Samsung in the market.

Foolish bottom line
To me, it's clear that Nokia won't be the key to Microsoft's success in smartphones; Samsung will. Both companies are bringing big guns to the fight against Apple and Google as well.

The software and cloud capabilities Microsoft has already announced make me think that this could be an operating system worth keeping a close eye on. It doesn't have the same app ecosystem that Apple and Android currently have, but with the dominant desktop operating system it shouldn't be hard to attract developers.

For more on this smartphone battle and how Microsoft can compete, check out our premium report on the stock. It comes with a year of updates when breaking news happens and much more. Find out more about the report.

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Fool contributorTravis Hoiummanages an account that owns shares of Microsoft and Apple. You can follow Travis on Twitter at@FlushDrawFool, check out hispersonal stock holdings, or follow his CAPS picks atTMFFlushDraw.The Motley Fool owns shares of Microsoft and Apple.Motley Fool newsletter serviceshave recommended buying shares of Google, Apple, and Microsoft, creating a synthetic covered call position in Microsoft, and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. Try any of our Foolish newsletter servicesfree for 30 days. The Motley Fool has adisclosure policy.

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