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Nokia adds muscle to Windows Phone -- and Microsoft sure needs it

Microsoft hopes to quadruple its market share in the next five years. It will be similar to Bing having an 18 percent share of US search today. Nice effort, but not close to the dominant Microsoft of times past.


Microsoft has been very successful building its business on the backs of developers and third-party manufacturers, what the industry calls OEMs (original equipment manufacturers). Windows dominated the desktop with hordes of Windows-compatible machines from OEMs and tens of thousands of applications from developers selling into a huge market. It was the ecosystem that defined personal computing in the 20th century.

The formula hasn't worked out so well in the early 21st century. In the shift to mobile computing, Apple's iOS and Android have left Microsoft in the dust over the last five years. Now Microsoft is trying to muscle its mobile operating system back into relevance by acquiring cash-poor Nokia's devices and services business.

Despite outgoing CEO Steve Ballmer's statement during the conference call Tuesday that "a number of OEMs...are more enthusiastic today than yesterday about their investment in Windows Phone," Nokia is the only muscle that Microsoft can muster to save Windows Phone from becoming a Zune, a Microsoft iPod competitor that failed to capture significant market share after five years of effort.

In the second quarter of 2013, Nokia accounted for more than 80 percent of Windows Phone devices sold worldwide, but Microsoft's phone operating system had just a 3.7 percent share of the total number of smartphones sold, according to IDC. In addition, interest by other OEMs, such as LG, Huawei, and Samsung, has been lukewarm at best despite Microsoft's financial generosity, and Nokia phones becoming Microsoft's won't generate warm feelings.

Windows Phone market share (in purple) doesn't tell a positive story. Asymco/Kantar Worldpanel ComTech
Microsoft hopes to get to 15 percent worldwide share by 2018. Windows Phone has 3.7 percent share in Q2 2013. IDC

Microsoft's brain trust, including board Chairman Bill Gates, see the critical need to quickly accelerate Windows Phone sales, which can have a halo effect on Windows PC and tablet sales. "Nokia counts for well over 80 percent of Windows Phone volumes today, so I think we are in a position to accelerate through this acquisition," Ballmer told Bloomberg. "Certainly acceleration in Windows Phone is only good for Windows PCs and tablets, and our partners in the PCs and tablets business seem quite enthusiastic about this acquisition because what is good for the phone should be good for tablets and PC."

The question is whether Microsoft's muscle, money, and legendary persistence can quadruple market share in the next five years.

The company estimates that it will reach 15 percent market share for smartphones by 2018, and generate around $45 billion in revenue. For comparison, IDC estimates Apple's current worldwide market share at 13.2 percent, and the company generated more than $35 billion in overall revenue for its second quarter and sold 31.2 million iPhones.


Reaching 15 percent share in five years would be an achievement, a solid third place, still far behind iOS and Android. It's similar to Bing having an 18 percent share of US search today, trailing Google at close to 70 percent. Nice effort, but not the Microsoft of times past.

As Ballmer used to exhort at annual gatherings, it's all about developers. With 15 percent share, app developers will have far bigger, and potentially more lucrative, platforms to devote their resources to than Windows Phone. But rather than dumping Windows for its own flavor of Android and access to a million apps and developers, Microsoft will carry on its Windows tradition, rowing against the current with all its might, hoping that one day Apple will turn into Blackberry.

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