Why Microsoft Was Wrong To Abandon The Smartphone Entry-Level

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Windows Phone was doing pretty well in some countries and in some smartphone market niches, in parts of Europe and South America it had overtaken iOS to be the second most popular platform behind Android. The growth was all about low-end and mid-range phones selling into markets where value for money and low-price were key differentiators.

Last year Satya Nadella decided that he didn’t want these customers any more and signalled a retrenchment that would see Microsoft all but abandon the manufacturing, design and sales capabilities it had acquired from Nokia and move in a new direction that relies on third-parties to deliver handsets, whilst Microsoft focuses on its platform.

Entry-level smartphones are a difficult market to manage. The profit margins available are razor thin and the ongoing cost of support and providing updates don’t add up to a sensible business proposition. Which is why Windows Phone did so well in this space.

Competing Android smartphones were generally pretty nasty, with low specs and lower performance, poor components and limited support; Windows Phones competing with them were. in the main, very good. Nokia had found the sweet spot where it was able to leverage its experience and close links with Microsoft to offer a much better phone and a much better ownership experience.

Now returns on investment in this area are low, but looked at as part of a wider picture these phones make plenty of sense for Microsoft.

Firstly, sales volume. Developers have avoided the Windows Phone platform because their opportunity to profit is restricted by the number of users on the platform. Growth of those numbers draws developers in, especially as competing app stores become so crowded and new apps harder to surface.

Secondly, entry-level users aren’t going to be entry-level users forever. Give them a great user experience, a device that performs above what its entry-level pricing would suggest and when it comes to upgrade time they’ll stick to what they know. Which means a more expensive, more profitable mid-range device.

When trying to break into an established duopoly these are the hard yards that need to be won. For all the bad press that Windows Phone received over the years there was no denying that once Microsoft and Nokia got together things were moving in the right direction. Just not very quickly.

In the year since Microsoft started to unwind its support for Windows Mobile what has happened? Sales have collapsed, with Windows Mobile users across the spectrum moving to Android. Has this happened because Android has got better? Emphatically not. The cheap handsets have proved to be as bad as ever, Google’s updates to users have been more delayed, and even promising new Android handsets at mid-range prices have proved to be disappointing as OEMs over promise and under deliver.

Short of a complete reversal of strategy – and its probably too late for that anyway – Microsoft has lost the smartphone game and with it the long term platform war. Windows 10 may be ‘everywhere’, but sales of PCs are falling, the Xbox is fighting a losing battle with Sony and Hololens has yet to demonstrate that it can provide a better reason for augmented reality than Google Glass did.

Without a strong mobile platform the market migrates to Chromebook and MacOS, driven by owners of Android and iPhones. particularly as the latter gains access to the Android app store and all the opportunities that provides.

For the want of a shoe the kingdom was lost. Right now Windows Phone looks like that missing shoe.

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