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The future of Windows Phone may be in the budget category

Published Apr 1st, 2013 4:40PM EDT
Windows Phone Low-End Market

After some delays, Nokia’s (NOK) Lumia 520 and Lumia 620 budget models have debuted in key Asian markets and they have clearly eclipsed the supposed flagship phone, the Lumia 920. Recent discussions with two United Kingdom operators reflect an emerging consensus that the Lumia 920 is fading fast in Europe, while the low-end Lumia 520 is sparking a lot of early interest. India’s most popular e-commerce website Flipkart reflects the same phenomenon: The new Lumia 520 and 620 models hog 2 of the top 5 spots, while the Lumia 920 has vanished just months after its debut.

The Flipkart chart is not particularly novelty-driven since the aging Galaxy Note II and Galaxy S III are still doing just fine. The Lumia 920 just doesn’t seem to have legs in the luxury category where the competition has tightened even further with the success of the Sony (SNE) Xperia Z. The Xperia Z manages to reach No. 5 on the Flipkart chart despite its nosebleed pricing of 38,000 rupees, or  7,000 rupees more than what the Galaxy S III costs right now in India.

What is interesting about the early Lumia sales pattern at Flipkart is that it is the only other brand cracking the top 10 apart from Samsung (005930) and Sony. The Lumia 520 is priced at 10 500 rupees, which is precisely half the price of the best-selling smartphone, the Samsung Galaxy Grand. The Lumia 520 is also priced well below the level of the best-known Asian budget Android models like Samsung Galaxy S or Sony Experia U.

This seems to be the one strategy that works for Windows right now: Pricing relatively highly specced smartphones about 20% below the leading Android mid-range models. Equipped with 5 megapixel cameras and large displays, the 520 and 620 are competitive with equivalent Samsung and Sony models because Nokia is willing to press the prices lower. Micromax and Karbonn models with better specifications and cheaper prices are still perceived to be so low-quality that Asian consumers are willing to pay a Nokia premium in the budget category.

If Nokia can duplicate this pattern in China and other emerging markets, Windows could have a shot at a real market share rebound later in 2013. As long as brands like Samsung and Sony want to keep their mid-range models relatively pricey, Windows vendors do have an opening in the $200-$250 price bracket. But it’s definitely starting to look like the road to volume growth runs through the bargain basement valley. Luxury entries like the Lumia 920, Samsung’s ATIV S and HTC’s (2498) 8x seem remarkably short-lived, fading rapidly just two to three months after their debuts.

Incidentally, this is what BlackBerry (BBRY) should be doing right now in India: Selling a competitive new Curve model with a 5 megapixel camera at around 11,000 rupees. By undercutting the immensely popular Galaxy S range on price it would have had a shot at mass market success. Instead, BlackBerry opted for an ultra-premium product roadmap for the first half of 2013. Time will tell how that pans out.

After launching mobile game company SpringToys tragically early in 2000, Tero Kuittinen spent eight years doing equity research at firms including Alliance Capital and Opstock. He is currently an analyst and VP of North American sales at mobile diagnostics and expense management Alekstra, and has contributed to, Forbes and Business 2.0 Magazine in addition to BGR.