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Why Is Verizon Flirting With Microsoft?

Tuesday - 1/29/2013, 5:35am  ET

Oh, smartphones. What did Apple and Microsoft do before them? Fight over desktop computers? Please. Those don't even fit in your hand.

In one of the latest chapters in the tech saga, Verizon announced the release of a Samsung smartphone, the ATIV Odyssey, which will run on Windows Phone 8 and cost $50 (or $49.99 for those of us in the "As seen on TV" generation). Verizon and Microsoft attempted to collaborate in 2011, with subpar results. Why is the telecom behemoth choosing now to work again with Windows, and how could the decision affect investors?

Learning from the past?
Verizon's previous foray with Microsoft resulted in the HTC Trophy, a sleek iPhone lookalike that ran on the Windows Phone 7 platform, and seemed as fitting a competition as any against Apple. The catch? As fellow Fool contributor Evan Niu explains, Verizon still considered Google's Android its default operating system, and was also providing its wireless services to Apple iPhones, basically positioning itself to profit no matter where consumer tastes may turn.

While this might have been a shrewd revenue strategy for the telecom company, Microsoft stood to gain little out of the Verizon deal. To top it off, the HTC Trophy was priced at a relatively high $180, and was the only Windows Phone 7 smartphone offered by Verizon at the time. Consumers prefer the ability to choose, and when a company is only offering one expensive product, their attentions will likely veer elsewhere.

Everybody likes free, right?
What a difference a couple of years can make. Besides the ATIV Odyssey, Verizon and Microsoft are also offering the sleek red Nokia Lumia 822, which according to the Microsoft website, is available for free with a two-year contract. The new offer is marketed as a Valentine's Day deal, but is also an aggressive attempt for Microsoft to shove its way to the top of the smartphone competition.

So why are these two companies getting involved with each other again? One short, simple answer: because they could both see better results from it. Verizon has been fighting back against expensive iPhone subsidies, and touted on its last earnings call that renewed efforts by both Research In Motion and Windows Phone could lead to more competition. Last quarter, Verizon saw 63% of activation activity on iPhones and noted that increased iPhone sales weighed on its profitability. 

While the iPhone is as popular as ever, globally consumer tastes are starting to lean toward a cheaper iPhone alternative. By staking a major claim on the cheaper type of product while still keeping a hand in servicing Apple's newest iPhones, Verizon can try pushing U.S. consumers toward other phone offerings in an attempt to decrease its reliance on iPhone subsidies. Since Microsoft is clearly eager to cash in on customers who are tired of iPhone expensiveness, it could be the perfect company for Verizon to collaborate with and cover all of its bases.

It's been a frustrating path for Microsoft investors, who've watched the company fail to capitalize on the incredible growth in mobile over the past decade. However, with the release of its own tablet, along with the widely anticipated Windows 8 operating system, the company is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

This article was originally published as Why Is Verizon Flirting With Microsoft?on Fool.com

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