An analysis of Microsoft's Windows Phone 7 relaunch

ramon llamas idcWith the fourth quarter of the year coming up soon, my eyes are on one company: Microsoft.

It's been an active year for the smartphone market: Apple's iPhone setting off another round of die-hard loyalists waiting to get their iPhone 4, Motorola storming back into the smartphone space with its line of Droid and MotoBLUR devices, and HP acquiring Palm. But perhaps no other development has drawn so much attention as the operating system relaunches expected this year. Excluding the constant updates to Android and the introduction of Apple's latest iOS, this year we expect slight adjustments to existing platforms (BlackBerry OS and Symbian), a new OS (MeeGo), and a complete overhaul (Windows Mobile/Windows Phone 7).

But in the case of Microsoft, it's a different story. Microsoft is a pioneer in the smartphone market, bringing an experience that many were accustomed to from their Windows PCs onto a mobile phone. The "Start" key, the menus, the applications, the feel and flow were all familiar to early smartphone users, making for a slight, but manageable, learning curve. Windows Mobile phones were a boon for enterprise users in particular, as it served the needs of the end-users and many IT managers. Even when users struggled with the user interface, the input (remember those cramp-inducing styluses?), or not having a complete PC/Windows experience, those users were loyal.

Then a funny thing happened: consumers quickly discovered that the smartphone was not just for enterprise users, it was for them too. Other operating systems capitalized on it: BlackBerry with its Pearl and Curve, Nokia/Symbian with its Nseries, and Palm with its Centro devices. These companies all shared one thing in common: control over the device and the operating system which allowed them to move faster. Microsoft did not. But, consider how few of Microsoft's partners chose to launch a consumer-focused device running on Windows Mobile. At the time, it was still an operating system well-positioned to serve enterprise users. When Apple's iOS arrived on the scene in 2007, not only did it draw even more attention to the smartphone market, it also became the consumer-facing operating system. Consumers took to the ease of use immediately, and didn't have to think twice about how to navigate around the device. Android followed suit, and attracted its own growing audience.

This is not to say that Microsoft stayed still. The company released Windows Mobile 5 in 2005, Windows Mobile 6 in 2007, Windows Mobile 6.1 in 2008, and Windows Mobile 6.5 in 2009. Functionality improved to include push e-mail, Office mobile, Windows Live, revamped user interfaces and many behind-the-scenes tasks. But the late delivery of Windows Mobile smartphones following the release of the most recent Windows Mobile operating system always made it seem like Microsoft was just catching up to what was already available on the market. Meanwhile, its competition not only reaped success among the fast-growing consumer segment, companies including Research In Motion and most recently Apple had made significant inroads into the enterprise user segment.  

A snapshot of the smartphone OS market today

According to IDC's Worldwide Quarterly Mobile Phone Tracker, shipments of smartphones worldwide grew 55.5 percent in the first half of 2010 compared to the first half of 2009. But according to this table, not every operating system experienced the same kind of growth:

Operating system 1H Year-on-year growth
Android 904.5%
Apple 90.2%
BlackBerry 42.7% 
Symbian 42.5%
Windows Mobile -2.7%
Others -14.2%

Comparing Windows Mobile to Android and Apple may be a bit unfair, considering their respective short histories. But even fellow market pioneers BlackBerry and Symbian posted managed significant double digit growth in the same timespan. Still, it paints a picture of Windows Mobile's challenges of keeping pace with the market, even as the market experiences strong growth. 

With Windows Phone 7 around the corner...

Windows Phone 7 is a much needed change for Microsoft. Unlike the refreshes from BlackBerry OS and Symbian, WP7 is a complete break from what we have come to expect on a Microsoft smartphone in the past. Start button? Gone. More like a "Start Screen." Navigating through icons and menu lists? Good-bye. WP7 provides "live tiles" organized by category. Access to content? It's arranged into six hubs: People, Pictures, Music and Video, Games, Marketplace, and Office. It bears no resemblance to its predecessors, and clearly has its sights set on Apple and Android. Microsoft's list of handset partners includes HTC, LG, and Samsung among others, while its operator partners include Tier 1 companies in the United States and across Europe.

This is a critical time for Microsoft. Windows Mobile has lost some of its luster to its competition. Even CEO Steve Ballmer has acknowledged the shortcomings of Windows Mobile in the past while other operating systems have flourished. Many carriers have been promoting devices running on other platforms. Its hold on mobile enterprise users has been loosened, and it has a small presence among consumers. Its Kin devices, aimed squarely at social networking-hungry teens and tweens, were cancelled shortly after launch. They would have been a hit two years ago when social networking was in its infancy on mobile phones. But its demise points out how Microsoft's solutions arrived too late to the market. Windows Phone 7 cannot afford to repeat that lesson. If it is one thing that the Kin experiment has taught, it is that it is not enough to catch up to the market.

For Windows Phone 7, the task is to surpass expectations not only levied upon it, but upon smartphones in general.

Windows Phone 7 passed its first test when it was revealed this past winter to good reviews. But the next test is mass distribution.

Good luck, Microsoft. We'll be watching.

Ramon Llamas is a senior research analyst with IDC's Mobile Devices Technology and Trends team. In his role, Llamas tracks the quarterly results of the leading and emerging mobile device vendors, and uses the data to forecast the short-term and long-term direction of the mobile device market, and how it affects handset vendors, carriers and customers. He recently released his worldwide mobile phone and smartphone 2010 - 2014 forecasts, as well as a worldwide forecast of the mobile phone touchscreen market. In addition to being featured in FierceWireless, Llamas has been featured on Bloomberg Radio, National Public Radio, and quoted in Investor's Business Daily, the New York Times, and the Wall Street Journal. Llamas can be reached at [email protected].