Opinion: What explains Windows Phone's sales woes?

82comments
Opinion: What explains Windows Phone's sales woes?
What’s holding back Windows Phone in the market?

Windows Phone is a good mobile operating system. Really, it is. But if the only way you had to judge the quality of an OS was by looking at market share then not only would you think it must be terrible, but it would be getting worse. In Q3 of this year there were less WP7 handsets sold than there were in the first quarter of the year.

So if the product is good, why can't they sell more?

This, in a nutshell, is the conundrum that Microsoft has been facing since they launched WP7 in Fall 2010. Despite receiving high marks from reviewers and excellent satisfaction rates from the people who bought a WP7 device, sales numbers continue to circle ever lower like bathwater emptying down a drain.

The subject of “why” this is happening has received a bit of press lately, sparked by former Windows Phone GM Charlie Kindel, who voiced his take on the matter on his personal blog. In short, Kindel believes that Microsoft’s business model doesn’t encourage carriers or OEMs to want to push Windows Phone handsets with their marketing dollars.


Tech blogger and Apple apologist M.G. Siegler opined that one of the bigger problems WP7 faces is simply how late it is to market. Since iPhones, Android devices, and even BlackBerrys all dominated consumer mind share by the time WP7 launched, the bar had been raised much higher in the eyes of the average consumer. Microsoft needed to make a product so incredibly good that there was no choice but to try it out, possibly luring customers over from existing ecosystems.

Siegler feels that WP7 is a solid product, but it isn’t that compelling. He's presumably correct, since people are not flocking to Windows Phone in droves.

Those two ideas aren't mutually exclusive, and there is probably a lot of truth to both – studies have clearly demonstrated that salespeople don’t push Windows Phone devices in stores. And being late to the party does mean that Microsoft has a harder case to make – not merely “this is a nice OS too”, but “here is why you should leave the already entrenched mobile ecosystems for our product”. But in amongst all of this there may be another reason that has largely been ignored:

Recommended Stories
Windows Phone is competing more directly with the iPhone than with Android

Microsoft doesn’t say this of course. In fact they go out of their way to pit Windows Phone against Android. CEO Steve Ballmer, WP7 managers, even executives at Nokia, all of them practically trip over themselves to compare WP7 with Android. And in one sense this is correct – Windows Phone is competing with Android to attract OEMs. Motorola was firmly in the green robot camp even before Google acquired them, while Nokia famously chose to side with Microsoft.

But honestly it isn’t a zero-sum competition. Many OEMs choose to build phones for both, and even more would if both platforms were equally profitable. Hardware manufacturers follow the money; if consumers adopt Windows Phone en masse, you can bet the OEMs will step up and make what the people are buying.

And here is where Microsoft may be running into difficulty. Windows Phone resembles Android in that they both rely on OEMs to build the devices, but that’s really where the similarity ends. Microsoft allows almost no alternation by OEMs to the core user experience. The hardware specs have to be within a very small tolerance to ensure the consistency of that experience. They control updates themselves, they don’t allow much in the way of carrier bloat, and there’s not a lot of customization that customers can make.

Does that sound familiar to anyone?

Perhaps the real reason Microsoft is not finding traction is they are competing against Apple for the same type of users. Remember that there is more than one way to use a smartphone (a fact that ardent fans of all stripes tend to forget). We can break consumers into rough groups based on their smartphone priorities:

  1. There are people that want a curated smartphone experience, with a minimal learning curve and maximum safety. Often the smoothness and polish of the OS matters more than having the latest tech. Those people often gravitate towards the iPhone.

  2. There are people that like to tinker with their phones, set up home screens in a manner that suits them, and have the right to install or modify anything they darn well please. They often prize flexibility and potential over UI consistency. More often than not those users tend to select Android.

  3. Some people like to pick a phone that simply looks cool to them, or happens to be the right size and/or form factor (or happens to be advertised on TV at the right time). Obviously you can find people like this using most any kind of smartphone (depending on personal preference) but in practice Apple tends to win the lion’s share of customers who care about hardware fit and feel, while Android’s many UI skins and form factors tends to scoop up most everyone else.

The result?

Android accounts for about half of all smartphones sold, and Apple for another 30% or so.

What does WP7 offer to those groups? The core “power user” Android fans will find little to like in the curated user experience of Windows Phone, and people who want physical keyboards or other form factors also won’t find much to interest them in Microsoft’s ecosystem either.

In short, Windows Phone is designed to appeal to smartphone users that would normally choose an iPhone. Apple and Microsoft may offer differing visions of how a mobile UI can look, but at their core their OSes have a lot more in common in terms of what they are offering to consumers.

