Windows Phone as the third ecosystem:
SWOT Analysis & Forecast (2013-14)
Industry briefing
Windows Phone 8 represents
a key development for
Microsoft, and one that
the company hopes will
emphasize the relevance of
Windows in a post-PC era.
However, with more than
85% of new smartphone
shipments running either
Android or iOS, how will
Windows Phone look to
compete?
WDS Industry Briefing Windows Phone as the third ecosystem
WDS Industry Briefing
Contents
EXECUTIVE SUMMARY
p3.
MICROSOFT’S ‘MOBILE PERSISTENCE’
p4.
Protecting the family silver p4
Remembering Windows Mobile
p5.
The rise of Android p5.
Android’s virtuous circle p6.
SWOT ANALYSIS & FORECAST
p7.
p7.
Strengths
- Microsoft the innovator p7.
- Cross-platform reality p7.
- Lessons learnt p7.
Weaknesses
- Controlling the retail experience
p8.
p8.
Opportunities - A patent safehouse p8.
p8.
p9.
- Hardware Threats
p9.
- Resist fragmentation p9.
- Platform relevance p10.
SUMMARY
p11.
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WDS Industry Briefing Windows Phone as the third ecosystem
Executive Summary
Free markets typically don’t like two dominant
players. Instead, the ‘rule of three’, whereby mature
markets thrive with three dominant players and
several others looking to fill the niches, has long
been the preference. From the grocery market to
the airline industry, the rule of three is one of those
unwritten laws of economics that seems to drive the
greatest competition and innovation.
In many cases, the wireless industry is no exception.
In 40 major markets studied by Chetan Sharma
Consulting, the top three mobile operators
controlled an average of 93% of their respective
markets1 . But one area where the balance
potentially needs to be addressed is the battle for
smartphone OS market share.
In the third quarter of 2012, the top two platforms
(iOS and Android) accounted for 85% of all
devices shipped; the highest share for the top two
smartphone operating systems to date.
With RIM still suffering to maintain its legacy share
(the BlackBerry OS share has declined quarter-onquarter from 44% at the start of 2010 to less than
5% in Q2 2012), attention is increasingly being
directed at Windows Phone to break the duopoly.
But can Microsoft really build a credible third
ecosystem?
Following the launch of Windows Phone 8 in
October 2012, this paper identifies key Strengths,
Weaknesses, Opportunities and Threats (SWOT) that
WDS believes will shape the platform’s growth for
the period 2013-14.
To learn more, and for a more detailed analysis
of Windows Phone and how WDS can help your
business leverage the growth in smartphones,
please contact tim.deluca-smith@wds.co
1 http://www.chetansharma.com/blog/2012/04/30/global-mobilemarket-update-2012-annual-edition/
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WDS Industry Briefing Windows Phone as the third ecosystem
Microsoft’s “mobile persistence”
Launched in Q4 2010, Windows Phone still has some work to do to reach double-digit market share. In fact
since launch, sales of new Windows Phone devices have been unable to outpace the decommissioning of
legacy Windows Mobile devices. The result is that two years after the launch of Windows Phone, Microsoft
has been unable to secure a net gain in OS market share, falling from 2.7% in Q4 2010 to under 2% in Q3
20121.
To compound the challenge, over 85% of new smartphone shipments are based on the competitive Android
and iOS platforms (from Google and Apple respectively), leaving Microsoft facing a huge installed base of
consumers already invested (both financially and emotionally) in alternative ecosystems.
However, one must not underestimate Microsoft’s determination to develop the Windows Phone platform
into a truly credible third ecosystem, regardless (within reason) of time and budget. To understand this
persistence requires an understanding of the company’s more traditional lines of business.
Windows Phone is by no means about making money directly from the smartphone market. Licensing fees
vary between Microsoft’s hardware partners (depending on unit sales), and estimates put the figure at
between USD$20-$30 per unit2. Revenue from licensing can therefore be assumed to be pocket change for
a company earning more than $24bn3 from its Business Division (responsible for selling software including
Office, Exchange, SharePoint etc. see Fig 1). In fact licensing revenue probably just about covers its Windows
Phone marketing costs and incentives programs. Instead, the importance of Windows Phone goes far deeper
and it’s paramount to Microsoft’s wider software strategy.
