Microsoft fails to buy or take a major share in Palm Inc. in 2009?

For years, Microsoft has tried to be a major player in the mobile market. It has offered mobile operating systems to phone and PDA manufacturers for more than a decade, and even launched its own digital media player to take on Apple's iPod. It is constantly seeking to improve its core mobile products, especially the Windows Mobile operating system and the Zune portable media player.

Nevertheless, despite claims from Microsoft that it has market momentum, the company recently acknowledged that its Windows Mobile segment has not performed well. Further, its Zune business has struggled to gain traction against Apple's iPod and iPhone lineups.

Should Microsoft continue to pour resources into its existing mobile efforts and brands, or take a new tack? Observer David Coursey thinks that Microsoft's best hope for mobile success would be to leverage Palm, Inc., which he says has a winner on its hands with the Palm Pre:

Microsoft should abandon Windows Mobile, abandon Zune, and buy Palm. I know this will be hard for Redmond--admitting defeat after all these fears flogging Windows Mobile--but it is the only path to success. With Microsoft's help, Palm can really become an Apple spoiler.

Microsoft should leave Palm pretty much alone; offering mostly improved developer tools, access to capital, and better compatibility with Microsoft Office. Jointly, the two could build an applications and entertainment store.

Coursey offers several other reasons why this would be a good match, and also discusses Microsoft's marketplace failures, which he says are partially the result of fears among carriers and handset manufacturers of Microsoft "coming in and taking over their industry." He says that a "49 percent stake in Palm might be the best way for Microsoft to enhance Palm's future" while allaying fears that it is trying to dominate the industry. According to Coursey, such a play would let Microsoft clear the decks for a "full assault on Apple in 2010."

But is the cost of buying a major share in Palm and potentially abandoning or restructuring its existing mobile brand strategies worth it? This prediction argues "no" -- despite its current difficulties, a play for Palm would be too expensive, in terms of upfront costs, wasted investment in its existing brands, and potential damage to relationships it has established with the world's handset manufacturers over the years.

Prediction: Microsoft fails to acquire Palm Inc. or buy a major stake in the company on or before December 31, 2009. "Major stake" is defined as at least a 20% stake in the company, along with at least one seat on Palm's board of directors. An announcement of such a deal by this date will result in a negative judgment, even if the deal closes after January 1. However, if Microsoft opts for a share rather than an acquisition, the announcement must make clear the size of the stake and whether or not a board seat is included. Ambiguity on these points will result in a positive judgment.