Microsoft-RIM caveat: Dim results in deals with rivals

A look at previous partnerships that Microsoft has inked with one-time foes doesn't offer much hope for its new pact with Research In Motion.

Jay Greene Former Staff Writer
Jay Greene, a CNET senior writer, works from Seattle and focuses on investigations and analysis. He's a former Seattle bureau chief for BusinessWeek and author of the book "Design Is How It Works: How the Smartest Companies Turn Products into Icons" (Penguin/Portfolio).
Jay Greene
3 min read

Microsoft CEO Steve Ballmer speaking at Mobile World Congress 2011, shortly after announcing a deal with Nokia. Stephen Shankland/CNET

Seeing Microsoft chief executive Steve Ballmer take the stage at Research in Motion's Blackberry World conference in Orlando today prompted some wags to wonder if Lucifer was donning a down coat.

A new partnership between once fierce rivals, which calls for Microsoft's Bing Search and Bing Maps to be built into the operating system of future RIM devices, would have seemed unfathomable just a few years ago.

But it's hardly an unusual strategy for Microsoft. For years, the software titan has competed fiercely against companies, only to embrace them when their fortunes sag. The list is long. Microsoft made peace with America Online, a one-time competitor in Internet access that also bought browser rival Netscape. It settled with RealNetworks, with which it once did battle in the emerging digital media business. It famously courted Yahoo, eventually striking a deal in which Yahoo replaced its own search engine on its own site with Microsoft's technology.

And just this year, Nokia agreed to use Microsoft's Windows Phone mobile operating system instead of its own Symbian software.

It's hard, though, to point to a deal that Microsoft signed with a former rival that's worked out well for both companies. These days, AOL's Internet access business is a thing for history books, and the company is working to remake itself as a Web content powerhouse. RealNetworks never became the digital media leader it once aspired to be. That's Apple's mantle these days. And Yahoo's chief executive, Carol Bartz, acknowledged during the company's quarterly earnings call last month that Microsoft's AdCenter technology, the system for buying and delivering online ads that Yahoo agreed to use as part of its deal between the two companies, hasn't generated the amount of revenue it expected.

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And it's not clear how much the deals with one-time rivals have helped Microsoft, either. Redmond shelled out eye-popping sums--$750 million to AOL Time Warner, and $761 million to RealNetworks--to settle lawsuits. Did the partnerships launched with those settlements really change marketplace dynamics? AOL agreed to a seven-year royalty-free license of Microsoft's Internet Explorer browser, which has lost share over the years to Mozilla's Firefox and Google's Chrome. Real, in its deal, agreed to support Bing's predecessor, MSN Search, and to promote use of Windows Media on portable devices. Those are businesses dominated today by Google and Apple.

The Yahoo deal has helped increase Microsoft's share of the search business. According to Experian Hitwise, searches powered by Bing topped 30 percent in March. But as Business Insider's Henry Blodget points out, it's coming at a huge cost. Microsoft is shelling out far more for distribution deals, like the newly inked RIM partnership, than it is generating from that business. That's one reason why Microsoft's online services division is hemorrhaging cash, losing $726 million just in the most recent quarter.

RIM, meanwhile, has been losing share in the smartphone market in recent years to both Apple's iOS and Google's Android operating systems. There's no doubt the company hopes the new deal with Microsoft will help staunch those losses. And Microsoft would like nothing more than for Bing to emerge as the leader in mobile search. But the history of these deals doesn't offer either company a lot of hope.