Protecting the family-silver
Microsoft’s cash cow is the enterprise market. Both desktop and server-side software have historically been
protected thanks to the company’s dominance in the PC market. But in a post-PC era of multi-platform
computing, Microsoft can no longer take this market for granted.
Entertainment & Devices
$9.6bn
Business
$24bn
Windows &
Windows Live
$18.4bn
Server & Tools
$18.7bn
Fig 1. Microsoft revenue by division,
fiscal year 2012.
(source: Microsoft 2012).
The interface into an enterprise’s back-end infrastructure
is no longer just the desktop PC; it’s an Android
smartphone and tablet too. Over time this is undoubtedly
going to have an impact on how IT Managers look at
building and investing in their back-end infrastructures,
and Microsoft knows it.
The consumer market isn’t without risk either. For those
consumers buying into the Apple ecosystem; spending
money in iTunes and building content libraries that they are
accessing through multiple portable devices, is their next
desktop purchase going to be a PC or will they get a better
experience by adding an additional Apple-interface into
the equation in the form of an iMac or MacBook?
Markets are shifting. The way in which both enterprise
and consumer users are creating, consuming and sharing
content is being cut free of the desktop and Microsoft’s
historical “back-yard”. Google understands this too.
Android now offers the company one of the world’s
most ubiquitous computing platforms through which to
deliver access to its applications, services and, ultimately,
advertising inventory.
In 2010, sales of smartphones beat sales of PCs for the first time. For Google, the platform through which
consumers access its services and through which advertisers can promote their products and services
is largely irrelevant; be it a PC, smartphone or tablet the goal is to direct traffic towards its advertising
inventory. For Microsoft however, the shift has an impact not only on short-term revenue from existing PC
licensing (a Windows license averages about US$55 per unit4) but also from emerging markets that were
once seen as the source of long-term revenue opportunities and explosive PC growth.
1 http://www.gartner.com/it/page.jsp?id=1848514 and http://www.engadget.com/2011/11/15/gartners-q3-2011-smartphone-figuressamsung-on-top-globally-a/
2 http://www.trustedreviews.com/news/zte-pays-microsoft-15-20-per-phone
3 Microsoft 2012 Fiscal Year results
4
4 http://www.guardian.co.uk/technology/2012/jun/25/microsoft-surface-microsoft
WDS Industry Briefing Windows Phone as the third ecosystem
The rise of Android
At the same time, Android entered the market. It
was immediately compelling to those manufacturers
fearful of Microsoft’s potential dominance; there
were no licensing costs and [outside of the Open
Handset Alliance], little certification.
Operators too, embraced Google’s model;
open source code enabled greater degrees of
customization to achieve differentiation. Android
was the complete antithesis of Windows Mobile.
In many of these emerging markets, reliance on fixed
network infrastructure is being replaced by reliance
on high-speed cellular networks. Little wonder
then that sales of smartphones in these emerging
markets often outpaces that of the traditional PC.
Quite simply, Microsoft needs Windows Phone to
succeed if it is to maintain leadership across its wider
software portfolio.
Remembering Windows Mobile
Of course, Windows Phone isn’t Microsoft’s first
foray into the smartphone OS market. The current
platform replaces Windows Mobile which, in 2007
and 2008, saw its license sales peak at around
15m, putting it ahead of RIM. There was a strong
third-party ecosystem of developers and, with a
focus on the enterprise user, Microsoft appeared
well positioned to control the wireless smartphone
ecosystem in the same way that it had done in
the PC market. But this very comparison to the PC
industry is one of the reasons many believe the
Windows Mobile platform failed to gain further
traction and was so quickly replaced by Android.
Many hardware manufacturers had seen firsthand
what Microsoft’s dominance in the PC market
had done to hardware brand names such as Dell
and Toshiba. It had become almost impossible to
differentiate on anything other than price, and
control [and loyalty] of the end-user was managed
at a software level by Microsoft. Many smartphone
manufacturers feared history would repeat itself.
