Microsoft has a relatively long history with mobile operating systems, stretching back to the mid-1990s and Windows CE. Developed originally for "embedded systems," Windows CE quickly found its way into PDAs and eventually phones, and while consumers never warmed to the platform, it did achieve a level of success in the enterprise.
Microsoft doesn't tend to invest time and capital into market segments it can't dominate, which makes one wonder how it is still a distant fifth in the worldwide smartphone market. According to IDC, Windows Phone 7/Windows Mobile will capture roughly 4% of the worldwide smartphone market by the end of 2011.
However, IDC predicts that once the next version of Windows Phone 7 arrives in products later this year, Microsoft will be on firmer footing. In fact, IDC is so bullish on the future of Windows smartphones that it predicts Microsoft will capture more than 20% of the market by 2015, moving ahead of iOS and behind only Android.
Here are four reasons why Microsoft will be a major smartphone player in a few years, and three reasons it won't.
1. Strong partners and deep pockets
Ever since Microsoft announced its partnership with Nokia, tech pundits have been buzzing about a possible acquisition. A bad earnings forecast for the second quarter of 2011 released by Nokia in early June added fuel to the fire. Thus far, none of the rumours have amounted to anything more than talk. What shouldn't be overlooked, however, is that this partnership alone is a big deal.
"The partnership with Nokia is a stroke of genius," says Brian Reed, vice president of products for BoxTone, a provider of mobile device management services. "Nokia is fighting for its life. The company needs Microsoft, and Microsoft needs a strong mobile partner who can deliver compelling hardware."
Don't forget that, despite Nokia's recent troubles, it still has the largest installed phone base and an overall strong brand. "One major advantage Microsoft has is that by being largest software vendor in world, they can bring together more pieces of both corporate and consumer value chains than anyone else," Winthrop says.
Compared to Google, Microsoft has a much longer legacy of selling to consumers and enterprises. They have stronger relationships. They have a stronger sales channel, and even though they lag behind Apple, Android and even BlackBerry as far as apps are concerned, there are still plenty of Windows and Windows mobile developers out there. The gap could close quickly.
2. Cloud computing and the advantage of openness
When Apple announced its iCloud cloud service, they drummed up a ton of coverage for something that would make any Windows or Google Apps user say, "So what?"
Google and Microsoft were both more aggressive than Apple about rolling out cloud services, but even if iCloud is Apple playing catch up, services like iTunes Match and Book synching will make the iPhone even stickier. Looking at smartphones through the consumer prism, why would an iPhone user abandon the platform for Windows Phone, or Android for that matter?
However, if you look beyond a single device to a larger device ecosystem, the decision to stick by a single vendor becomes more complex. If you're an Apple fanboy, you'll be fine being stuck with iPhone, iPad, MacBook and on and on.
But what about devices Apple doesn't offer? What if in-vehicle GPS units are able to interoperate easily with phones on other platforms? What if you prefer a different tablet than Apple's?
Today's cloud services follow two distinct and nearly opposite strategies. Apple's iCloud will be as closed as most of Apple's other offerings, while Google Apps is wide open. If Microsoft can navigate some sort of third ways, where enough proprietary addons are available to create stickiness, but the cloud services are open enough to provide a platform for strong, unexpected third party innovation, Microsoft and Windows Phone could benefit.
"Many companies are moving to Office 365 or are planning to. By moving application logic and data into cloud, it's now much easier to move data across devices," Reed of BoxTone says. The Windows cloud could easily allow greater device-to-device sharing, even across devices from competing vendors. Moreover, since Microsoft owns the desktop, Microsoft's cloud could be far more compelling than Apple's or Google's as a hub for photos, contacts, music, calendars and more, a hub that you simply log into with any device from anywhere to access whatever digital assets you want.
Productivity, communications and collaborative apps, all with added functionality and cross-platform availability via the cloud, could set Windows Phone apart from other smartphones. Of course, this means that the smartphone provider that should really fear Windows Phone's rise in the short term is RIM's BlackBerry.
3. Making the phone experience more "productive"
Although Windows Phone 7 is being targeted at consumers, Microsoft's strong history with productivity and business could become a significant differentiator.
"Windows Phone delivers the most seamless Exchange email, calendar and contacts experience, enables full access to documents on SharePoint sites and rich viewing and editing of Microsoft Office documents such as optimized mobile navigation in Word and editing in PowerPoint. Additionally, IRM support, alphanumeric PIN and Exchange server search are just a few of the features coming in the Mango update that will enhance mobile productivity," says Tim McDowd, senior manager, Windows Phone.
Microsoft's expertise with productivity influences even consumer-focused features. Instead of taking an app-based approach, Microsoft built Windows Phone 7 around a taskcentric philosophy.
