Microsoft Corporation Gains a Key Ally in the Internet of Things

By Markets Fool.com

In February, Microsoft announced a free version of Windows 10 for the Raspberry Pi 2, a popular credit card-sized computer which costs $35. Microsoft recently followed up to that announcementwith a partnership with Qualcomm , which will also bring a free version of Windows 10 to the DragonBoard 410c board computer.

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The Dragonboard 410c. Source: Qualcomm

The DragonBoard 410c is roughly the same size as a Raspberry Pi 2, but it has a faster 64-bit CPU, Bluetooth, Wi-Fi, and GPS connections -- four features which the 32-bit Pi 2 lacks. The DragonBoard 410c costs $75, but its beefier specs could make it a better all-in-one solution for creating Internet of Things (IoT) devices. This means that the board can power smart home devices, robots, drones, or wearables which can be remotely tracked.

This partnership will help Microsoft boost its presence in the booming IoT market, which IDC forecasts will grow from $1.9 trillion in 2013 to $7.1 trillion by 2020. Let's take a closer look at how this partnership relates to their long-term IoT strategies.

What the IoT means for Microsoft
This is not the first time Microsoft has teamed up with Qualcomm to advance its IoT efforts. Last June, Microsoft joined the AllSeen Alliance, a Qualcomm-led IoT project which uses the open source AllJoyn framework to let smart homes, cars, and mobile devices connect to each other. Other members of the AllSeen Alliance include Cisco Systems, D-Link, LG Electronics, Panasonic, and Sharp.

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In the IoT market, Microsoft needs to widen its defensive moat against ARM Holdings. ARM, which licenses most low-power IoT chip designs, recently launched an IoT platform for mBed, its own 32-bit OS. mBed represents a disruptive threat to aging embedded operating systems like Windows Embedded and BlackBerry QNX.By making Windows 10 compatible with 64-bit ARM-based board computers like the DragonBoard 410c, Microsoft can dominate more demanding devices which are out of mBed's 32-bit reach.

The IoT market represents the final frontier of the One Windows strategy. By offering Windows 10 as a free upgrade for most non-enterprise users on phones, tablets, and PCs, Microsoft plans to unite all consumer-facing devices under a single OS. Microsoft will then extend that reach into IoT devices, which can be accessed by the same "universal apps" which can run across multiple Windows devices. The data gathered from all those devices will be channeled to Azure, theMicrosoftcloud service, which will beef up its analytics capabilities.

Source: Microsoft

Therefore, the future of Microsoft's commercial cloud business -- which achieved an annualized run rate of $5.5 billion as of last quarter -- partially depends on its ability to expand its IoT market presence.

What the IoT means for Qualcomm
Qualcomm is the largest smartphone chipmaker in the world, but it has been expanding into other new markets like microservers, board computers, wearables, and IoT devices.

Qualcomm's IoT strategy is built on the foundations of its mobile chip and baseband businesses, which have a presence in a wide array of industries, including health care and smart cars. Qualcomm does not disclose its IoT revenue separately, but its interest in the market is obvious. Last year, it announced plans to acquire CSR, an electronics company which specializes in Bluetooth, wireless, and automotive infotainment services, for $2.5 billion. It also launched its Qualcomm Robotics Accelerator, powered by start-up accelerator TechStars, which will help start-ups develop robotics and IoT devices. That initiative directly relates to its AllSeen Alliance.

However, Intel -- which Qualcomm marginalized in the smartphone market -- also has big plans for the IoT market. Last year, Intel launched a dedicated business unit for IoT tech. That unit now houses tiny system on chips (SoCs) designed for IoT and wearable devices. There is Curie, a button-sized modulethat can quickly add Bluetooth connectivity to wearables. Edison, a beefier SD card-sized computer, can quickly connect devices to the Internet and each other. The unit has posted healthy growth -- last year, Intel IoT revenue rose 19% year-over-year and operating income climbed 12%. In response to the AllSeen Alliance, Intel, Samsung, and Dell co-established a new IoT group,the Open Internet Consortium, to develop rival communication standards for IoT devices.

Intel's button-size Curie module. Source: Intel

This focus on the IoT market is troubling for Qualcomm, since Intel can leverage its dominant market share of the server and PC markets to promote its IoT chipsets. Intel could also start subsidizing OEMs with free samples and financial assistance to grow its IoT market share, just as it did with its mobile OEM partners.

A win-win situation
Microsoft's dedication to ARM-licensed chipsets is a win-win situation for all parties involved. Microsoft extends its reach from the PC and mobile market into IoT devices, ARM's licensees get a new OS, and Qualcomm's board computers could gain more mainstream attention. Those benefits will not be felt overnight, but they could firm up foundations for these growing IoT businesses.

The article Microsoft Corporation Gains a Key Ally in the Internet of Things originally appeared on Fool.com.

Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of Qualcomm. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.