Why Windows Phone still has a chance to move the needle

Microsoft’s $7.17 billion acquisition of Nokia’s Devices and Services business closed late last week, but we’re still seeing seen some sobering headlines regarding the software giant’s mobile business. The once-dominant phone maker saw mobile sales plunge by 30 percent year-over-year in its last quarter as an independent entity, as Engadget reported, posting a $452 million loss due largely to increasing competition and decreasing margins in both smartphones and feature phones. And Kantar Worldpanel ComTech reported that Windows Phone actually lost market share in the key regions of U.S. and China during the first quarter of 2014, making modest gains across the top five European markets.

So three and a half years after its launch, Windows Phone remains an undeniable disappointment while Android and iOS retain their dominance. It’s no wonder, then, why my colleague Stowe Boyd asked this week whether Microsoft even has a chance to catch up in mobile. But there are a few big reasons I think Windows Mobile is likely to gain substantial momentum over the next 12 to 24 months:

  • Windows Phone 8.1 is good, and new handsets are on the way. Gigaom’s Kevin C. Tofel predicted users will be very impressed with the OS upgrade, and he wasn’t the only one who thought so: CNET said the upgrade elevates the entire operating system to a higher level, Engadget opined that Microsoft’s mobile platform finally feels whole, Mashable described it as a phenomenal smartphone experience and Ars Technica raved about a magnificent smartphone platform. Much of that praise is being driven by Cortana, a voice-powered personal assistant that – while still in beta – looks to rival Apple’s Siri and Google Now. And while much of Windows Phone’s recent success is due to the Nokia Lumia 520 – a mid-range smartphone that is nearly a year old, as The Register noted – that flagship will soon be replaced by the Lumia 630 and 635.
  • Windows Phone is also free – mostly. A few weeks ago Microsoft vowed to make its Windows software – including Windows Phone – free for manufacturers of devices sporting a screen smaller than nine inches. While manufacturers will still have to pay some fees for related patents, certification, etc., the move should reduce the cost of building a Windows Phone by somewhere between $5 and $15. That could make a huge difference in the emerging markets low-cost smartphones are giving Android a big edge, and it’s likely to entice some Android manufacturers to build for Windows Phone. Microsoft’s move won’t result in cheaper Windows Phone handsets overnight, but the company’s new manufacturing business will continue to try to expand its presence in those emerging markets with smartphones running a modified version of Android that features software and services from Microsoft and Nokia.
  • Microsoft finally has a new leader and a new vision. Even former CEO Steve Ballmer has conceded that Microsoft for years failed to understand how the smartphone era was revolutionizing even as it has been happening. But new CEO Satya Nadella has consistently pressed a “mobile-first, cloud-first” strategy that focuses not only on smartphones and tablets but on the internet of things, which promises to be much broader. Whether Nadella can make good on that vision won’t be answered for another year or two, but Redmond clearly needs a strategy that places mobile at the center rather than as an extension of the desktop.

Microsoft still faces huge challenges if it hopes to challenge Android and iOS: It must expand its developer relations to build out its library of Windows Phone apps, it must strengthen its carrier partnerships, it must build out its handset portfolio and it must do a better job of marketing them. But Microsoft has done a solid job of developing a platform that can compete with the two dominant OSes, and it still has the deep pockets and worldwide footprint that can be extended to mobile. Windows Phone still has a chance to alter the mobile landscape.