Future Of Windows Phone

The Windows Phone platform has been out for over a year, and yet, we have seen it make minimal impact on the smartphone market. Its market share has been languishing at less than 4% in the US market, with sales showing no signs of taking off anytime soon. With the launch of the Nokia Lumia 900 to rave reviews, Microsoft & Nokia are hoping to make a splash in the US to drive the platform. Can Windows Phone evolve to become a viable third platform in the smartphone market?

First, let’s understand the problems plaguing the Windows Phone platform :

1. Lack of Manufacturer & Carrier Confidence

      Over the last year, HTC and Samsung launched multiple Windows Phone models to complete indifference from consumers. As a result, OEMs invested less in marketing their Windows Phone products, as they didn’t see a large market out there that found the platform appealing. Microsoft found this situation so disturbing that they decided to rope in the sinking ship that was Nokia, and pay them nearly $250 for each Windows Phone shipped. Even carriers have not shown much interest in promoting Windows Phone. There are mixed signals with Nokia roping in AT&T to launch the Lumia 900 in the US, but major European carriers voicing their dissatisfaction over the sales performance of the Lumia line.

2. The Myth of the WP Marketplace

      I’ve read a lot of reports lately about the “fast growing” Windows Phone Marketplace. The argument goes something like this :

“Windows Phone managed to hit the 80,000 app mark in less than 18 months, while iOS and Android took about 15 and 20 months respectively, to reach the same milestone. This means that the Windows Phone ecosystem is growing faster than Android and roughly at the same pace as iOS”.

This argument completely ignores the staggering growth of the number of app developers since the launch of the iOS and Android platforms. One study credits the “app economy” created by iOS and Android with creating over half a million jobs, from practically none in 2007. This growth has undoubtedly been exponential, and therefore, we have a ratio of 1-2 mobile developers per app for iOS/Android vs. roughly 10 developers per app for Windows Phone. This clearly indicates that developers have not yet shown great interest in the Windows Phone platform. To corroborate this data, jobs for freelance mobile developers have seen a drop of nearly 30% for Microsoft’s platform, while those for Android and iOS have grown by about 160% and 80% respectively.

3. Consumer Indifference

      As I’ve already detailed above, Windows Phone has not really made an impact on the smartphone market, as consumers have been drawn to Android handsets and the iPhone. This has not even escaped the eyes of Nokia’s management team, as they’ve stated in their SEC filing.

Now, given that the stakes for Nokia and Microsoft, in the success of the Windows Phone platform, are incredibly high, what can they do to make the platform viable?

1. Identify your Target Market

      Research shows that most smartphone owners, specifically 70% of Android and iOS users will retain their current platforms going forward. This trend will only grow stronger as consumers become more familiar with these platforms, and even the Lumia 900 will have difficulty breaking through this barrier. In addition to this, Android and the iPhone already own significant mindshare in developed markets, where smartphone penetration is already high. Their mindshare in emerging markets is growing as well, but it is not yet at a stage where it is a significant entry barrier. Keeping these facts in mind, along with the problems highlighted above, the target market shrinks to non-smartphone owners, primarily in emerging markets.

2. Understand your Target Market

      Feature phone users, especially those in emerging markets, tend to be significantly price sensitive. Android manufacturers have already begun to acquire these consumers with attractively priced devices, which increase their odds of upgrading the same user to a higher priced handset down the road. Nokia has taken a step towards this marketing by launching the Lumia 610 at $250. But this pricing model is not nearly aggressive enough, as shown by Samsung launching the Galaxy Pocket at around $140. In addition to this, Google has made it clear that their next goal is to challenge feature phone prices.

3. Time is of the Essence

      One thing both Nokia and Microsoft don’t seem to understand is that their window of opportunity, even in this market, is extremely limited. In order to understand why, we need to take a look at two key factors : 

• Hardware Cost : According to Moore’s law, processing power doubles every 18-24 months. The more important business definition is that, today’s hardware may cost half as much in 18-24 months.
• Impact of Hardware on Performance : Second, Android, as an operating system, tends to be hardware dependent, because of its ability to multi-task and multi-thread tasks at equal priority. Windows Phone and iOS are fairly limited, lightweight operating systems, and are hence, less hardware dependent. But as hardware capability improves, Android devices show the largest jumps in performance – Anyone who’s picked up a Tegra 3 device would know what I’m talking about.
  
  This means that today’s low-end Windows Phones offer superior performance to low-end Android phones. The challenge is to get consumers to try these Windows Phone devices while this short-lived advantage exists, when consumer opinion & word-of-mouth is on Android’s side. Once you have acquired a low-end customer, it is easier to upgrade him/her to a higher end device within the same platform. The scary part is that Nokia seems to realize this, and still seems to be dragging its feet, most likely because of the following reason.

4. Cannibalize your own Products to survive

      Nokia is likely very reluctant to aggressively cut prices on its new Windows Phone models because it risks cannibalizing its feature phone portfolio in these markets, specifically the newly launched Asha series. What they need to understand is that these devices don’t have much of a future anyway, with both global & local Android manufacturers launching smartphones at the same price points. In fact, this trend has already had a negative impact on Nokia’s Q1 guidance. If Nokia wants Windows Phone to survive, they must cannibalize their own products.

Conclusion

      Nokia needs to bite the bullet and cut prices & margins on its Windows Phone models to drive adoption among first time smartphone buyers in emerging markets. If Nokia misses the boat on this opportunity, Windows Phone will have little chance to be a major player in the future.