From the end of 2008 onwards, Windows Mobile
licenses began to decline.
By this time, much of the groundwork for pushing
smartphones into the consumer market [and away
from an enterprise-only focus] had been done by
Apple. A year earlier it had released the iPhone,
demystifying the smartphone platform and focusing
attention not on hardware specs and technical
competence but on features and use-cases.
However, the Apple iPhone was expensive to procure
and so required heavy mobile operator subsidies
to reduce its retail price and make it accessible to
the consumer. It also remained limited to selected
partner networks for several years.
Android openness, however, meant that smartphone
products could be produced at a far lower cost.
It was yet another win for Google; Android’s use
exploded and today Android is deployed by more
than 35 OEMs globally. The smartphone had gone
mass market.
Android took the smartphone experience
mainstream and managed to do it in a way that
allowed mobile operators enormous customization
options and a lower price point than had previously
been achievable. However, the approach has not
been without its critics. Where Apple maintains tight
control over both the OS and hardware, Android is
subjected to multiple reference designs, hardware
types and customization layers.
Android deployments can never compete with the
hardware consistency (or software integration) of
some of its competitors; but nor does it want to.
Google executives have repeatedly argued against
clamping down on hardware standardization,
claiming that the company does not believe in a ‘one
size fits all’ solution5.
5 http://android-developers.blogspot.com/2011/04/i-think-imhaving-gene-amdahl-moment.html
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WDS Industry Briefing Windows Phone as the third ecosystem
Microsoft, however, looked to exploit a gap. An OS available across multiple hardware brands yet controlled
by minimum hardware specifications and a tightly controlled UI (user interface). Its view was that by doing
this it could assure a more controlled experience for end-users and a more predictable cost of ownership for
mobile operators.
The theory is sound; but did it come too late? By the end of Q3 2011, a year after the launch of Windows
Phone, Android had already passed 50% market share (see fig 2). And, with such a critical mass in the
industry, it quickly created a virtuous circle for Google.
Fig 2. OS market share (Q1 10 - Q2 12). Android reached 50% market share in Q3 11. (source: WDS 2012).
Android’s virtuous circle
As an open-source, customizable platform, the Android OS has given the mobile operator, developer,
manufacturer and end-user communities exactly what they want. All sides of the Android ecosystem see
value and quickly gain momentum. Today, mobile operators benefit from a broad inventory of Android
products that, thanks to manufacturer adoption, spans multiple price points; from entry-level devices that
require little, to no subsidies, to high-end premium products.
The Android approach is thus one of low-friction. Manufacturer adoption has been rapid thanks both to
Android’s licensing model and its refusal to mandate minimum hardware specifications. A new wave of
manufacturers, many unknown outside of their native South East Asia have suddenly found themselves
able to compete on a global scale, leveraging their existing expertise in producing low-cost products on
a massive scale to produce products that compete favorably [on a software level] with those of the more
established manufacturer brands.
Before Android, names like ZTE and Huawei were relatively unknown in western markets. Today ZTE is the
world’s fourth largest device manufacturer with growing focus on the higher-margin smartphone segment.
But it’s not just the large-scale manufacturers benefiting. The influence of smaller players can be seen in the
rise of the handset ‘long-tail’; the hundreds of smaller manufacturers that remain too small to register on
the shipment league-tables compiled by industry analysts. In 2009, these ‘others’ accounted for 12.3% of all
handset shipments globally. By the end of H2 2012, they controlled over a quarter6.
The sheer volume, and breadth, of Android devices has allowed mobile operators to quickly feed consumer
appetite for smartphones at a lower cost than many alternatives (and in a way that allows them to customize
the UI) and finally, the growing base of end-users fuels developer interest, swelling the Android Market.
Breaking this virtuous circle isn’t simple and Microsoft’s success in the market will be dependent on a
number of factors, some within its control, and others outside it.
6 Source: WDS OEM Tracker Q2 2012
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WDS Industry Briefing Windows Phone as the third ecosystem
SWOT Analysis & Forecast
In October 2012, Microsoft released Windows Phone 8. The platform represents a
seismic shift not only for Microsoft but also for the smartphone industry in general.
