As Microsoft (MSFT) nears the all-crucial Windows 8 launch, a couple of dilemmas are assaulting it. For Windows 8 to penetrate the mobile market, now dominated by Apple's (AAPL) iOS and Google's (GOOG) Android, Microsoft needs to make Windows 8 unique and irresistible.
To make an operating system unique and irresistible, usually what's needed is a killer feature, maybe a killer app that's not available elsewhere. For the iPhone, initially this was its touch interface, and nowadays it's not one, but many apps which are either exclusive to iOS, or have better implementations in iOS. Android, for its part, gets good enough apps while competing on price and openness.
Originally, what could set apart Windows 8 in the mobile space, was the way it was going to supposedly be closer to the Windows 8 experience in a desktop/laptop. Windows RT (Windows 8 for ARM processors) already lost some of this feeling by not being backwardly compatible with regular Windows software. One of the things which was going to make the Windows 8 experience be closer to the desktop, and rather more "professional" instead of being a gaming/media device, was the availability of Microsoft's Office in the platform, including Windows RT was a version was supposed to be incorporated.
The first dilemma
The problem - and dilemma - is that while the success of Windows 8 on the mobile market is crucial to Microsoft's long term prospects, the Microsoft Business Division where Office is the flagship product represented 32.5% of Microsoft's FY2012 revenues and 72% of its operating income (source: 10-K). It's the largest division, larger than the Windows division. So it calls the shots.
And since it calls the shots, presently the plan is to extend the Microsoft Office franchise to iOS and Android. And therein lies the dilemma - the one feature which could really set Windows 8 mobile apart from its competitors, Office availability, is not going to be exclusive. This happens because for it to be exclusive, the Microsoft Business Division would have to be satisfied with a much smaller market.
Sure, it's not impossible that this move might mean stronger near-term profits as Office is sold more widely, but it might well mean a more difficult longer-term future if Microsoft somehow fails to set a toehold for its Windows operating system in the mobile space.
Not only is Microsoft internally conflicted regarding its Office software, but increasingly it's also conflicted regarding its hardware strategy and the way it will compete with OEMs. The first sign of trouble came with the Microsoft Surface tablet, but now there are reports that say Microsoft is definitely going to bet harder on its own hardware. It's a huge policy change, probably forced by observing the success Apple is having with its own hardware-centered strategy.
The recognition of this policy change lends further credibility to the rumors that say Microsoft is preparing its own smartphone. This cannot but greatly worry Nokia (NOK). While other Windows Phone hardware makers such as HTC or Samsung don't have their strategies built around Windows Phone, Nokia has its entire future reliant on it. A Microsoft phone, especially a successful Microsoft phone, would be a huge blow to Nokia - unless, that is, Microsoft chooses to buy Nokia to build that phone.
Microsoft is going through both internal and external dilemmas which might well shape its future. The internal dilemma of not giving Office exclusivity to Windows 8 mobile seems particularly important, because it increases the chance that Windows 8 might not penetrate the mobile market successfully.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.