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VIDEOWindows Phone 7 Facing Partner, Branding Challenges
By
Michael Comeau
Sep 03, 2010 11:00 am
Microsoft is ultimately limited by what its hardware partners bring to the table -- and a major one just said it's not showing up for dinner.
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While PC demand is slowing, smartphone sales remain incredibly strong, particularly for those models with the Apple (AAPL) and Google (GOOG) Android trademarks attached to them:
1. The Apple iPhone 4 has been out for over two months, but is still back-ordered for three weeks at Apple.com.
2. Google said in August that Android activations were at 200,000 per day, a huge jump from February, when that figure was pegged at 60,000 per day. Key Android phones like the Motorola (MOT) Droid X still suffer from supply shortages.
These two forces are doing quite a bit of damage to the old guard. In the second quarter, Apple and Android’s combined smartphone market share hit a whopping 31.4%, according to Gartner. Every other player, including Microsoft and Research In Motion (RIMM), lost ground.
And since Apple's and Android’s momentum is continuing unabated, that number’s going to keep going higher.
One major problem is apps -- the bite-sized, free, or bargain-priced software applications that add new functionality to our smartphones. Apple's and Android’s design and interface strengths are pushing them to the head of the pack, but I believe that apps will keep them there.
Every dollar spent on an iPhone or Android app is a reason not to consider another platform.
Deutsche Bank recently estimated that Apple mobile-device users have invested approximately $100 on average in add-on content like apps, music, and video. So aside from the complexity aspect of switching to a new smartphone platform, there’s a financial cost as well.
The strong app platforms of Apple and Android may be a contributing factor to their high customer-satisfaction rates. According to Nielsen, 80% of iPhone users want their next phone to be an iPhone. That figure is 70% for Android users. And what’s really interesting is that iPhone owners’ next choice is Android, and vice versa.
If we add the above data points together, Microsoft’s challenge is to topple two fast-growing smartphone platforms with sticky app platforms and high customer-satisfaction rates.
And toppling Apple and Google has to be the goal, because Microsoft’s not going to make much money in smartphones unless it takes a ton of market share.
I see two reason that’s not going to happen.
1. Hardware Partners’ Mixed Priorities
Samsung’s YH Lee told Reuters this week that it will prioritize Android phones going forward, and make only one Windows Phone 7 model. That essentially leaves HTC and LG to carry the load. I can’t put a positive spin on this, can you?
And incidentally, Samsung just raised its 2010 smartphone sales forecast due to the success of its Android-based Galaxy S Model.
Android is the safe bet right now, and that means Windows Phone 7 has to do extremely well out of the gate to prove it’s worth betting on, otherwise it could lose other partners who see Android phones selling like hotcakes.
Microsoft is ultimately limited by what its hardware partners bring to the table -- and a major one just said it’s not showing up for dinner.
2. Weak Branding
The Windows name is big, but it’s not necessarily meaningful in mobile. Microsoft will spend a rumored $400 million-plus to promote Windows Phone 7, but a dollar-heavy marketing strategy didn’t work for the failed KIN line.
Android was kick-started in late 2009 with a comparatively modest $100 million ad campaign for the Motorola Droid. A little over a year later, Android is quickly headed to number-one in smartphone market share.
Microsoft needs to begin this push now, because as of now Windows Phone 7 isn't on consumers’ minds.
Positions in AAPL and MOT.
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