Microsoft's mobile mistake

By the standards of its US$45 billion offer for Yahoo, Microsoft could have found the $500 million it is rumored to have paid Danger in Steve Ballmer's couch.

With no disrespect to the smart folks at the innovative Danger, a decade-old developer of a Java-based "hiptop" operating environment used in the T-Mobile Sidekick and other devices, Microsoft's return on the investment will probably be commensurate with what it spent: not much.

By that, I mean Danger isn't likely to help Microsoft gain much traction in the mobile phone market against the likes of Apple and Research in Motion. "What they are doing, what the advantage is, is just not obvious," Ken Dulaney, vice president of mobile computing at Gartner, told me.

In the enterprise software world, big players such as Oracle acquire companies that have a large installed base and a fast-flowing stream of revenue. In this world, intellectual property is everything, and to a large extent, that means the developers and other brainy folks. Given that everyone expected Danger to go public, those employees had lots of reason to stick around. Now they don't.

Dulaney wonders how many key employees will stay with the new owner. He notes the Danger culture is one of opposition to Microsoft. Some of its developers have roots at the old General Magic, a mid-1990s Apple spin-off that lived to fight the Redmond giant. At this point, why not join Danger co-founder Andy Rubin at Google?

Whether or not the employees jump ship -- or especially if they do -- it's not clear what Microsoft is actually buying from Danger.

What would Microsoft do with the Danger OS?

Maybe Microsoft wants to use the Danger OS as part of the next iteration of the not-so-great Windows Mobile. Given that the Danger OS is Java-based, it doesn't seem likely that Microsoft would take the huge leap required to make it a foundation for a new Windows Mobile.

Perhaps Microsoft would want to move some of the good features of the OS (such as parts of the UI) to the next version of Windows Mobile, which Dulaney thinks is due in 2009. Given the wide differences in the environments, it would not happen quickly or easily. "It might have been cheaper just to hire the developers," he said.

Microsoft is "not going to throw away" Danger's UI expertise, Microsoft Mobile group product manager John Starkweather said during a press conference. But he wasn't more specific than that.

Does Microsoft see something we don't?

His boss Robbie Bach made some references to Danger as a "services" company. "When you actually dig into what they [Danger] do, the vast majority is actually about the social networking and communications services they provide on top of those devices. That's where we'll expand what they do," Bach said.

I have no idea what Bach means. I thought Danger was in the business of developing software for mobile phones and the like. That's what it's done to date, after all.