Microsoft on 'Threshold' of Windows Phone growth

WP sees some success in U.S., Europe amid continued problems in China

Recent successes for Windows Phone smartphones in the U.S. and Europe continue to be overshadowed by challenges the platform faces in China and elsewhere.

The Windows Phone operating system still ranks third globally, far behind Android and iOS, yet most experts say it will have staying power for years to come. That's because software giant Microsoft has deep pockets and clearly wants to keep the OS durable. Microsoft and Windows Phone will also get boosts as the company converges the mobile OS into the Windows operating system.

The Lumia 920 smartphone with Windows Phone 8 (Credit: Nokia).

Smartphones running the Windows Phone OS took nearly 5% market share in the U.S. in the third quarter ending Sept. 30, and topped 10% in the combined five-biggest European countries, according to data released Monday from market research firm Kantar Worldpanel ComTech.

The momentum for Windows Phone comes from low-cost handsets, such as the Nokia Lumia 520

Meanwhile, China, the world's largest smartphone market, remains challenging for Nokia and Windows Phone, with their market share languishes at 3.5%, according to Kantar analyst Dominic Sunnebo. A variety of Chinese smartphone makers selling Android devices at low prices but with high-quality specifications have dominated the Chinese market.

Sunnebo said Microsoft should partner with a major Chinese brand, but that "does not look likely to happen soon" because of Microsoft's planned takeover of Nokia.

Success in Europe seen as limited

The recent Windows Phone success in Europe is probably limited and won't drive sales in China or other countries with major economic growth in coming decades, such as India, Brazil or Russia.

"Microsoft's takeover of Nokia, based in Finland, may actually hurt [Windows Phone] in Europe, if it doesn't keep the Nokia brand, and I expect Microsoft won't keep the Nokia brand," said Jack Gold, an analyst at J. Gold Associates.

Even in the U.S., Windows Phone struggles to grow. "In the U.S., people who work at mobile phone stores haven't embraced Windows Phone, and until they do, it will remain a backup choice to iPhone and Android," said J.P. Gownder, an analyst at Forrester.

In China, Gownder added, inexpensive Android devices are "incredibly popular" partly because Android enjoys local Chinese developer and language support.

"Both the U.S. and China are top smartphone markets, and the Chinese market is going like gangbusters," added Kevin Restivo, an IDC analyst. "You have to be highly exposed in both markets if you want to be a global powerhouse, but Windows Phone has minimal share in both countries."

Microsoft to back Windows Phone for long haul

Even with its struggles over Windows Phone, Restivo and Gold agreed that Microsoft will probably support Windows Phone for the long term even if it doesn't gain much more than 10% market share and remains stuck in third place.

"I expect Windows Phone to gain share slowly, but Microsoft has lots of resources and can subsidize it for a long time if it chooses to do so," Gold said.

Windows Phone still struggles with its past, having only arrived on the smartphone scene three years ago, in October 2010. "Windows Phones came way too late to market with the newest, innovative technologies," noted Patrick Moorhead, an analyst at Moor Insights & Strategy.

"They were late with larger displays, 4G, quad-core processors and higher-end graphics," Moorhead said. "Therefore, Microsoft had to re-target the mid-range market, which hurts their brand strength."

Nokia addressed many of these concerns in recent releases of its smartphones, including the 6-in. display Lumia 1520 running Windows Phone 8, which AT&T put on sale at $100 off, or $99.99 (with a service contract, online only) on Cyber Monday. The sale continued into Tuesday.

It isn't clear how much a phone with high-quality specifications like the 1520 will help sales in the U.S. Windows Phone has done best in the U.S. with lower-end Lumia phones like the 521, according to Kevin Burden, an analyst at Strategy Analytics.

With the 521 and others in its class, Nokia and Windows Phone can slowly build momentum, but that makes it much harder to build Nokia and Microsoft as brands that customers want to buy, Burden said. Having an "aspirational brand ... is still key in making significant market-share gains," Burden said. "This even applies to the Asia Pacific markets."

One important criteria for Windows Phone growth is which target market it seeks. "Microsoft needs to decide whether it still wants to make a premium play or remain a mid-range and value player," Moorhead said.

Windows Phone for the enterprise?

There is also a question of how well Microsoft serves the enterprise market. Once Microsoft moves toward the expected hybrid of the Windows Phone OS with the Windows OS (and possibly Windows RT), it could be easier to sell its smartphones to corporations familiar with the overall Microsoft environment, which includes Office software and custom applications built for Windows-based servers.

"If there's a common set of software across smartphone, tablet and desktop platforms, there's more reason to take Windows into the enterprise, and it's easier for IT managers with less of a development gap," Restivo said.

Microsoft , however, also has to recognize that enterprises with bring-your-own-device policies will make decisions based on what smartphones are hot in the consumer market. "Microsoft absolutely needs to maintain relevance with consumers to drive interest by enterprises," Restivo said.

A cloudy pathway to OS convergence

The future of convergence of the Windows Phone, Windows and Windows RT operating systems seems inevitable, but the timetable is cloudy. The current Windows Phone 8.0 will be upgraded to Windows Phone 8.1 sometime next spring, according to various reports.

But an even bigger change is expected in the spring of 2015 when Microsoft unveils updates for Xbox One, Windows and Windows Phone under the codename "Threshold." They will share common elements, but won't be completely unified.

Microsoft Executive Vice President Terry Myerson reportedly mentioned Threshold in an internal email regarding his engineering group's plans for a unified operating system. The internal email was confirmed by two sources who talked to Mary Jo Foley in a report in ZDNet on Monday.

Xbox One, Windows 8 and Windows Phone 8 already share a common kernel, but Threshold would reportedly support even more commonality, keeping with the theme of "One Microsoft" that CEO Steve Ballmer announced in July.

Somewhat separate from Threshold, Microsoft could be creating a hybrid OS of both Windows RT and Windows Phone, according to various reports, although many analysts have been hoping Windows RT will eventually die out, given the poor performance of early Windows RT tablets.

Various reports and blogs have indicated that recent public comments by Julie Larson-Green, Microsoft's executive vice president of devices and studios, should be interpreted to mean that Windows RT will die, as Microsoft works to reduce the number of operating systems it now supports.

Gold said Microsoft may keep Windows RT alive for a while to work as a hybrid with Windows Phone although he supports ending Windows RT. One factors favoring Windows RT's continued life is its reliance on ARM-based processors (used in the Surface RT tablet from Microsoft, for example). ARM-based processors also power most smartphones, meaning there's a solid connection between Windows Phone and Windows RT already.

The pathway to operating system convergence at Microsoft could take much longer than 2015, which further imperils the future success of Windows Phone, with its slim market share.

Microsoft statement looks ahead

Microsoft wouldn't say when Windows Phone 8.1 will appear nor would it confirm any of the Threshold details. But a spokeswoman issued a somewhat mysterious statement to Computerworld when asked about the future of Windows RT and details about Threshold. Usually, Microsoft will simply say it doesn't respond to rumors, but this time added to that response a hint of future possibilities.

"We have nothing to share [regarding Threshold or a convergence of Windows Phone and Windows RT], but look forward to the opportunities ahead," the spokeswoman said.

A bit of Windows Phone optimism?

This article, Microsoft on 'Threshold' of Windows Phone growth, was originally published at Computerworld.com.

Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.

See more by Matt Hamblen on Computerworld.com.

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