Forbes put out this article yesterday, shedding some light on the subsidized cost of software licensing a Windows Phone.  Keep in mind, Microsoft is charging about 20-30$ per phone so this comes in at a whopping 200$.  Now this isn’t an exact science because this obviously can’t include support, marketing, or manufacturing costs of these devices but that means you’re looking at making about 200$ per handset to get into making a Windows Phone.  You still have actual device cost but most manufacturers are getting that down to around 2-300$ in pure hardware.  This means you’re breaking even or seeing very good profits for what phones are sold (regardless of how few), due to this cash out.  Is there any way that this is a smart business model?

Microsoft has a great product.  They just need to get mind and marketshare.  Even our resident kool-aid drinker came away with a review that sounded like he was thinking of cheating on his second love.  But a great product is never enough to make total success.  Especially when your consumer image is about as clean as the stage at a Vegas strip club.  So in order to overcome this Microsoft is dipping into that 50 billion dollar cash reserve fund to get this stuff to market.  This will probably look like an investment blood bath, but Microsoft is facing a really different challenge than what Android had to overcome.

When Android was releasing it was the second modern smartphone (as I define them based on capacitive touch, and not a blackberry storm for obvious reasons,) operating system out there.  They were in a field with themselves and Apple.  Every handset maker, to compete with the new mobile world wonder that was the iPhone, only had the option to grab onto Android.  Even in those days there was not much hope for Windows Mobile, regardless of its vastly superior functionality when compared to iPhones and Android handsets.  This new generation proved form over function (a lesson that many current Android manufacturer’s have forgotten but that’s another article.)  These handset makers poured all their own resources into this manufacturing and marketing because they had no other streams of revenue.  Microsoft is not blessed with this conundrum, coming into the market after Android had already been a boon for most of their hardware partners.  HTC was dropping phones on the market just as bad as Microsoft had been dropping the ball.  So now, with a third way for these handset partners that Microsoft had taken for granted, they have to spend a little cash to get it out there, and that’s exactly the task for this fiscal year at Microsoft and its primary handset partner, Nokia.

Will this be enough to get Microsoft out of the hole, and back into the minds of consumers?  Will it at least start to merge the successes of Windows 7/8, Xbox, and Windows Phone to change consumer’s perceptions of Microsoft as bland and boring?  And does anyone else think that Ballmer should smile more, because he just looks creepy as shit when he doesn’t?

8 COMMENTS

  1. Microsoft should be pouring in billions to get mindshare and marketshare for the mobile space. They realize that mobile is the future and the main growth area for their business.

    Microsoft is at their best when they can work with scale. They bring services that cost insane amounts of money to the masses for relatively cheap. That is why the partnership with Nokia works so well. They are both scale-centric companies that are at their best when volume reaches certain levels.

  2. @Maddy – Ballmer can afford to create bionic arms to sense when he needs a hug and then fly with a jet pack to his location, hug him, massage his back, and then make him a sandwich.
    @Murani – I just hope that it’s enough. If this isn’t the year that Microsoft turns things around, then I’m not sure it will. Doesn’t mean I won’t stay on the platform until something I deem better comes along.

  3. @Matt-You’re right. If this isn’t the year they gain marketshare I don’t think they ever will. The goal is marketshare because then you can start monetizing off the ecosystem.

    Since Microsoft doesn’t have the best specs they should always be lower priced than the competition. Let the iPhone duke it out with high-end Android phones at $200+ and Windows Phone should clean up at $100 or less.

    I actually think Microsoft getting into the incentive game is going to make a huge difference. Pushing the Lumia 900 against the iPhone 4S and iPhone 4 is going to be a good thing.

  4. @Murani Actually, that’s not a bad idea. If MS can start gaining traction with the $100-crowd, it could open the door for them to go into the $200 range with that group later. Hook them with a good mid-range early, so you can keep them when they upgrade.

    And I third that this is a critical year for MS. Especially with Nokia seeming to be ready to do a MASSIVE push. That MS should have started before October 2010.

  5. You can’t start spending the billions to reel the masses in till you have a hook in them. Sort of like hosting a big party in New Orleans a month before Mardi Gras. Who cares! Till now, Microsoft has been throwing out lines and testing the waters to see what sticks. Some things have worked a little. Some not so much.

    I believe the Nokia 900 launch will be a big turning point. Provided Nokia has done their homework, it will be an easy phone to recommend to just about anyone. The anticipated $99 price will only make things better. That’s the kind of marketing hook that Microsoft can build upon and bring Windows Phone out from the shadows. The next few months will be interesting.

  6. @Jim-The incentive program from Microsoft is going to make sure Windows Phones are always in the conversation and Nokia especially. I think those who prefer the iPhone will always prefer the iPhone unless a dramatic change happens but Windows Phone can make some real headway with Android users who tend not to be emotionally attached to their devices like iPhone users are.

    For the record I am predicting that 2012 will see Windows Phone marketshare rise to close to 10%. I can’t predict more than that because the lack of multi-carrier support. If Verizon had the Lumia 900 launching too i’d predict between 15% and 20%. Sprint has a stake in the success of the iPhone on their network. They have practically mortgaged the company’s future on the iPhone selling crazy numbers.

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