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Here's Why Microsoft Corporation's Windows Phone Has Real Potential

With Microsoft's (NASDAQ: MSFT  ) acquisition of Nokia's phone operations finally set to close after months of legal wrangling, the software giant and device manufacturer is looking to steal some serious market share away from Google's (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) dominant Android.

Windows Phone, while popular in some markets, has stalled in others, and Microsoft needs its struggling phone OS to hit a critical mass of users before manufacturers and developers adopt the platform en masse. The Nokia deal should help the cause, but there are other reasons to believe that Windows Phone has a real chance at eventually becoming a profitable business for Microsoft.

Source: Microsoft

Windows Phone 8.1 is good, and also free
With the release of Windows Phone 8.1, Windows Phone has largely closed the gap between it and rival platforms. Features that probably should have been present from the beginning, like a notification screen and a simple way to track which apps are using the most battery, are finally part of Windows Phone. And Cortana, Microsoft's answer to Apple's Siri and Google Now, gives the platform a competent personal assistant.

Reviews of Windows Phone 8.1 have been mostly positive, with Ars Technica calling it "a magnificent smartphone platform," and Engadget stating that "Microsoft's mobile OS finally feels whole." It's clear that Windows Phone is now just as capable as the competition, but that alone is not enough for Microsoft to gain market share. Giving the OS away for free, though, just might be.

Microsoft announced recently that Windows would come without a license fee for consumer tablets and phones with screen sizes below nine inches, marking a dramatic shift for the company. Microsoft is hoping that revenue from its myriad services, like OneDrive and Skype, along with its cut of revenue from its app store, will make up for the loss of licensing fees. This move eliminates any price advantage that Android phones had, making Windows Phone a viable platform for low-end phones that Android has typically dominated.

Becoming too dependent on Google
With Android running the vast majority of smartphones in the world, manufacturers have long had no real alternative to using Google's mobile OS. But Windows Phone 8.1 provides an alternative, and now that the OS is free for consumer devices, manufacturers can reduce their dependence on Google at no extra cost.

The Nokia deal allows Microsoft to push Windows Phone directly, with the hope of gaining enough market share that other manufacturers see enough demand to adopt the platform. Samsung has been working on its own alternative, called Tizen, and it plans to launch smartphones running the new OS later this year. Whether the market can support a fourth OS remains to be seen, but I wouldn't bet on Tizen gaining much share, especially given its similarity to Android and lack of apps.

Other manufacturers will likely turn to Windows in order to reduce reliance on Google, and companies like Lenovo and LG were announced as partners for the platform by Microsoft during the Mobile World Congress earlier this year. Lenovo has a particularly strong presence in China, where it dominates the PC market, so this partnership gives Microsoft a good chance at winning a significant part of the Chinese smartphone market.

The bottom line
With Windows Phone 8.1, Microsoft's mobile OS has closed the feature gap between itself and Android, and the elimination of licensing fees removes any price advantage that Google's OS previously enjoyed. With Samsung actively trying to reduce its dependence on Google, other companies are likely to follow suit and focus more heavily on Windows Phone. It will be quite some time before all of this turns profitable for Microsoft, as there needs to be a large user base that can be monetized, but the potential is significant.

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On April 22, 2014, at 7:56 PM, DriveHQJohn wrote:

    I agree with you. In terms of OS quality, WP and Android both have strengths and weaknesses. The market share should have been evenly divided. The fact that Android dominated the market was because it is free - even though it was viewed as inferior to iPhone initially. With WP becomes free, Microsoft will be able to convince OEMs to use its platform. (In fact, Android is not free since Microsoft charges $5-$10 of royalties per device)

  • Report this Comment On April 22, 2014, at 11:05 PM, PrideLand wrote:

    DriveHQJohn: I agree 100%. It is now less expensive for an OEM to sell a Windows Phone than an Android phone. Microsoft is doing a lot to change not having as many apps (still have over 250,000). The Windows Phone picture will be much better by the end of the year with new phones, WP 8.1, and universal apps being developed.

  • Report this Comment On April 23, 2014, at 9:53 AM, jekemi2013 wrote:

    I have several phones, Samsung s4, iPhone 5s, and three different Windows 8 phones. Recently I downloaded Windows 8.1 Dev. Preview on my Nokia Lumia 1520. It is in a league by itself. The phone is alive, bursting with information, powerful, fast, rich in advanced features that the Android and iPhone won't have for months. The camera on the Nokia is truly amazing. My $400 Nikon sits and gathers dust. 90% of the top 1000 mobile apps are now available for Windows platform; that argument is moot. Now it's up to Microsoft to market this effectively

  • Report this Comment On April 23, 2014, at 4:40 PM, profperez1 wrote:

    I had to ditch my W8 phone. So many key APPS missing. They just got At-bat with MLB which is nice. But they don't have AMEX!. This is a big problem. No credit union, No insurance--nothing for a high end user. The phone was fast and never froze. But how do you have a platform 4+ years old with no AMEX?!?!?!?? If I was MS I would have offered to build it myself the first year!

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