Other than sharing the same first letter, Microsoft (NASDAQ:MSFT) and mobile have had little in common during the past decade. Thanks to the overwhelming success of its dominant PC operating system and application software franchises, the rapid ascent of Apple's (NASDAQ:AAPL) iOS and the recently renamed Alphabet's (NASDAQ:GOOG)(NASDAQ:GOOGL) Android caught Microsoft largely flat-footed in the late 2000s, much to its business' long-term detriment.
However, after moving beyond its largely impotent Windows Phone OS, Microsoft has finally produced a respectable mobile OS in the form of Windows 10. To that point, Microsoft recently unveiled its latest update to its Lumia smartphones, hoping that its improved hardware and software suite will finally provide the one-two punch needed to regain lost ground in mobile.
Despite marked improvements, Microsoft's chances of regaining meaningful market share remain low, at best, which begs the question: Should Microsoft even bother with its new Lumias?
New Lumia's, old realities
Microsoft's new Lumias represent a genuine improvement over their predecessors. The Lumia 950 and its larger brother, the Lumia 950 XL, are serious, high-end smartphones. Both feature cutting edge Qualcomm Snapdragon 800-series processors, 20 megapixel cameras, and HD screens that put them roughly in line with other top-tier smartphones, like Apple's iPhones and Samsung's Galaxy lineups. Microsoft also added the more affordable Lumia 550 to increase its exposure to emerging market smartphone growth, as well. However, the improvements to Microsoft's smartphone lineup hardly end at hardware, either.
To that point, several core improvements with Windows 10 should also help increase the appeal of Microsoft's newest Lumias. One of the most defining traits of Windows 10 is its uniform user experience, which allows critical Microsoft application software, like Office, to run on smartphones as well as it does on tablets and desktops. Microsoft also made it easier for developers to port mobile apps from Alphabet's Android and Apple's iOS onto Windows 10.
So between its updated hardware and more competitive software, Microsoft's latest Lumias represent a genuine step forward for its beleaguered smartphone efforts. But will these laudable improvements be enough to reverse the long-standing competitive tides in smartphones? Color me skeptical.
Best of a bad situation
Unfortunately for Microsoft, it has finally arrived ready to do battle for smartphone market share when the war was effectively decided years ago, as you can see here.
Between the two, Apple and Alphabet powered a whopping 97% of all smartphones operating shipped in 2014 according to research firm IDC, a dynamic that will likely remain for a few structural reasons. Microsoft bit the bullet with Windows 10, dropping the licensing fee it historically charged for Windows for devices with screen sizes under nine inches, a dynamic that had long given Android a crucial cost advantage with smartphone OEMs.
However, despite reducing the cost differentials between Windows 10 and Android, Alphabet still refuses to develop important versions of its leading apps for Windows 10, like YouTube and Gmail, to name a few. This comparative lack of features still creates a meaningful enough barrier between Windows 10 smartphones and Android handsets.
At the same time, one of Windows 10's chief advantages over other platforms is unlikely to help Microsoft's hand in smartphones either. Despite efforts from both Apple and Google to break it, Microsoft's Office franchise remains the leading provider of productivity software. And with Office coming to Apple's iPad Pro, it seems this tech triumvirate is slowly warming to the idea that adding Microsoft's productivity software across platforms can help increase the appeal of everyone's devices.
However, smartphones' more diminutive screen sizes make using Office less valuable. Who really wants to try to edit a spreadsheet on a smartphone? Some may, but not many, I imagine.
The problem here is that progress, which Microsoft has admirably achieved with its recent updates, simply isn't enough here, and the company even acknowledges it. Recent reporting from The Wall Street Journal claims that Microsoft has sharply reduced its internal aspirations for Windows 10's success in smartphones. If Microsoft investors needed a signal as to the software giant's strategy and commitment to smartphones, this is it.
To return to the question originally posed for this article, should Microsoft kill the Lumia? From Microsoft's perspective, this move probably wouldn't make sense. The company certainly isn't hurting for profits, and capitulating to the reality of the situation wouldn't help investor confidence.
Either way, in terms of investors' understanding, Microsoft has, and will remain, effectively a non-factor in mobile whether it shutters its Lumia division or not.
Andrew Tonner owns shares of Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Apple. 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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