Surprise! Windows Phone gaining traction

Microsoft looks to gain mobile momentum with new phones this week

Microsoft on Monday is expected to unveil several AT&T-branded Windows Phone handsets -- a move that comes at a time when the company’s radically changed smartphone OS seems finally to be gaining traction.

Microsoft on Monday is expected to unveil several AT&T-branded Windows Phone handsets -- a move that comes at a time when the company's radically changed smartphone OS seems finally to be gaining traction.

Some industry analysts, such as Gartner, have been revising upwards their projections for Windows Phone unit sales, in part due to Nokia's announcement earlier this month of the first of a new family of smartphones based on the Microsoft firmware. [See "Nokia unveils first Windows phones"]

Other data finds growing interest in Windows Phone -- at least among those consumers who are aware of it. A September consumer survey found that 44% of smartphone owners, and those who intend to buy one, are considering buying a Windows Phone 7 handset, according to NPD Group's Connected Intelligence service.

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"It's much better than many people give it credit for," says Ken Dulaney, vice president of mobile at Gartner. "The new hardware is much better and will compel users to give it a shot."

Al Hilwa, program director for applications development software at market researcher IDC, says, "Windows Phone is on the right track and the latest upgrade closes the gap significantly and begins to differentiate [from iOS and Android. Microsoft has] to get the strategy and ecosystem right, and the market shares will follow."

Yet plenty of obstacles remain, and no one, apparently including Microsoft, expects Windows Phone to leap over Google Android and Apple iOS in a single bound.

"The biggest problem is the name and the marketing," says Dulaney. "Windows Phone 7 is not a name that will appeal to the 25-year-old set. Microsoft thinks that everyone knows Windows. What they're forgetting to investigate is what people emotionally feel about it."

Microsoft's market structure -- an operating system provider working with and through phone manufacturers and carriers -- imposes constraints also, according to mobile watcher Horace Dediu, founder of the Asymco blog and a former Nokia business development manager.

In a recent blog post, he noted that Microsoft's "dependence on a complex value network means that products do not reach users quickly enough and when they do, the marketing message is weak, even when backed by large budgets. The real problem with Microsoft's approach is that it's neither viral like Android (because it has a price and a contract associated with it) nor is it focused and agile like Apple's. It seems to suffer from the worst aspects of modularity (market lag) without benefiting from the control over the ecosystem and end user experience that differentiates it."

There are indications that the lag and lack of agility may be changing. Nokia recently introduced its first two Windows Phone products nine months after announcing its special partnership with Microsoft. It's already distributing the Windows Phones in Europe and some Asian markets, and plans to bring a "new portfolio" of phones to the U.S., a traditionally weak market for the company, in early 2012, while expanding into other Asian markets, and to China later that year.

The pace of Windows Phone hardware innovation may be shifting into higher gear. Nokia, for example, announced this week it will use ST-Ericsson's dual-core NovaThor chips in future Windows Phones. The entry-level U5500 chip, running at 800MHz, supports HSPA+, handles a 12-megapixel camera, and records 720p video. According to ST-Ericsson, the cost-effective U5500 can power smartphones priced under $200 before carrier subsidies. By contrast, Nokia's new Lumia 710 and 800 Windows Phone models cost about $373 and $580, respectively. In the past, Nokia has said it will release lower-priced Windows Phone handsets aimed at developing markets.

New Windows Phone 7.5 handsets introduced by Samsung and HTC have been getting generally favorable reviews (and at least one of the phones being introduced this Monday appears to be a Samsung model as well). The HTC Radar, released this week by T-Mobile for $100 with a two-year contract, is a good example. Though not designed as a high-end phone, it shows a new awareness of the relationship between styling, performance and price for Microsoft's mobile platform.

Initially skeptical reviewers praised the Radar's sculpted heft and solidity of the mainly aluminum body, which makes it feel like a more expensive phone. And despite using "only" a single-core 1GHz Qualcomm processor, reviewers praised the smooth, fluid UI and app performance, and the way Microsoft has integrated online social networks seamlessly with the phone's apps and services.

At Monday's event, it's possible that some of Microsoft's newest manufacturing partners such as Lenovo and ZTE may unveil their first phones for the OS. Images purporting to be of a Lenovo Windows Phone handset recently appeared on a Chinese website.

Gartner's latest projections for 2011 suggest that Windows Phone may have been popular enough to stop the declining unit sales of Microsoft-powered smartphones. In 2010, worldwide sales to end users of Windows mobile devices, counting both Windows Phone and mainly the older Windows Mobile firmware, totaled 12.4 million units, according to Gartner. For 2011, the market watcher now projects 12.8 million (about half of what the company forecast in April). Because the smartphone market as a whole has soared, Microsoft's market share dropped this year to 2.7% compared to 4.2% in 2010.

Chart showing the worldwide sales of mobile operating systems

But next year, Gartner thinks Windows Phone devices could come close to 64 million units, a growth rate of nearly 400%. That's roughly equal to Gartner's forecast for RIM's BlackBerry smartphones, but of course far less than projected iOS device sales, at more than 128 million, and Android units of more than 300 million.

The NPD Group's Connected Intelligence survey, mentioned above, found that 45% of consumers simply are unaware of Windows Phone. Similarly, of the 50% of consumers planning to buy a smartphone in the next six months and who are uninterested in Windows Phone 7, the most popular reason given, by 46% of this subgroup, was "don't really know enough about it."

Microsoft CEO Steve Ballmer seems well aware of that lack of awareness. At the company's annual meeting with financial analysts, he said: "We haven't sold quite as many probably as I would have hoped we would have sold in the first year," and, "There's just more work for us to do as we move forward to establish Windows Phone in the market."

Part of that work is spending more money to help handset makers and carriers to promote Windows Phone handsets, with incentives to retail sales staff and more in-store promotions; and convincing these partners to also spend more.

In a Bloomberg interview last month, Andy Lees, president of Microsoft's mobile unit, explained Microsoft is especially reliant on the carriers' retail salespeople in the U.S., where more than 80% of phones are sold by stores owned by mobile operators. Elsewhere, phone manufacturers sell a larger number of phones directly. He didn't go into detail about what form the retail incentives would take, according to Bloomberg.

"Microsoft's ad campaign needs to focus on what is the value of this operating system," says Ramon Llama, senior research analyst for mobile devices at IDC. "Android and iOS can have a 'carousel' of homepages. Microsoft's UI with its Live Tiles and Hubs [of related apps and services] is a big change from those static icons."

"Many consumers will find that there is a need for Apple-style ease of use and platform consistency but with an Android-style range of devices, prices and form factors," says IDC's Hilwa. "This is the sweet spot Windows Phone is trying to hit."

John Cox covers wireless networking and mobile computing for Network World.

Twitter: http://twitter.com/johnwcoxnww

Email: john_cox@nww.com

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Copyright © 2011 IDG Communications, Inc.

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