Microsoft Aims to Catch Musiwave, Swamp Apple

Redmond reached a deal with Musiwave parent company Openwave Systems (Nasdaq: OPWV) that gives it the exclusive right to negotiate an agreement to purchase Musiwave, a move that would leverage that firm's partnerships with music labels, device makers and mobile network operators.

Microsoft intends to move toward an outright acquisition of Musiwave, it said. Terms of a possible deal and a time frame for it to be completed were not disclosed, but Microsoft said it would keep the firm's headquarters in Paris if a deal were to close.

Access to Mobile Carriers

Musiwave provides carriers a platform for delivering various music-related services, from download subscription services to ringtone purchases. The deal would instantly give Microsoft access to the firm's relationships with both music publishers and mobile carriers. Musiwave customers include Orange UK, Virgin Mobile and T-Mobile.

"Microsoft and Musiwave share the same philosophy in working with hardware and mobile operator partners to deliver great experiences for mobile device users," said Pieter Knook, senior vice president of the mobile communications business at Microsoft. "Bringing Musiwave on board would provide an opportunity for Microsoft to explore new areas in the mobile space previously untapped, and to showcase the power of software plus services."

The potential purchase also "reflects Microsoft's recognition of the software and technology expertise in Europe," Knook added.

Serious Business

The move is a reminder that Microsoft is "very serious" about becoming a player in the portable music space "and continues to invest heavily in it," Enderle Group Principal Analyst Rob Enderle told the E-Commerce Times.

The fact that Musiwave is based in Paris and has many European customers is not a coincidence. Microsoft may also be trying to attack Apple (Nasdaq: AAPL) at some of its weak points -- including the fact that it doesn't offer a subscription service and the fact that the market is moving toward cell phone as the preferred device for portable music over MP3 players.

"France is where Apple is weakest as that market tends to favor platforms like Microsoft's which allow for multiple payers, and they don't like to see a lock-in between the service and the hardware," Enderle added.

In fact, French regulators have told Apple it does not like the tie-up between the iPod and the iTunes Music Store, which has also been the focus of private antitrust lawsuits in the United States.

"France is also the most nationalistic country in Europe, and having a local entity should provide Microsoft with an advantage there," Enderle said. "Right now, acquisitions are one of the fastest ways to build competitive advantage and this makes you wonder how long it will be before Apple has to develop this skill set."

Other Competitors Considered

Microsoft already has strong inroads with device makers, with its mobile software loaded on 140 phones sold by 50 handset makers around the world.

The purchase could have broader implications for Microsoft, meanwhile, enabling it to better converge its Windows Mobile device platform, its Zune MP3 player family and its online services such as MSN and Windows Live.

The move also comes as Google (Nasdaq: GOOG) revs up its mobile platform efforts, a move that could have more carriers looking for options to deliver services that don't require them to give up control of the advertising revenue their users generate.

Though the purchase price was not disclosed, the deal is likely to be a win for Openwave, which has owned Musiwave for about two years. Openwave paid 100 million euros, or about US$139 million at the time, JupiterResearch analyst Thomas Husson said.

In addition to its strong platform, which Openwave has continued to invest in, Musiwave has long been admired in Europe for its marketing savvy and its ability to customize services for its carrier partners. "They are viewed as a strong partner and one willing to let the carriers enjoy the majority of the benefits of the services they design for them," Husson told the E-Commerce Times.