For the first time, consumers will have access to a true cross-device platform
experience thanks to Windows Phone 8 being built around the same kernel as
Windows 8. This will allow native services and third-party applications to run
seamlessly between mobile devices (smartphones and tablets) and desktop PCs.
The coordinated announcement of Windows 8, Windows Phone 8 and Microsoft’s
Surface tablet once again emphasized the company’s continued desire to show the
relevance of Windows in a post-PC era. By forecasting possible smartphone market
conditions for the coming 24 months, WDS’s SWOT analysis (Strengths, Weaknesses,
Opportunities, Threats), identifies key market factors that WDS believes must be
considered by Microsoft and its partner community to secure Windows Phone’s
growth prospects.
STRENGTHS
Microsoft the innovator
One must not underestimate the importance, and gravitas, of the original decision to retire Windows
Mobile and build a new platform from scratch. With an installed base of users (regardless of its declining
population), the temptation would have been there to further iterate on the existing platform; much the
same as Nokia tried with Symbian before its eventual departure in 20127.
That decision acted as a very public ‘reset’ and while any honest evaluation of Microsoft must concede that
over the last five years the company has worked in the shadow of many of its competitors, failing to take full
advantage of the then nascent smartphone and tablet markets, it should be acknowledged that its reset
enabled development resources to be better aligned towards a common cross-platform vision.
Cross-Platform Reality
The success of Windows Phone 8 cannot be considered without appreciating the investment behind the
desktop OS, Windows 8. The two work very much in unison and Microsoft CEO Steve Ballmer himself stated
that the launch of Windows 8 was “one of the top two or three big moments in Microsoft’s history.”8
The launch of Windows Phone 8 to coincide with Windows 8 was obviously well planned. Indeed, although
never officially acknowledged by Microsoft, it is generally assumed that the development of Windows Phone
8 ran in parallel to Windows Phone 7 to map the launch schedule of the desktop OS in Q3 2012. Windows
Phone 7 delivered the necessary ‘stop-gap’ to set consumer expectations and introduce the Metro design
language.
With established services across gaming, communications and the cloud, the kernel around which both
Windows 8 and Windows Phone 8 are built should deliver the final mile in true cross-platform integration.
Lessons learnt
In conclusion of its strengths, while some view the legacy of Windows Mobile as a negative, with
Microsoft having to work doubly hard to (re)win the hearts and minds of mobile operators, there are clear
benefits. Importantly, it seems Microsoft has learnt from its mistakes. In the days of Windows Mobile, if a
manufacturer wanted to add an extra feature, Microsoft complied. But while it fed the manufacturers’ desire
for differentiation it added to an increasingly unmanageable portfolio of Windows Mobile customizations,
with each new update having to undergo hundreds of tests to ensure new code didn’t negatively impact
legacy customizations. Not only did it tie-up development resource at Microsoft but the fragmentation
alienated and confused mobile operator partners looking to range Windows Mobile devices. Today, Windows
Phone offers a considerably more controlled environment with mandated hardware specifications and
limited customization options. Maintaining control of this, potentially in the face of OEM pressure to open
up a greater degree of customization, will be critical.
7 http://www.itproportal.com/2011/03/28/nokias-open-letter-spells-out-symbians-demise
8 www.bbc.co.uk/news/technology-20072497
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WDS Industry Briefing Windows Phone as the third ecosystem
WEAKNESSES
Controlling the retail experience
In the previous section it was explained how the development of Windows Phone 8 around the Windows 8
kernel was key to delivering cross platform integration between applications and services; Microsoft hopes
that this will prove to be a key selling point for consumers and a move towards removing the delineation
between desktop and portable (tablet and smartphone) devices. However, it should be considered that
the sale of these devices remains fragmented with the mobile operator channel controlling the majority
of smartphone sales. As such, the value between the smartphone, and complimentary Windows 8 and
Windows RT devices (outside of the operator’s SKUs) may be diluted during the sales process.
