Will Microsoft's Windows Phone 7 Establish Itself in 2011?

Remember a time back around 2002 or 2003 when Microsoft and Palm were battling over the US PDAPhone market, with players like Symbian, RIM, and others on the fringe? It was a time when Microsoft had a clear advantage in the market if they chose to run with it. Palm had experienced early success, but its OS was single tasking and fairly limited in its ability to support the likes of what PDAPhones / Smartphones do today. Microsoft's OS... which went from being called Windows CE to Pocket PC OS, to Windows Mobile, to now Windows Phone 7... had all the pieces to make put together a primitive version of what we see today from the market leaders. In its earliest days, Microsoft's OS was multitasking, had a built in calendar, contacts, and email apps that could easily sync with Outlook, a version of Internet Explorer and a version of Microsoft's Office suite, a music player... oh yeah, and it had "copy and paste". This is why many of us were dismayed when the main stream media went nuts about the iPhone in 2007... there was nothing new on the table, right?

What Apple did, that Microsoft had the opportunity to do and failed, was to take all the pieces that Microsoft and Palm had put into a mobile device and give it the Apple magic pixie dust. Apple's thing is design and ease of use. Any Apple user is familiar with the phrase, "It just works.", because that is often the "how to" on many different subjects for Mac users. A long tutorial is not needed, because things just work without tweaking and hacking. Apple came to the PDAPhone space with that same mindset. They started with Steve Jobs and his controlling hardware design elements, and then applied the "ease of use" OS design elements, and came out with something that worked for the regular user... not just the PDAPhone enthusiast. And given that millions of customers already had an iPod, throwing that in the mix made it a slam dunk.

So what happened with Microsoft's early lead? The same thing that happens with many companies who have something and need someone else to show them what they have. I think that part of the problem was that the powers that be at Microsoft didn't take the market for mobile devices serious enough. Their cash cow is the desktop OS and office suite, and that is where they continue to spend most of their effort. Apple... and Google a little later... saw the mobile space as the future growth market.... the wild west... the untapped cash cow to come. Over the 3 or 4 years of Microsoft's early journey with its mobile OS... back then being called Pocket PC Phone Edition, and later Windows Mobile... it failed to provide any substantive upgrades to its core functions. Its mobile office suite I don't think ever had more than a handful of new features added over its original release... and the same could be set for its calendar, contacts, and even Pocket Internet Explorer. In the world of Microsoft development where each version of Office carves out a sizable new chunk of your hard drive for bloated features by the thousands, this was essentially a 1.0 product that just stayed there.

But it went deeper than just not updating the core apps... the early versions of Windows Mobile were all a derivation of the "pointer driven" user interface that was an extension of the desktop Windows OS. Instead of a mouse, you used a Stylus, but it was essentially the same user interface approach that came from the desktop. The problem is that as mobile devices became more integrated into daily life, a stylus was not something that worked well. Users either wanted to operate with one hand which was impossible with a stylus, or they wanted to have a small keyboard. Even the Microsoft devices that gained keyboards still required a stylus to get things done. Personally, I learned to use the tip of my fingernail instead of a stylus, but that was awkward and clumsy. In addition, upgrades were incredibly painful and often not brought to devices at all. You generally had to buy a new device to get an upgrade since carriers had no incentive to spend the resources on building, testing, and supporting the different OS versions on their devices.

So over time, Microsoft's share of the PDAPhone market went from market leader to "also ran". A year ago, it had gotten so bad that they didn't show up on most market share charts any longer and they had completely lost the mind-share of the customer. Had Microsoft been on its game, they would have taken their OS in a new direction while they still had a more dominant position and fended off the competition before it gained the upper hand. In fairness to Microsoft, they did attempt to do this with their Smartphone OS, but that left them with two different version of their OS with neither hitting the bulls-eye that Apple eventually came along and defined for everyone.

Last year Microsoft launched Windows Phone 7 and it appears that they finally have gotten the message, as early reviews of it were positive and it does bring innovation to the table. A handful of phones were released and a handful were sold. Although I don't have the actual sales numbers for 2010, if you watch the executives in Microsoft's mobile division talking about them then you can conclude that they were very disappointing. And from a feature standpoint, they did deliver some cool new stuff, but we are still having a discussion about "copy and paste" as was the case in 2007 when Apple didn't deliver it in the iPhone. But wait, Microsoft was one of the folks leading that charge since they had "copy and paste" nearly ten years ago! Ooops.

So now we come into 2011 and find that Apple and Verizon have finally gotten together. That could not be good news for Microsoft. In the US, Verizon has always had some of the best Windows Mobile phones and I'm sure they will also have some great devices from Microsoft for Windows Phone 7. But is their room for 4 leading PDAPhone platforms? Android and Blackberry are already big players with Verizon, and now the iPhone is going to suck a large number of potential PDAPhone owners in Verizon's customer base to the Apple side. I believe that by the end of 2011, Apple will have a comparative share of Verizon's sales that competes nicely with their Android and Blackberry sales. If anyone suffers between those three, it will be RIM's Blackberry sales. So Microsoft finds itself in a very difficult position. And the longer it takes them to get established, the harder it will be. As time goes on, users are going to get more dug in to a platform. In addition to multi-year contracts that most of us succumb too, there is the investment in "apps" that is being made. Google and Apple have a huge lead in the number of apps available for their devices, and developers will likely be inpatient for quick success as they approach yet another market to build for. Some will certainly support it, but they are going to go where the volume and dollars are much stronger.

I believe that Microsoft will gain some share in 2011 and establish itself with around 4-5%. I don't think they will be able to do much more than that, and I'm not sure that Microsoft will be happy sitting in 4th place in this crucial market. A loss here is going to cost them in the tablet space as well since many of the apps and developers have migrated over from their iPhone/iPod success to the iPad. There is also another very big issue that Microsoft needs to be concerned about. Apple developers are using the same tools to develop for the iPhone and iPad that they would use to develop for the Mac. Once they've rolled out an App on the iPad... it wouldn't be a huge leap to update it and push it out to the Mac environment as well. Microsoft needs to also be concerned that a loss in the mobile space could translate to losses in share on the desktop, and that will raise attention in Redmond for sure.

There is still a window open for Microsoft... no pun intended. There are still a large number of mobile phone users that don't have smartphones. These folks are the green field for harvesting and it appears to me that Microsoft needs to target existing Microsoft Windows users who don't already have a competing Android, iPhone, or Blackberry device. If they can get the right formula to reach that market segment then they may be able to make some big gains in 2011, but I will stick with my 4-5% by the end of the year prediction.