Windows Phone 8: Room For Another Mobile OS?

A question we've been asked recently has been, "What's the realistic market potential for Windows Phone 8 (code-named Apollo) as a competitive mobile OS/platform?" The truth is it's a difficult one to accurately predict as there are so many market variables. Indeed, Microsoft has been in this market for a considerable time without making much impact although its initial foray, with Windows Mobile, was targeted at the enterprise smartphone market. Its focus now is clearly on the consumer space, especially as the BYOD/IT consumerization trend means that the enterprise market is so much harder to define and exploit.

Windows Phone Market Impact

So, is there any justification for thinking that Microsoft can significantly develop its presence and market share this time around? Well, it may be more difficult than many observers think... you only have to go back to 2010 when Microsoft invested an estimated $400-500 million on the launch marketing for Windows Phone 7 and about the same on development and partner costs. And, as we speak, Microsoft is currently injecting about $250 million per quarter to help promote and sell Nokia's Lumia smartphones. The latest estimates for Windows Phone’s market share remain stubbornly around 1.5% to 1.9% worldwide. Ultimately, the tough conclusion from all this is that Microsoft is still having a limited impact on the smartphone market.

 

Microsoft-Nokia Partnership

What can Microsoft do to make a strategic and positive difference for the Windows Phone OS? The obvious answer is the potential for the Microsoft-Nokia relationship to gel and "pull" smartphone market share back from Samsung and Apple. The trouble is that the Microsoft-Nokia partnership is some way away from delivering a competitive smartphone range; and, Nokia's big strategic play on the Windows Phone OS platform is clearly not going to plan, with Q1 2012 revenues down 29% yoy and losses of $1.8 billion. The big issue for Nokia right now is that market share and profitability are both ebbing away. It is effectively being hit competitively from two sides: in the high-end smartphone arena Apple and Samsung are grabbing market share; and, it is also being hurt in the low-end smartphone and featurephone market by players such as ZTE and Huawei. Disastrously, in emerging markets such as China, Nokia's market share has plummeted from 40% in 2009, to 19% in the 4Q of 2011.

 

Critical Success Factors

What other factors are likely to have an impact on the Windows Phone OS and the upcoming version 8? From the consumers’ perspective, the devices they buy have to have the right mix of a differentiated and appealing UI; a strong mobile apps ecosystem; and, a balance of eye-catching hardware features. So, what is going to be the "killer" factor that catapults the Windows Phone OS into the market?

 

The Metro UI

Initial analyst and press views on the Windows Phone Metro UI have typically been favorable, but it’s going to take quite an innovation to propel or leap-frog Windows Phone 8 beyond iOS or Samsung's 's variation of Android 4.0 (ICS). Presently, Microsoft is being very cagey with details on Windows Phone 8 features so perhaps, at best, can we expect a "me-too" deliverable from Microsoft?

 

Apps Market

Secondly, the Microsoft Phone Marketplace, its apps ecosystem (of approx. 80,000 apps), is severely lagging behind the Apple Apps Store (550,000+ apps) and Google's App Marketplace (450,000+ apps) so it seems this aspect cannot hope to deliver a compelling "pull" for consumers in the short term. However, it should be noted that both Microsoft and Nokia are investing to attract developers to write for their platform, including a new mobile apps development program at Finland's Aalto University. But, again, Microsoft is in “catch-up mode”.

 

Mobile Handsets

Finally, you've got to have those compelling devices that Windows Phone will run on. However, what we've seen in the market so far is that Microsoft device partners such as Nokia, HTC, Dell, LG, Acer, Toshiba, etc. are having limited or even a declining impact in the smartphone market against the Samsung/Apple leadership out there. What’s needed is some hardware innovation but this is difficult to create and bring to market; and, even those like the recently announced Nokia PureView 808 smartphone (albeit running on the Symbian Belle OS), with a Carl Zeiss 41MP camera and advanced audio features, are really only appealing to niche sections of the smartphone market. Indeed, to be brutal, these tier 2 and 3 “following” brands appear to be struggling to get into "catch-up mode". The only glimmer of light for Microsoft appears to be new, low-end smartphone partners such as ZTE, and possibly Huawei, aggressively entering the market.

 

Conclusion

So, our overall conclusion, unlike projections from the analyst firm Ovum (predicting an 11% market share for Windows Phone by 2017), is relatively pessimistic, particularly in developed markets such as N. America and Europe. In our opinion, Microsoft’s best chances for increasing its worldwide market share would be to target emerging markets such as China, Brazil and India where it can develop volume sales based on a Windows Phone 8, low-end, smartphone positioning.


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