And competing against Apple for a finite type of customer is hard to do. People who buy Apple products generally have very high satisfaction rates, and are often ardent proselytizers of the products they enjoy. Apple has more cash on hand than any other tech company, and they flex their marketing power (to the tune of almost a billion dollars a year) to promote the iPhone and other iOS products. Moreover, because they control (and profit from) the hardware, by making a single phone Apple can leverage huge economies of scale to select the best materials on the cheap and lock up emerging technologies for months (or years) at a time.

Take the Retina Display as an example. When the iPhone 4 debuted its high-density LCD screen, the sheer volume of iPhones sales allowed Apple a veritable monopoly on the output. The result was more than a year of exclusivity before other companies could tool up and start shipping similar displays in competing phones.

That’s what Microsoft is up against. Nokia, Samsung, and HTC are no slouch when it comes to hardware, but the sheer scale and buying power of Apple tends to overwhelm individual OEM efforts. The Lumia 800 is a very nice piece of hardware, but it doesn’t top the iPhone in manner that would convert Apple customers.

So yes, the carriers aren’t really keen on pushing WP7 phones in their stores. And sure, Microsoft was late to the party with Windows Phone. But what's making matters really difficult is that WP7 is positioned to compete for customers squarely against the 800 pound iGorilla, and doesn't have much to appeal to the part of the market that Android pursues.

When you think of it in those terms, WP7s 1.5% market is no longer surprising.

What can Microsoft do?

Assuming we’ve correctly identified the sources of Windows Phone’s woes, what is Microsoft to do? Kindel is of the opinion that if Microsoft is patient and holds the course that customers will eventually decide that the WP experience is better than Android. As we discussed above, this doesn’t seem all that likely with the current version of Windows Phone, since people who like Android generally choose it for the very things that Windows Phone doesn’t offer.

Yet according to a leaked Windows Phone roadmap, that seems to be Microsoft’s plans. They have two updates coming in 2012, but the large one (which may be Windows Phone 8) won’t be out until the end of the year, and they expect to see “Superphone” hardware advancement at about the same time.


Of course Android Jelly Bean (or whatever they call it) and the iPhone 5 will be out by then, and the smartphone market will have moved past 50% of all mobile phones and be headed towards saturation.

Siegler thinks Microsoft has two options: either push even harder on properties that Microsoft owns (like Xbox integration) and carve out a niche of fans of those products, or start from scratch yet again and attempt to leapfrog Apple and Android in another year or two. As he put it, try to be the iPhone in a world of RAZRs and BlackBerrys.

Unless they plan to out-Apple iOS, what Microsoft most needs to do is figure out how to target Android users that like its flexibility, but perhaps don’t like some of the problems that crop up when a mediocre UI skin is used, or are frustrated by the lack of consistent updates to older phones. To do that Microsoft would have to build more flexibility into the OS for the end user.

Maybe that’s what they will do; the Metro UI is getting adopted in the next desktop version of Windows (which will also run tablets). The Microsoft Developer’s blog has shown quite a few breakthroughs in terms of how developers and end users can utilize Live Tiles. And desktop users will demand greater flexibility to see the information they want.
 
Perhaps the massive Apollo update next year can bring similar flexibility to their phones – especially with something more robust than color themes to customize a phone – then perhaps they could start to compete more directly for the customers that Android attracts. It would also help if Microsoft allowed WP OEMs to offer up a greater variety of form factors – fans of BlackBerrys or the original Droid might be more willing to look at a Windows Phone slider, or candy bar keyboard phone.

Of course the big question is whether they can bake in that sort of flexibility while also retaining smoothness and consistency in the UI.

And if that isn’t a tall enough order, they need to do it really fast – smartphones already account for more than half of all mobile phones sold in North America and Europe, and nearly 1/3 of phones sold worldwide. Saturation and commodity pricing will start to set in to developed markets in the next 12-18 months, and at that point there will be little room for new mobile platforms.

That's not to say Microsoft doesn't have some windows of opportunity (pun not intended). People that are inclined towards an Apple-lke experience but who are holding out for a bigger upgrade than the iPhone 4S could be targets. Perhaps the same types of people who would like LTE, or a larger screen. Combine those people with a high adoption rate among Xbox owners and Windows Phone would certainly grow their market share. But they need to hurry.

2012 is most likely do or die for Windows Phone. Competition is good, and we would like to see it achieve some success, but Microsoft finds itself in a precarious market position. It will be interesting to see how they try to correct it in the coming year.


sources:cek.log, parislemon, Gartner


Recommended Stories

Loading Comments...
FCC OKs Cingular\'s purchase of AT&T Wireless