Should Microsoft Follow Apple's Lead?

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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Read/Post Comments (7) | Recommend This Article (4)

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 September 03, 2014, at 11:50 AM, warder wrote:

    Somehow I don't think Apple is leading Microsoft here in that their business models are entirely different. Microsoft has always relied, and found success through OEMs building great hardware that helps sell Microsoft's software. Windows is the primary desktop OS because of this.

    Something this article fails to consider is that while one OEM has decided not to build Windows Phone hardware, around 18 others are ramping hardware up, several of which are now starting to sell well with a focus on the budget market. This was not previously achievable due to Microsoft setting a high validation bar requiring custom hardware, therefore requiring expensive phones to sell to cover the investment. Now any Android phone can be trivially sold as a Windows Phone meaning OEM investment is incredibly low.

    As for market share, Windows is still growing whereas iOS is falling - it won't be long before Apple is third place as they are constrained by expensive hardware which offers little value over competing cheap hardware. An iPhone used to do a lot more. Today in some areas it does less.

    As Google initiated, the OS is now a free platform for selling services, and as bundled services are much more likely to be used, helping OEMs sell many Microsoft phones with the strength of Windows desktop integration is their way to succeed in the mobile space.

  • Report this Comment On September 03, 2014, at 12:20 PM, TMFJCar wrote:

    @warder,

    Thanks for reading! I'm not sure your statement about market share is totally correct. Using a seasonally-neutralized year-over-year comparison they are down.

    <<As for market share, Windows is still growing whereas iOS is falling>>

    http://www.idc.com/prodserv/smartphone-os-market-share.jsp

    "Windows Phone is up slightly from the first quarter, seeing shipments of 7.4 million. However, this represents a drop of 9.4% from the same period last year."

    Thanks again for reading!

    TMFJCar -- the author

  • Report this Comment On September 03, 2014, at 12:43 PM, BtilEntrails wrote:

    This article is way to near in what you have already stated in an earlier write-up.

    http://www.fool.com/investing/general/2014/08/27/microsofts-...

    Huawei is not a black eye by any means if you consider the control or offerings from cell providers. Verizon does not offer any type of Huawei phone, smart phone or basic phone. So is this an equal black eye as a consumer using Verizon? This is an aspect you need to consider before using or saying something is a black eye, maybe? And btw, ATT is with no Huawei smart phones of any type.

    I get it, that the USA is not the entire cell phone market, but the Windows Phone, it is gaining market while others fall. "http://windowsitpro.com/paul-thurrotts-wininfo/microsoft-tou...

    The truth is better seen in the following right up and is what I experienced when buying my last phone in the Heartland of USA.

    "http://windowsitpro.com/windows-phone/verizon-att-t-mobile-a...

    Maybe your next article can focus on IDC tracker numbers, talk about regions and changes that are happening? I am no fan of anything, have a Macbook at home and use to have iPhone and Android for phones. But, my hot button to switch to a Nokia Icon, the camera and the instant uploading and the easy sharing that MS OneDrive provides.

  • Report this Comment On September 03, 2014, at 2:19 PM, neonspark wrote:

    follow apple where? Apple has lost all of its markethsare to android on both phones and tablets. Apple is forecasted to be below 10% marketshare, just 7% above windows phone, after commanding well over 50% of the smart phone market.

    tablets, android is yet again winning, now surpassing apple in 2014 and widening its lead.

    windows phone shouldn't really look at apple, who is on free fall. windows phone needs to look at android: the only winning platform there is.

  • Report this Comment On September 03, 2014, at 2:47 PM, TMFJCar wrote:

    @BtilEntrails,

    To me, the first article was more of a diagnosis and this article was intended to be what I'd do -- the "treatment." In addition, I added the fact that Nokia controls the vast part of the WP market -- 95% among other things. Sorry if you feel they are too similar.

    I agree the USA isn't the entire phone market, that's why I used worldwide stats. Matter of fact, I'd say that's better for WP because Europe it typically more WP friendly than the US.

    I'd love to peruse the links you presented but the page isn't found -- can you repost? Were the articles pulled down?

    Thanks my friend,

    TMFJCar -- the author

  • Report this Comment On September 03, 2014, at 2:55 PM, TMFJCar wrote:

    @neonspark,

    First of all, love your enthusiasm in defending Android. I laughed out loud when I read "the only winning platform there is." And when considering pure market share, you are right. However, most investors consider profits over market share. And in that standpoint, Apple wins by profiting on the device and the OS.

    Using hardware profits as a proxy (yes, I know hardware is different from operating system), you can see that Apple dominates: http://www.businessinsider.com/apple-and-samsung-have-106-of...

    The article shows that in the referenced quarter Apple took 65% of smartphone profits -- more than all other hardware makers combined. Samsung (Android's top handset maker) only had 41% -- pretty much every other maker lost money (including a host of other Android makers).

    Thanks for reading,

    TMFJCar -- the author

  • Report this Comment On September 04, 2014, at 4:18 PM, DeepHeet wrote:

    In my opinion Microsoft's expansion of their HW partners is the right approach. Google has been very successful with this approach, if not so successful with their purchase of Motorla. Android (and Microsoft) are taking market share away from Apple in growth markets. Dropping the license fees for Windows Phone and making WP compatible with existing HW (see the HTC One M8 for Windows Phone) gives HW partners more choice and potentially better margins. Yes there is a huge app gap in pure numbers, but remember Android came from behind to dominate the mobile OS space. Microsoft's strategy of creating an OS independent ecosystem (Xbox Music, OneDrive, OneNote, Office, Xbox SmartGlass, etc available on WP, iOS, Android) reduces vendor lock-in and should be applauded. New low cost Windows Phones compete on price with Android Phones and for enterprises offer more consistency and better security than Android.

    Microsoft should do more to encourage developers to develop for the Windows ecosystem (Windows Universal Apps are a good first step) such as giving more of the revenue to developers or kickbacks.

    Keep in mind Windows Phones sells a similar if not more units that MacOS devices, but I don't hear calls for Apple to drop that product line.

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