What Microsoft And Windows 7 Phones Are Really Up Against

By James Brumley | October 14, 2010 AAA

In some regards, Microsoft's (Nasdaq:MSFT) to-date lousiness in the smartphone arena could be a good thing from this day forward - the company has nowhere to go but up, currently owning only 5% of the current smartphone operating system (OS) market. And, as a rallying cry to take back some of what Apple's (Nasdaq:AAPL) iPhones had nabbed, a few Microsoft executives even hosted a funeral (literally) for the iPhone - and BlackBerry - as a symbol of Microsoft's intent to bury their competition.

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The funny thing is, the competition Microsoft and CEO Steve Ballmer are gunning for may not even be their biggest threats - now or later.

Before anybody comes to any conclusions about Windows 7 being an iPhone killer, we all may want to take a longer look at how the smartphone market share is actually trending.

Before, Now, After
There are two key measures of market share within the smartphone operating system. The first one is current user market share, which illustrates historical sales, and the other is new-sales market share, which indicates current sales (and sales trends, when looked at over time).

Both are important, since a wide user base also means more qualified customers for your 'app' store. But, since the latter is the one that really makes or breaks current and future revenue growth, we'll keep the projections focused there.

While it should be noted the 2011 and 2014 are just projections, it's not as if they're pulled out of a hat. They are based on 2009's actual figures, and 2010's partial figures.

Smartphone OS Market Share, Past & Projected

2009 2010 2011 2014
Android 3.9% 17.7% 22.2% 29.6%
iPhone 14.4% 15.4% 17.1% 14.9%
BlackBerry 19.9% 17.5% 15.0% 11.7%
Symbian 46.9% 40.1% 34.2% 30.2%
Windows 8.7% 4.7% 5.2% 3.9%

To Microsoft's credit, these projections (from Gartner) were posted before the launch of the new Windows 7 smartphone OS was debuted. Updated forecasts suggest the Windows mobile phone platform will now actually make up 9% of 2012's smartphone sales; one can extrapolate from there.

The overall trend is still the same though. Its Google's (Nasdaq:GOOG) Android OS and Symbian-powered devices rather than Apple's iPhones or Research in Motion's (Nasdaq:RIMM) BlackBerrys at which Microsoft should be taking aim.

Cheap Shots
Respectfully, Microsoft's aim to topple Apple's dominance is a little misdirected. Apple's selling point has consistently been about 'cool' and quality rather than quantity; the company is fine with a smaller market share but an addicted fan base. If Microsoft tops Apple, so what? And Research in Motion's BlackBerry devices? They're losing their former popularity. The real hurdles are to knock off are Android, which powers a variety of brands of smartphones, and Symbian, which powers Nokia's (NYSE:NOK) OS-based mobile devices. And, this is where Microsoft's headaches (as well as opportunities) appear.

The Key to a Successful Windows 7 Mobile OS
If Microsoft expects to compete with Apple on the basis of a robust app store, it may face a rude awakening. Apple's not likely to give up that spot, and Google - though well behind Apple in terms of applications - is still well ahead of Microsoft in that race. It's not like Microsoft will be able to compete price-wise either. With iPhones starting at between $200-400 (with most at the upper end of the scale) while cheaper alternatives are out there, clearly there's a small faction willing to pay the Apple premium.

At the other end of the price scale, Symbian is popular largely because it's found on the lower-priced devices. If Microsoft is willing to lowball, and sacrifice brand image and margins in the process, in order win some deals with phone manufacturers, that's one 'in'. That's not very Microsoft-centric either, however.

The same goes for Google. Windows 7 can't compete with Android in terms of price when open-source Android is effectively free (the only licensing fees Android incurs to phone manufacturers are paid to, ironically, Microsoft).

So, there are to footholds that Microsoft has in the smartphone race.

  1. Businesses
    One has to assume a Windows-powered smartphone environment will be friendly with Windows-PC-based applications. And though the likes of Google Docs have been a threat to Microsoft 'Office' suites, a functional and secure link between the mobile device and a user's PC software may well fill the business gap that Research in Motion could never really fill. In fact, early reviews of Windows 7 Mobile's 'Office' applications have been very positive.

  2. Clear Differentiation
    Microsoft has indeed built a "different kind of phone", as intended. The goal was to get people in and out of their phones as quickly and conveniently as possible, rather than clicking and punching away needlessly.

The Bottom Line
The question is, "will anybody get it?" Windows 7 Mobile is the perfect mix of price, functionality and lack of Apple-esque pretentiousness. Now, Microsoft just needs to explain that to the casual user. If the company can do that effectively, Microsoft may end up surprising a few folks. (Return on research capital (RORC), can help investors measure how much profit R&D spending actually generates. To learn more, see R&D Spending And Profitability: What's The Link?)

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