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Why Windows Phone cannot rebound

Published Jul 1st, 2014 5:17PM EDT
Windows Phone Market Share

The latest Kantar Worldpanel numbers for smartphone market share may not be surprising, but they are grim indeed for Microsoft. In the heart of the Windows empire in the United States, Windows Phone’s market share dropped from 4.7% to 3.6% between May 2013 and May 2014. In Germany, the decline was from 6.2% to 5.9%. In Brazil, the share remained flat at 5.5%. In China, Windows Phone saw a collapse from 3% to o.6%.

This may seem like just another spring, a season among others. But look closer — we are in fact witnessing the final hope for any meaningful future for Windows Phone being snuffed out.

First of all, in 2013 Windows Phone did have some momentum in emerging markets and it desperately needed to maintain it. The platform’s share in Brazil grew from 4.2% to 5.5% between May 2012 and May 2013. In China, Windows Phone climbed to 3% thanks to some enormous effort from Nokia, which has 20 years of history in Brazil and China along with distribution networks consisting of tens of thousands of points of sale, universal brand recognition and painstakingly filled reservoir of consumer goodwill.

All of that helped give Windows Phone 3% to 5% slice of the smartphone market. And now that pitiful toehold is already eroding, washed away by the flood of $100 Android smartphones. There is no coming back from this debacle. The prices of low-end Windows smartphones cannot catch up with Android models — to do so would have taken a rapid climb to at least a 20% share in emerging markets and associated economies of scale. That window of opportunity has now slammed shut.

In the U.S. and Germany, the two most important Western smartphone markets, cheapie Androids are also wounding Windows badly. But a far deeper injury comes from the inability of Windows handset vendors to exploit the one clear weakness of Apple: The lack of jumbo-display smartphones. Samsung turned phablets into a global craze more than two years ago and Windows had a chance to attack Apple with a strong range of 5-to-6-inch models. It was unable to do so.

Windows Phone’s market share declines in the U.S. and Germany this spring may seem relatively slight, but they are in fact a deeply shocking symptom of the naked vulnerability of Microsoft in the handset arena.

This was the spring when Apple was genuinely weak. The new iPhones with large screens are rolling out in the autumn, leaving many consumers unwilling to buy the models with small displays. That’s why Android share in Germany moved from 77.9% to 80.9% over the past year. Apple is now possibly more vulnerable in the smartphone market than it has been since 2008, when it was still shackled by narrow distribution.

Yet the Windows camp has failed spectacularly to exploit this opening. Germans are nowhere near as fond of Apple as Americans or Brits. It has always been the most likely gateway to Windows Phone’s success in Europe. That year-over-year share decline in Germany from 6.2% to 5.9% is no boring piece of statistics. It is the death knell for the entire Windows Phone project.

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.