Microsoft would do well to focus resource on non-operator channels (including electrical and big box
retailers such as Best Buy and RadioShack) where the full complement of Windows Phone 8, Windows 8
and Windows RT devices are available. In these environments, retail associates will be better positioned to
demonstrate the integration between devices and, therefore, the value of a unified platform to consumers.
OPPORTUNITIES
A Patent safehouse
While it is not this paper’s intent to analyze current litigation between smartphone manufacturers, it is
worth noting that Microsoft may be an ‘accidental’ beneficiary in the frequent patent-infringement cases
between Apple and Android OEMs.
In Q3 2012, Apple successfully sued Samsung, with a jury awarding Apple over US$1bn in damages and
potentially limiting the sale of several Samsung devices in the US. This trial is just one of a number being
fought between the two leading smartphone manufacturers in key markets around the world.
With claims, and counter-claims, still in motion, most cases can be traced back to Apple’s claims over OEM’s
Android deployments and infringement on Apple’s user experience. In effect, any win for Apple sets an
enormously powerful precedent to hold over any Android competitor that it thinks might be infringing.
It will be difficult for Apple to attack Google directly as many of the patent infringements don’t relate to the
core Android OS, rather its application. This may cause several OEMs to look carefully at the diversity of their
device ranges. For those deeply invested in Android, the need to diversify and include a secondary OS (such
as Windows Phone) in their line-up now seems all the more prudent as a way of avoiding expensive and time
consuming litigation. This is all the more inviting given that Microsoft offers patent protection to Windows
Phone licensees.
In addition, what was once a ‘free’ open-source operating system is increasingly becoming exposed to
licensing costs. In fact Microsoft itself has been successful in claiming IP infringement from several Android
manufacturers. These cover patents including implementing both long and short file names in the same
file system, a monitoring system that determines when to erase memory from flash memory devices, and
patents related to managing contact databases and meeting requests. Today, Microsoft collects a fee for
Android devices built by several manufacturers including Samsung and HTC. Depending on the cost of this
fee, it’s not inconceivable to suggest that the cost of producing an Android device isn’t too far behind the
cost of producing a Windows Phone device.
Looking ahead, as manufacturers look to factor potential litigation in their virtual ‘Bill of Materials’, and
operator partners look to limit their exposure to supply chain issues, Windows Phone may have a window of
opportunity to exploit over the coming 12-24 months.
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WDS Industry Briefing Windows Phone as the third ecosystem
Hardware
Microsoft has long dabbled in hardware development; from peripherals to the Xbox. It has even attempted
mobile devices through its Danger subsidiary. The launch of its Surface tablet is the strongest indication
yet that the company may be embarking on a move to increase hardware production. Microsoft CEO, Steve
Ballmer, has himself expressed that Microsoft will “dive in where we [Microsoft] see important opportunities
to set a new standard.”9
However, while the launch of a tablet (Surface) came as a response to Microsoft’s frustration at the OEM
community’s failure to create compelling Windows hardware; the same cannot be said of the smartphone
makers.
So while the opportunity almost certainly exists to invest in the manufacturer of a Microsoft smartphone
running Windows Phone, there is also an associated threat. Any move into own-brand smartphone hardware
must be conducted cautiously to avoid conflict with existing Windows Phone hardware partners. Google
has previously felt this pain, selling its own-brand Nexus devices before pressure from OEMs and mobile
operators forced a back-track. Today Google owns Motorola, a key Android manufacturer, provoking a
degree of hostility from the industry’s largest Android manufacturer Samsung. Following Google’s Motorola
Mobility acquisition, Samsung’s CEO asked the company’s management to focus on software innovation.
Many viewed this as a hint towards the development of its own OS, sitting outside of Android.10
THREATS
Resist Fragmentation
The virtuous circle created by Google is reliant on Android’s continued openness and flexibility
[particularly across hardware]. However, this approach has been the subject of some criticism, with many
industry commentators suggesting that a lack of hardware control has led to application and version
fragmentation11.
This is most visible in the process of software updates12, with availability of Android updates reliant on both
the OEM’s strategy (whether they wish to update legacy devices or stimulate replacements across their
customer base) and the target device’s hardware specification.
