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Microsoft has three monsters to slay

May 29th, 2014 at 1:39 PM
Microsoft Windows Phone Market Share

To paraphrase the Prophesy of Daenerys from Game of Thrones: “Three beasts shall Microsoft slay – one is slate and one is late and one is cut-rate.” It is now becoming increasingly clear Microsoft’s mobile device strategy hinges on conquering three problems that it’s going to have a very hard time tackling.

Problem No. 1: We now know that Microsoft has to essentially craft a successful smartphone strategy without selling huge numbers of tablets. Microsoft has to crack the phone market without a tablet flank, because all hope for a mass-market Windows tablet triumph is gone.

One of the biggest surprises in the consumer electronics market over the past two years has been the overwhelming success of the cheap Android tablets. By cranking out tens of millions of units of sub-$200 tablets, the Android army forced Apple’s tablet market share down to around 30% in the first quarter this year, which was lower than anyone expected it could be just a year before.

Microsoft has clearly realized that budget tablet war is something it cannot win and is now focusing on high-end tablets aiming to lure some laptop users. Both iOS and Android app ecosystems thrive on the combination of robust smartphone and tablet sales. How will Windows Phone ever gain momentum without tablet synergy? App developers are increasingly focused on Tablet First product development approach, which emphasizes complex graphics and deeper gameplay. How will Windows app market ever come alive without mass market tablet component?

Problem No. 2: Based on multiple handset industry sources, it is increasingly clear Windows Phone 9 will not arrive before the second half of 2015 and probably not until the holiday quarter. That is late indeed.

It means that Microsoft will have to generate excitement for new phones all through the next four or five quarters with the old software platform. Back in 2013, it was widely expected that that Windows Phone 9 would arrive at the end of 2014. But with a projected release of late 2015, it means we may witness another race against clock as vendors try to ramp up volume production for peak Christmas sales period as sales of old generations of Windows models wither.

Optimally, new software should come out over the summer, giving phone manufacturers time to launch several products for the key winter quarter.

Problem No. 3: It is still not clear that Windows models can compete in the low-end smartphone segment, which is expanding with each passing month. In the massive Indian mobile market, even Motorola is now selling models like Moto E  below 7,000 rupees, while Samsung has pressed the price of Samsung Galaxy Star Pro below 5,500 rupees.

The leading Windows cheapie, the aging Lumia 520, looks both pricey and old at 7,300 rupees. There is no sign that Microsoft has the stomach for the ultra-aggression on pricing it would need to really go head-to-head with Android. Asking for even a slight premium for a Windows Phone over similar Android models does not work, especially not with the current app ecosystem imbalance.

These three problems overlap and reinforce each other. Like the hopelessly mad court jester Patchface, IDC is still mumbling weird chants about Windows doubling its smartphone market share in four years, much as it once promised 21% share for Windows in 2015. But the rest of the world has already started writing off the chance of Windows ever clawing north of 5% global smartphone share. Something truly radical has to happen or the three beasts Microsoft has itself helped create will devour its mobile device hopes.

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