Can More Cheap Windows Phones Save Microsoft's Mobile Plans?

Windows Phone's biggest success has been the Lumia 520, a low-end handset that has had over 12 million activations to date. Will additional low-end handsets help to make the mobile OS successful, or is it too late?

Jul 23, 2014 at 7:49AM

When it was first released in April 2013, the Nokia Lumia 520 was the best-selling Windows Phone device in the world. A lot has happened in the 15 months since then, including Microsoft (NASDAQ:MSFT) purchasing Nokia's mobile business. One thing that hasn't changed, though, is that the Lumia 520 is still the best-selling Windows Phone device in the world.

The Lumia 520 has had over 12 million activations to date, and according to data from AdDuplex makes up 31.6% of the Windows Phone ecosystem worldwide as of June 2014. On a country-by-country basis the Lumia 520 has been beaten twice: once by the Lumia 521 (which is largely the same phone, redesigned slightly for T-Mobile) in the United States, and once by the Lumia 920 in China. While Windows Phone still holds minimal global market share (only around 2% as of June 2014, according to NetMarketShare), the success of the Lumia 520 within that share may influence Microsoft's plans for the platform going forward.

The premium market
There have been several premium Windows Phone models released by Nokia and other manufacturers, but none have had the impact of the Lumia 520. Part of the reason is that its low price made it appealing in emerging economies, and its inclusion on AT&T's GoPhone service opened it up to low-income and contract-averse customers in the United States. Just because Windows Phone has been more popular at lower price points doesn't mean that the premium market has been abandoned, however.

Unfortunately, it is exceedingly unlikely that Windows Phone will make much headway in the premium market. Apple's iPhone and devices running Google's Android OS such as Samsung's Galaxy line control the high-end sector. The Lumia 1020, for example, a premium Windows Phone offering that boasts a 41-megapixel camera, typically makes up only 3%-5% of the Windows Phone handsets in any region. Given the low percentage of overall market share that Windows Phone holds, premium Windows Phone handsets make up only a small percentage of a small percentage of the smartphone market.

The low-end market
If Windows Phone is going to enjoy any market share gains, it will come in the form of low-end handsets such as the Lumia 520. To capitalize on this, Microsoft is releasing the Lumia 635 to both subscribers and GoPhone users. The GoPhone release will even feature limited-time promotional pricing to encourage early adoption. The company is obviously hoping to repeat the success of the Lumia 520, encouraging both upgrades to the newer handset and potentially winning over new smartphone users with the device.

This may not be effective in bringing about significant increases in market share, however, especially as Windows Phone isn't the only competitor in the low-end market. Android devices hold the majority of market share here as well, and it is unlikely that Microsoft will be able to steal much if any share in the near term.

Does Windows Phone have a chance?
Even though it is unlikely that Microsoft will be able to claim much if any share in either the premium or low-end markets in the near term, this doesn't mean that all hope is lost for the company. Microsoft's OS could settle into the third place position behind iOS and Android, solidifying its user base to fend off smaller players in the smartphone market. Over time this could lead to increases in market share, though realistically this won't result in Windows Phone becoming a threat to Apple or Google.

Instead, Microsoft's best chance is to try and focus on smaller market share gains that will put more distance between it and other small players such as BlackBerry. While this won't equate to the market domination that the company has long enjoyed in the PC market, Microsoft needs to take what victories it can get instead of trying to take the top prize.

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John Casteele owns shares of Microsoft. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Jun 12, 2015 at 5:01PM

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