At the other end of the spectrum sits Apple, whose updating processes for iOS bypasses the mobile operator
altogether. Both approaches have been applauded and criticized in equal measure; Android offering
operator and OEM customization at the expense of a coordinated and consistent updating process,
and Apple delivering a unified and efficient updating process by not allowing the slightest degree of
customization to the platform.
Looking to find a compromise, Microsoft has found a middle ground. Alongside minimum hardware
specifications for all Windows Phone builds, Microsoft limits UI customization and maintains control over
software updates; testing updates centrally, and compiling any revisions from hardware (OEM and chipset)
partners before distributing updates to mobile operators for delivery to end-users13.
This isn’t to suggest that Windows Phone has escaped update problems of its own. In March 2011, when the
company began releasing its NoDu patch to add cut and paste (and more) functionality to devices. A number
of consumers were subsequently presented with error codes . This occurred when the target device was
running low on clear storage. This example was limited to a single smartphone manufacturer and hardware
build, indicating that while Microsoft does its best to control the Windows Phone platform and threat
of fragmentation, the frustrations of a (semi) open ecosystem where operator, OS vendor, and hardware
manufacturer must coexist yet operate independently, remain.
9 http://www.bbc.co.uk/news/technology-20072497
10 http://www.forbes.com/sites/greatspeculations/2011/08/20/samsung-could-squeeze-google-in-response-to-motorola-deal/
11 http://www.zdnet.com/blog/hardware/the-sorry-state-of-android-hardware-fragmentation/19427
12 http://theunderstatement.com/post/11982112928/android-orphans-visualizing-a-sad-history-of-support
13 http://blogs.windows.com/windows_phone/b/windowsphone/archive/2011/03/10/phone-updates-process-and-timing.aspx
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WDS Industry Briefing Windows Phone as the third ecosystem
Windows Phone 8 has presented the platform’s biggest fragmentation issue to date. During the
announcement, it was made clear that no legacy (ie: Windows Phone 7.x) devices would be able to upgrade
to the new platform. While many commentators have shown concerns that this is the start of a wider
fragmentation issue, it should be noted that rather than an incremental improvement on the existing
platform, Windows Phone 8 is rebuilt around the Windows 8 kernel. This affords greater integration between
smartphones, and PCs and tablets running the Windows 8 platform. However, this has come at the cost of
existing users.
Managing subsequent fragmentation threats will be a key success factor, particularly if Microsoft looks to
downgrade hardware specifications to make Windows Phone 8 relevant to low-cost emerging markets in
the same way it did for Windows Phone 7.5 (see next section), a move that saw 5% of apps on the Windows
Marketplace unable to be installed on lower-powered hardware14.
Platform Relevance
Microsoft must make the Windows Phone platform relevant to emerging markets. This year, according to
analysts, low-cost smartphones will replace high-end (and higher-margin) devices, as the primary growth
engine for the industry. This ‘race to the bottom’ offers a welcomed window of opportunity on a number
of fronts for manufacturers and operators alike. In particular it opens up a number of emerging markets,
where price sensitivity or local market regulation against device subsidies has made it difficult for many
manufacturers to build significant market share or migrate featurephone customers onto a smartphone
platform.
But it’s not just emerging markets who are keenly watching the race to the bottom. For operators in many
mature markets the growth of the entry-level smartphone category represents a welcome opportunity to
relieve some of the cost pressures associated with heavy subsidy investments.
As part of an operator’s subscriber acquisition and retention costs it’s a line item that many are looking
to control in a bid to improve profit margins. Lower-cost devices offer a fast-track to this, offsetting more
expensive products.
Historically, this charge was led almost exclusively by Android. However, at the beginning of 2012 Microsoft
lowered the minimum hardware specifications for Windows Phone 7.5. Requiring a less powerful processor,
only 256mb RAM and even removing the need for a camera, the goal was to increase the potential market
for Windows Phone devices by 60% by making lower-cost product available to fast-growing markets across
Asia and Latin-America.
