Mobile opportunity from Microsoft’s Yahoo bid

So far, the internet portal players have failed to achieve a convincing level of scale or momentum with their forays on to the small screen. Nor have any of the mobile operators achieved de-facto dominance with their portal brands. When it comes to internet services on mobile phones, everything is still to play for in a potential market measured in billions of people.

The mobile internet opportunity is certainly not the principal rationale for Microsoft’s bid for Yahoo. Looked at from the perspective of mobile, however, a merger between Microsoft and Yahoo would have some persuasive logic to it, because the two players’ mobile activities complement each other in some interesting respects.

What will people want to do with the internet on their mobiles? Lots of things, of course. But most of them can be summarised in the phrase “find things and places, communicate with people”. This, in turn, translates into three key applications – search, maps and messaging.

So one route for success as a mobile internet portal player would be to achieve a commanding share of usage for this group of applications, interworking them tightly with the phone’s operating platform so that the applications are easy to use and can be integrated with phone functionality such as address books, content stores and telephony functions.

Google is starting to put some of this together. Its search engine works well as an independent service on mobile because of the simplicity of the interface, and the small of amount of data traffic it generates. Google is also the search partner for some of the world’s biggest mobile operators, most notably Vodafone and T-Mobile.

On maps, Google’s Maps and Earth applications are gaining popularity as mobile services, although not yet with the same level of traction as search.

Messaging is the weakest link in the chain for Google, though its Gmail and Google Talk services are growing in popularity. And now, Google’s Android initiative aims to provide the platform to underpin all these applications, to provide a compelling services environment for mobile users.

A merged Microsoft/Yahoo could exert a hefty counterweight to Google’s mobile strategy. On the software side, Microsoft’s mobile strategy has focused on the platform, through its Windows Mobile operating system. Yahoo, on the other hand, has focused on applications, including both individual applications such as Flickr, as well as its integrated suite ‘Go’.

A merged Microsoft/Yahoo could start to develop the kind of integration between platform and applications that is still only a gleam in Google’s eye. Yahoo and Microsoft also have a substantial combined user base in the three key mobile internet applications; in particular a commanding lead in messaging, where Google is weakest. And technical work to integrate these communities is already under way, with Microsoft and Yahoo having announced interoperability between their messenger services in 2006.

Microsoft and Yahoo have a track record of co-operation with the mobile operators in developing mobile internet services, with numerous partnerships in place for several years for mobile access to their email and messenger services. Yahoo is also building a set of partnerships with operators in the embryonic area of mobile advertising, including AT&T in the US, and Vodafone and T-Mobile in Britain.

As the mobile internet develops, a co-operative relationship with the operators will be an important asset – the operators control data tariffing and in many markets they dominate the handset supply chain. It will be hard for any internet portal player to achieve critical mass without favourable conditions in these two areas.

John Delaney is principal analyst at telecommunications and software consulting firm Ovum. This story first appeared on BusinessSpectator.com.au