Should Microsoft Follow Apple's Lead?

In smartphones, should Microsoft close its platform like Apple's iOS?

Sep 3, 2014 at 10:17AM


Source: Microsoft.

For those who've been following Microsoft's (NASDAQ:MSFT) beleaguered Windows Phone, you've probably noticed there really is just one handset maker -- Nokia. And the newest version of AdDuplex's Windows Phone report confirms it: When it comes to WP market share, Nokia devices provide 95% of all usage. Since Nokia's hardware division is now owned by Microsoft, should Microsoft close its platform, the way Apple does with its iOS?

There is a risk for hybrid platforms
Many think Microsoft should keep its "hybrid platform" strategy. And on the surface, it does make sense. If hardware manufacturers are developing phones for your operating system, they're bearing the costs of research and development and giving your operating system legitimacy, right?

That line of thinking is correct in a way. Having multiple manufacturers expands your overall selection. But there are risks as well: Much like a strip mall with a revolving door of store failures, having device manufacturers that continuously fail brands the operating system overall as substandard. And these device manufacturers don't want to compete with the software manufacturer as well -- especially one that has 95% Windows Phone market share.

And that isn't even the worst of it for Microsoft.

Windows Phones are a minuscule part of the market
Compounding things a great deal is Microsoft's overall operating system market share. According to IDC, in the second quarter of 2014, the WP operating system had a minuscule 2.5% worldwide market share, trailing Google's Android and Apple's iOS, which clocked in at 84.7% and 11.7%, respectively.

For perspective, the study estimates 7.4 million Windows Phones were shipped during the period, so if Nokia units shipped is representative of its usage -- 95% -- then the market for non-Nokia Windows Phones in 2014's second quarter is roughly 370,000 units, a very unimpressive total.

At some point, even the device manufacturers have to ask whether it's worth it. Google's Android is an open platform that recently abandoned its hardware plans by selling its Motorola Mobility unit to Lenovo. So the value proposition from both a market share standpoint and the fact you aren't competing with the operating system favors Google's Android OS, not Microsoft's Windows Phone platform.

Why doesn't Microsoft end this charade?
Let's face it: Nokia is, and has been, Microsoft's most important hardware partner, as reflected by its 95% market share. The other two hardware manufacturers of note are HTC, with 3.3%, and Samsung, with 1.1%. Recently, HTC announced that will release the HTC One (M8) on the Windows Phone platform. However, the HTC One is merely a repackaged phone that's been on the Android platform for months now. And it's hard to think that Samsung's going to abandon its hugely successful Android partnership that powers its Galaxy line of phones.

Recently, Microsoft announced that 17 third-party Windows Phones are in production or will be shortly. Hopefully they won't be cross-platform devices, because it makes no sense for Microsoft to try to compete with Google on operating system at this juncture. Google's Android has roughly 1.3 million apps, while Microsoft has a little over 300,000.

Final thoughts
Recently, Microsoft received a black eye when Huawei announced that it was discontinuing its relationship with the Windows Phone. Huawei wasn't a large part of Microsoft's business, but the decision continues the negative cycle that's plagued Microsoft's devices. In the end, it appears that Microsoft's hardware partners aren't worth the troubles for the minuscule 5% market share of its platform.

Microsoft recently made the Windows Phone OS free for hardware makers. But instead, it should close its platform and form a more-lucrative relationship with developers to close the "app gap." Once that happens, it can work on presenting a seamlessly integrated hardware/software experience with a sticky ecosystem full of apps. That's when we can expect Windows Phone to grow its minuscule market share.

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Jamal Carnette has no position in any stocks mentioned. The Motley Fool recommends Apple and Google (A and C shares) and owns shares of Apple, Google (A and C shares), and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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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