Why Won’t Microsoft Corporation Merge Windows RT With Windows Phone?

Why is Microsoft so reluctant to replace Windows RT with Windows Phone?

Aug 27, 2014 at 4:00PM

Microsoft (NASDAQ:MSFT) is preparing to give Windows RT a makeover, according to a recent report from Myce. The update will reportedly remove the traditional Windows desktop, leaving users with only the Metro interface -- presumably to better align RT with Windows Phones.

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The RT-powered Lumia 2520. Source: Nokia.

Yet it's puzzling why Microsoft keeps Windows RT alive at all, when it makes much more sense to merge the operating system with Windows Phone.

Google Android phones and tablets use the same OS, as do Apple's (NASDAQ:AAPL) iPhones and iPads. Windows RT sticks out like a sore thumb, because it is incompatible with older Windows software, as well as Windows Phone apps. Microsoft is also the only company that still makes RT devices, keeping the OS on life support with the Surface RT, Surface 2, and Nokia Lumia 2520.

To better understand this odd situation, let's dig into Microsoft's flawed reasoning for the continuation of Windows RT.

Microsoft believes that tablets are productivity devices
Apple thinks of tablets as larger smartphones, but Microsoft views them as stripped-down laptops.

That's why the Surface comes with a USB 3.0 port, a microSD slot, a stylus, and an optional type cover. It's the clunky opposite of the iPad, which relies on cloud storage and third-party accessories for productivity needs.

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Microsoft's Surface Pro 3. Source: Microsoft.

That's why Microsoft developed Windows RT -- it believed that mobile operating systems such as iOS or Android weren't robust enough to handle productivity suites, while a full-blown x86 version of Windows would drain the battery. Yet RT alienated previous users of Windows, since it wasn't compatible with older software, and didn't appeal to mobile users with its limited number of apps.

It's all about the Surface
Microsoft kept RT alive solely to promote the Surface, a product line that has lost $1.7 billion since its introduction in October 2012. Those losses will likely keep rising, as Microsoft recently slashed the price of all three Surface models by $100.

There's also a lot of confusion about whether the Surface competes against tablets or laptops. Only the RT-based Surface 2, which costs between $350 and $600, is priced competitively against Apple's iPads. The Windows 8-based Surface Pro 3, which costs between $800 and $2,000, is comparably priced against the MacBook Air and Ultrabooks.

Therefore, Microsoft is keeping a dying OS alive to support the lowest end of a dying product line. That strategy is absurd, since most Android and iOS devices are now powerful enough to handle productivity suites such as Office, which Microsoft launched for both operating systems back in March.

There's no reason Windows Phones can't be scaled up to replace RT for the same purposes.

Microsoft doesn't believe in Intel
Windows RT exists because Microsoft thought that it needed a full-sized ARM-based OS to complement Windows Phone.

Microsoft believed that Intel's (NASDAQ:INTC) x86 chips were less power efficient than ARM Holdings' (NASDAQ:ARMH) low-power designs. That popular (but flawed) comparison is why ARM's chips are now used in nearly 60% of the world's mobile devices.

However, Intel bounced back recently with more power efficient Atom-based processors, which have slowly entered the mobile market. Asus' Fonepad and ZenFone, Lenovo's K900, and Motorola's RAZR I are all Atom-based x86 Android phones. Acer, Asus, Toshiba, Dell, and Lenovo all manufacture Atom-based Windows 8 and x86 Android tablets.

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L to R: Asus' ZenFone 5, Lenovo's K900, and Motorola's RAZR I. Source: Company websites.

While it would be risky to abruptly ditch ARM-based processors in Windows Phones and Windows RT devices, it would be smart to align all Microsoft devices -- PCs, phones, and tablets -- to the x86 architecture used by Intel and AMD.

Microsoft is focusing on "One Windows" software, not hardware
If Microsoft replaces ARM-based chips with Atom processors in the Surface 2, Lumia 2520, and Windows Phones, it would completely eliminate the need for Windows RT.

More important, it could pave the way for a single version of Windows that could be installed across PCs, tablets, and smartphones. Since modern quad-core smartphones with two gigabytes of RAM are beefy enough to handle most PC software, developers would not need to slim down desktop software, which can be theoretically installed on a Windows PC and a Windows Phone.

Since five versions of Windows still account for over 90% of all PC operating systems in the world, a smartphone that runs Windows PC software could help Windows Phone, which has a meager market share of 2.5%, gain ground quickly against Android and iOS.

In my opinion, replacing ARM with Intel and launching a single consumer-facing version of Windows is the only way to achieve Microsoft's "One Windows" goal. But for now, Microsoft is focused intently on the software front by advancing Bing, One Drive, and "universal" apps.

A Foolish final word
Windows RT is a serious deterrent to Microsoft's growth. It keeps the dying Surface line alive, keeps the Windows Phone OS off tablets, and stands in the way of a renewed partnership with Intel. Most important, it's a third Windows OS in an ecosystem that only needs one.

Microsoft can try "hiding" Windows RT by taking away the desktop, but that low-risk cosmetic change won't save the company -- only radical changes like dumping ARM processors and RT will.

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Leo Sun owns shares of Apple. The Motley Fool recommends Apple, Google (A shares), Google (C shares), and Intel. The Motley Fool owns shares of Apple, Google (A shares), Google (C shares), Intel, and 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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