PREVIEW-Microsoft’s latest phone experiment

* New “Pink” phone to be unveiled Monday

* Experimental own-branded phone aimed at young market

* Foreshadows Windows Phone 7 later this year

* Microsoft defending foothold in mobile market

By Bill Rigby

SEATTLE, April 9 (BestGrowthStock) – Microsoft Corp (MSFT.O: ) will
show off its latest mobile phones on Monday, but don’t expect a
direct rival to the iPhone.

The world’s largest software company is trying a new tack
in the hotly contested arena with its long-awaited “Project
Pink” devices.

Unlike Apple’s (AAPL.O: ) popular device or Research in
Motion’s (RIM.TO: ) BlackBerry, they are aiming at hyperactive
teenagers who want multiple instant messaging accounts, e-mail,
games, music and Facebook in a cool-looking package.

The phones won’t be powered by Microsoft’s upcoming Windows
Phone 7 software, and will be priced much lower than the iPhone
or Google Inc (Read more about Google Stock Analysis)’s (GOOG.O: ) Nexus One.

But investors will be watching closely as Microsoft, which
has ceded ground in past years in handheld devices, attempts to
reassert itself in a small but significant way.

The Microsoft-branded phones — made by Japan’s Sharp
(6753.T: ) and sold by Verizon Wireless — are the souped-up
descendants of the Sidekick, originally made by hip phone
developers Danger, which Microsoft bought two years ago.

With distinctive slide-out keyboards and swiveling screens,
Danger’s phones are popular with a young urban crowd that has
more in common with Microsoft’s Xbox gaming audience than its
mainstream business-oriented software.

“This is a trial for Microsoft,” said Toan Tran, an analyst
at Morningstar. “If this goes well or better than they expect,
they may be more willing to dip their toe in the water and
build a full-fledged phone.”

AGE OF EXPERIMENTATION

Apple’s minutely designed iPhone showed the weakness in
Microsoft’s approach of creating mobile software and letting
handset makers like HTC (2498.TW: ), Samsung (005930.KS: ) and
Motorola (MOT.N: ) control the rest.

Among the array of Windows-powered phones, few approach
Apple’s smooth user experience, which has attracted tens of
millions of customers and redefined the smartphone category.

Microsoft admitted as much when as it launched its new
Windows phone software in February, saying it was working more
closely with phone makers to make sure the resulting products
hit the mark. The arrival of the first of the new phones this
autumn will determine their success.

In the meantime, Monday’s “Project Pink” phones — which
will have a new name at launch — appear to be an experiment in
building its own-brand phone, if only for a limited market,
reducing the chances of upsetting Microsoft’s handset
partners.

“It’s the great age of experimentation in mobile devices,”
said Kim Caughey, senior analyst at Fort Pitt Capital Group.
“These companies are doing experiments to figure out how big
all these sub-demographics are.”

Microsoft has a good chance of succeeding, said Caughey,
citing sales of Xbox sales to a similar crowd.

LOOSE FOOTHOLD

But the scale of the experiment is small. No more than 30
million social networking/messaging phones were sold in the
United States last year, according to Wall Street analysts. In
total, 1.1 billion mobile phones were sold worldwide in 2009.

Making an impact in a small but important entry level
market would be a significant win for Microsoft, which risks
losing a generation of young users to Apple and Google.

“This is a critical product for Microsoft, they have been
doing very badly in the smartphone market,” said Jack Gold, who
heads technology research and consulting firm J. Gold
Associates. “They basically have to do something to get back
into the market space.”

The latest figures from comScore show that Microsoft lost 4
percentage points of U.S. smartphone market share in the last
three months, leaving it with 15 percent, behind Research in
Motion and Apple. If current trends continue, Microsoft will be
pushed into fourth place this summer by fast-growing Google.

“The last two years, we have really seen nothing out of
Microsoft around handheld devices that connect. That’s an
eternity in this particular space,” said Professor N. Venkat
Venkatraman, chairman of the Information Systems Department at
Boston University’s School of Management.

Microsoft missed early opportunities to integrate the Xbox,
Zune music player and social networking functions into a
handheld format, said Venkatraman. Instead, the company is now
offering a “patchwork of ideas from an over-bureaucracy.”

Monday’s phones are not an attempt to revolutionize mobile
computing, like Apple’s iPad, but they will be a vital signpost
showing Microsoft’s approach to innovation, and may give hints
on the likely success of Windows 7 phones later this year.

“This is their last chance,” said Gold. “Microsoft’s got a
lot of money, they can stay in a market forever if they choose.
But if they don’t get this right over the next six to 12
months, they’re gone.”

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PREVIEW-Microsoft’s latest phone experiment