Why the Windows Phone Has a Bright Future

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The Windows Phone is dead right? Apparently not-survey after survey indicates that Microsoft's  (NASDAQ: MSFT  ) mobile platform is gaining strength. In fact, Windows is growing faster than and other operating system and its best days might still be ahead. 

Quiet success story

This conclusion is based on recent numbers from Kantar WorldPanel ComTech. It shows Windows increased its U.S. market share from 2.9% in the second quarter of 2012 to 4% in the second quarter of 2013, for a gain of 1.1 points. While iOS and Android battle for the title of the top selling mobile operating system, Windows is quietly stealing share.

Smartphone OS Sales Share (%) Q2 2013 Q2 2012 YoY % pt. Change
Android 51.5 52.6 -1.1
iOS 42.5 39.2 3.3
Windows 4.0 2.9 1.1
BlackBerry 1.1 4.0 -2.9
Other 0.9 1.4 0.5

Source: Kantar WorldPanel ComTech

And Windows success isn't restricted to the U.S. The platform is picking up share overseas as well. In Europe, Windows took 6.9% of smartphone sales during the second quarter gaining 2.2 percentage points year over year. Windows is consolidating its position as the third operating system on the continent accounting for 9% and 8.6% of smartphone sales in France and Britain respectively. 

Nokia  (NYSE: NOK  ) has been the biggest beneficiary of this trend. The Finnish handset manufacturer is responsible for 87% of Windows handset sales globally. Although it made up only 4% of smartphone sales worldwide during the first quarter of 2013, Nokia has seen its share of sales rise from just 1% during the same period last year. Finally, Nokia's bet on Windows appears to be paying off. 

But the best day are still ahead

Fortunately for Microsoft investors, these positive results are expected to continue. According to estimates by Canalyst, Windows is expected to start closing in on the iPhone with 12.7% of smartphone sales worldwide versus the iPhone's 14.1% by 2017. Three trends are driving this growth. 

First, Windows Phones are particularly popular with first time smartphone buyers. Of those that bought a Windows handset in the past year, 52% upgraded from a feature phone. With feature phone owners still making up over half of U.S. mobile phone owners, Microsoft is well positioned to capture this market.

Second, Microsoft's main competitor for the industry's bronze medal is in disarray. Over the last none months BlackBerry  (NASDAQ: BBRY  )  has lost eight million subscribers. The company's BB10 launch is a flop. Last quarter the struggling Waterloo company moved only 2.7 million BB10 devices falling well short of the street's expectations. 

No doubt management is watching the internal launch numbers roll in and they can't be pretty. Earlier this month the company announced that it was exploring its 'strategic options'-industry code for sell out. As the last viable alternative to Android and iOS, Microsoft is well positioned if BlackBerry were to disappear. 

Third, expect Chinese manufactures to drive Windows adoption going forward. Microsoft already has relationships in place with Huawei and ZTE in mobile. Rumours are also circulating that Samsung might beef up its Windows offerings. These partners could give Microsoft the scale needed to challenge iOS's and Android's dominance. 

The one risk that could sink Windows

But there is one problem which could reverse its momentum for the Windows Phone: developers just aren't interested in it. The Windows Marketplace has about 100,000 apps and that figure hasn't grown substantially through 2013.

In its most recent quarterly survey of its developers, Appcelerator pointed out that interest in building applications for Microsoft mobile products has declined since Windows 8 was released. Today, less than 40% of Appcelerator's mobile developers are "very interested" in building for Windows. In comparison, 78% of developers are interested in building applications for Android and nearly 90% are eyeing the iPhone.

The Appcelerator report sums it up nicely. 

"End users cite a lack of apps for Windows phones as the number one reason for non-adoption. In lockstep, many developers cite lack of engagement from Microsoft."

It's a bit of a Catch-22. Without widespread adoption developers aren't interested in building applications for Windows. But without applications, Windows can't gain market share.

Foolish bottom line

If Windows is to consolidate the bottom rung of the smartphone industry, a well-developed app ecosystem is essential. Investors will need to watch Microsoft's efforts to build a developer community around the Windows Phone. Yet in spite of these risks, don't count Microsoft out yet. Windows is gaining strength and its best days might be still ahead. 

Read/Post Comments (7) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 26, 2013, at 8:17 PM, ctyank99 wrote:

    @author you say "The Windows Marketplace has about 100,000 apps and that figure hasn't grown substantially through 2013."

    That is incorrect. WP8 has over 1700,000 apps and has grown considerably in 2013. You go on to say devolopers want to devolop for IOS and Android. How many apps do you think they need? Android has 1 million and IOS has close to that. They end up devoloping apps where they are most needed... WP8.

    Nokia is putting out great phones with the Lumia line and they're helping to make MS look better. I love my Lumia 925 and WP8!!!!

  • Report this Comment On August 26, 2013, at 8:19 PM, ctyank99 wrote:

    Boy, what a typo.... s/b WP8 has over 170,000 apps and growing!!!

  • Report this Comment On August 26, 2013, at 8:39 PM, ramaus wrote:

    Your YOY %pt. change is a gross distortion.

    How about: % increase or decrease.

    Android - - - -2.9%

    IOS - - - +8.4%

    Windows - - - +37.9%

    BlackBerry - -72.5%

    This better supports your headline

  • Report this Comment On August 26, 2013, at 9:21 PM, ThatTechNerd wrote:

    Windows Phone is the reason I think Microsoft's next CEO should be Scott Gaffrie, he's proven his ability to make a flop of a business grow into an industry leading service with Windows Azure, & he's renown for being able to fire up developers which is what Windows Phone & Windows RT need. Also with the Xbox One & full Windows sharing the same market as Windows RT with Gaffrie at the helm mobile indie game developer will flock to the Windows app markets being they only have to make the app once & it works on 3 separate platforms & it isn't difficult at all to port apps from Windows RT to Windows Phone either! Microsoft & Nokia have a bright sunny future ahead of them in Mobile & that might just be what pushes Windows 8 sales up as well if more people become accustom to the new UI.

  • Report this Comment On August 26, 2013, at 11:56 PM, HelpIsHere wrote:

    These MF articles are just laughable, thanks! MS has been at this game long enough to know they aren't gaining, in fact, they are bumping along, and not likely to show any more gains going forward. In the end, it is MS that brought us so many horrible products, WP8 is just another bloated Vista product.

  • Report this Comment On August 27, 2013, at 1:23 AM, sliderw wrote:

    So many typos. Don't you have a copy editor?

  • Report this Comment On August 27, 2013, at 12:24 PM, alco933 wrote:

    I am a developer and I develop some phone apps for windows but the $100 fee that Microsoft charges programmers to be in their developer network TOTALLY discouraged me. I did not pay and did not join so I just write some apps for myself and side load them. I am sure this has happened 1000 times over with other developers as well causing their skeleton collection of apps. This was shooting themselves in the foot. If you want more apps to compete with other phones, you DON'T charge developers to develop them.

    However, I am long on Nokia. I like their product and I like their sales increases.

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