The move certainly added a degree of flexibility to manufacturer partners, allowing them to improve their
margins and tailor their builds to cater for lower-cost markets. However, while the move was positioned
to support entry into new markets, it also has the secondary benefit of allowing hardware manufacturers
to better differentiate on the hardware level and compete on raw specifications as many Android
manufacturers are starting to do.
At the time of the announcement, Microsoft insisted that it was continually working to optimize the
Windows Phone experience for lower-powered devices and to maintain a consistent experience in keeping
with the principles behind its original hardware specifications.
On the Windows Phone blog, Terry Myerson, corporate vice president of Windows Phone explained. “With
Windows Phone, we’ve done the engineering so that nearly all of the current apps will just work on these
new [lower powered] phones. Those apps that do need more power are flagged in the Marketplace so if you
have one of these new phones with less memory you won’t unknowingly download an app that won’t run
well.”15
14 http://thenextweb.com/microsoft/2011/03/04/samsung-wp7-owners-having-fresh-problems-with-pre-nodo-update/
15 http://blogs.windows.com/windows_phone/b/windowsphone/archive/2012/02/27/windows-phone-at-mobile-world-congress-2012.aspx
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WDS Industry Briefing Windows Phone as the third ecosystem
The trend for a wider portfolio of devices across multiple price points must obviously continue with Windows
Phone 8 if the platform is to remain relevant and Greg Sullivan, a senior product manager for Windows
Phone, explained in an interview that the high specifications of Windows Phone 8 will not preclude the
company from addressing the lower-end of the market. For example, added support for microSD cards
means OEMs will be able to make even cheaper Windows Phones.
“Having support for removable SD storage will enable OEMs to build devices with less storage initially that is
user expandable, so the bill of materials is potentially even lower for the handsets,” Sullivan said. 16
However, coming to market as an antidote to supposed hardware fragmentation, Microsoft must work
doubly hard to ensure it doesn’t break one of its key differentiators, limiting upgrade and app incompatibility
if subsequent revisions to hardware specifications are required.
Summary
This isn’t the PC industry where direct selling, corporate accounts and retail sales sit alongside each other
to provide Microsoft multiple ways to reach the end-user. In the wireless world, the mobile operator is sole
gate-keeper. It decides what hardware (and software) to attach to its network, in turn driving the focus of
the handset manufacturer and developer communities. Windows Phone is very much Microsoft’s last chance
to get it right and deliver something that meets operators’ needs.
Fortunately it seems that their approach, sitting between Apple’s tightly controlled ecosystem and Android’s
low-friction, open approach is having a positive impact, albeit at a slower pace than Microsoft would like.
Operators too are welcoming a third ecosystem. On its Q1 2012 earnings call, Verizon Communications Inc’s
chief financial officer said. “It is important that there is a third ecosystem that’s brought into the mix here,
and we are fully supportive of that with Microsoft. Android is an incredible platform today that we helped
create. And we’re looking to do the same thing with a third ecosystem.17”
The next 24 months will be critical in establishing a foothold in key markets and of key importance will be
the ability to clearly define the uniqueness of the platform over rivals. This must include leveraging the
platform’s new kernel, allowing tighter integration with Windows 8. At this point, the OS will deliver a true
cross-platform experience, taking advantage
of the growing catalogue of Microsoft services,
including SkyDrive and Skype. However, Microsoft
must not underestimate the need to turn mobile
operators into advocates by demonstrating
a proposition that alleviates some of the cost
pressures and supply chain issues being felt in the
industry. Helping to reduce subsidy investments
by increasing the lifespan of the device, reducing
instances of product returns, offering a product
that doesn’t adversely load support traffic and
creating a proposition that remains compelling
enough for the consumer not to churn; these are
all areas of true value to a mobile operator and
ones that Microsoft must look to leverage.
November 2012
For more information please contact tim.deluca-smith@wds.co
16 http://www.knowyourmobile.com/features/1464973/windows_phone_8_an_interview_with_greg_sullivan_part_one.html
17 http://www.businessweek.com/ap/2012-04/D9U84VK01.htm
11
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