"Android is mimicking the iOS experience, but Microsoft is trying something different," says Winthrop of The Enterprise Mobility Foundation. "The perfect example of their task-focused approach is the People Hub. You not only see contacts, but you can also see what they're doing."
People Hub integrates into Facebook, and it will ultimately integrate into other social media, such as Twitter. "There's also an aesthetic difference. Do you want to be constantly swiping between panes, or do you want to access information where it's natural?"
4. Moving beyond tablets and smartphones
Tablets and smartphones are all the rage today, but neither became popular overnight. Who knows what devices will catch fire in coming years?
Chris Fleck of Citrix believes that Microsoft should do its best to bring new classes of mobile devices to market.
"The Windows Phone hardware today is good enough to use but not innovative enough to prompt users to change," he says. "A smartphone was a phone plus a PDA. Now, there's an opportunity to develop 'Nirvana phones.' Take the phone and do more with it. Dock it. Connect it to virtual desktops. Connect it to high resolution video displays."
Of course, such devices exist today, the Android-based Motorola Atrix being the best example, but they're not really capturing consumers' attention yet. As prices come down, that should change, perhaps giving Microsoft just enough time to work on its vision for the so-called "Nirvana phone" before competitors beat them to the mobile punch yet again.
1. Apple and Android's head start
Windows Phone 7 just came out last autumn, meaning that iPhone and Android are generations ahead of Microsoft. Making matters worse, Microsoft has been lollygagging when it comes to updates, which are crucial as Microsoft plays catch up.
"I would prefer to see much more frequent updates, rather than one big dump. As opposed to 500 updates per year, all coming at once, how about 40 each month?" says Philippe Winthrop, managing director of The Enterprise Mobility Foundation.
The second generation of the Windows Phone 7 OS, Mango, was released to developers in May, but Mango-based phones won't be out until the end of this year. Meanwhile iOS 5 phones are due out in the fall, meaning that Apple will have gone from the original iPhone to iOS 5 in less than four years.
Google hasn't been sitting on its hands either. The first Android phone came out in the fall of 2008, and Android Ice Cream Sandwich is due out at the end of this year. Moreover, Ice Cream Sandwich is intended to assuage one of Android's biggest drawbacks, OS fragmentation. Ice Cream Sandwich combines features from Gingerbread (for smartphones) and Honeycomb (for tablets) and will standardise updates across devices from various manufacturers, leading to a more consistent user experience.
2. The rate of change in the mobile market
Microsoft is accustomed to the slower rate of change of the PC market. Wait a few years between major OS upgrades? With PCs, it made sense.
With handsets, consumers expect a major OS upgrade or two during the short lifecycle of the device, and many gadget hounds don't even wait for the carrier contracts to expire before they get a new mobile phone. Even those who wait tend to replace phones around the time they sign a new contract, cashing in on handset subsidies. According to Recon Analytics, the average replacement cycle in the US is just less than 22 months.
Not all of those users simply replace the handset with another from the same vendor, nor do they always stay loyal to carriers. According to MetaFacts, the churn rate for smartphone users is higher than it was for feature phones, with 21% of consumers planning to shop around when their contracts are up.
Of course, this means that Microsoft has more opportunities to entice users to change platforms. Compelling device subsidies, product tie-ins with Xbox or Kinect, or even being the first vendor to add some new feature that no one is thinking about today could shift things in Windows Phone's favour quickly.
But once users switch over to Windows Phone, will Microsoft be able to keep them? Other platforms, including the PC and even game consoles, require enough upfront investment that people stick with them for a reasonable amount of time. Will Microsoft adapt to how consumers make choices and develop loyalty, especially when a critical partner like network carriers tends to rank low on customer satisfaction surveys?
3. Apps and marketplace
The iPhone App Store currently offers over 500,000 apps, double the number available in the Android Market. Windows Phone lags far behind with about 20,000 available apps. Even BlackBerry, often left out of any discussions about the future of smartphones, provides 25,000 apps.
Of course, size isn't everything in an app store. Certain demographics will favour Android simply because it delivers a larger percentage of free apps.
According to Chris Fleck, vice president of mobility solutions at Citrix Systems, it's also important to remember that apps are a secondary, often even tertiary, activity on smartphones. "What's the No.1 thing people spend time on with smartphones? Email," he says.
Despite the popularity of apps, there are three or four common activities that capture the bulk of our attention. Email, texting, web search and of course let's not forget that these things are phones, or something people are buying to actually talk on.
Windows Phone has a long way to go to compete with apps, but simply offering good voice, email and search goes a long way towards levelling the playing field.