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March 11, 2009 2:56 PM

Windows Mobile Fights for Survival



News Analysis. Microsoft can thank Apple and Research In Motion for the fourth quarter's surge in Windows Mobile smartphone sales. Some advice to Microsoft CEO Steve Ballmer: Wipe that smug look off your face.

After falling from second to fourth place in smartphone operating system shipments earlier in the year, Windows Mobile finished the fourth quarter and 2008 in third place—ahead of the iPhone OS, according to Gartner. Such a feat surely will cause cheering in Redmond today. Shut your mouths. Your mobile strategy still sucks and pride will surely lead to your fall. Windows Mobile rests on a precipice thousands of kilometers high and an avalanche approaches.

arrow.gifGOT A TIP OR RUMOR?

At a cursory glance, the Gartner numbers look promising for Microsoft, and that's probably how the PR wonks will spin them. But a deeper analysis reveals huge problems looming for Windows Mobile. Sadly for customers and developers, Microsoft is trying to fix the business model rather than the problem: Windows Mobile.

First, the straight numbers. Gartner measures sales through to customers rather than shipments into the channel. That's why, for example, Apple states higher shipment numbers than Gartner, because iPhone's manufacturer counts unsold inventory and the analyst company doesn't.

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Worldwide smartphones sales increased 3.7 percent year over year in the fourth quarter, or 38.1 million units sold. For the year, smartphone sales rose 13.9 percent, for sales of 139.3 million units. For perspective, sales for all cell phones were 314.7 million units in fourth quarter and 1.22 billion units for all of 2008. Smartphones accounted for 11 percent of all cell phone sales in the fourth quarter and 12 percent for the year.

Microsoft mainly benefited from two manufacturers, HTC and Samsung, both Windows Mobile licensees. In the fourth quarter, Samsung pushed Sharp out of the top five, facilitating a quarter-on-quarter surge in Windows Mobile smartphone sales. From third quarter to fourth quarter, Windows Mobile sales jumped 16 percent. Also, in the fourth quarter, iPhone OS and Windows Mobile switched roles. In the third quarter, iPhone OS sales reached 4.7 million units, while Windows Mobile came in at 4 million units. During the fourth quarter, Windows Mobile sales rose to 4.7 million units, while iPhone OS sales declined to 4 million. What an interesting juxtaposition.

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Now for my pointed analysis. In many ways, Apple created the circumstances that let Windows Mobile temporarily regain license sales momentum after big early 2008 stumbles. Microsoft did little to nothing to make the sales surge happen, I assert. For years, Microsoft unsuccessfully tried to popularize the smartphone category. It was the iPhone that generated big interest in the category. RIM and Palm deserve credit, too, but the iPhone really got the category going, whether or not Apple was the major beneficiary of sales. Nearly all major handset manufacturers set out to create a smarter smartphone than Apple's handset.

Competition reached a crescendo in third-quarter 2008, with Google's Android coming to market from T-Mobile, the iPhone 3G achieving record sales and RIM's BlackBerry line getting a boost from exciting new models and, more importantly, admitted CrackBerry user Barack Obama. HTC and Samsung had few other operating system options. Smartphone marketing by Apple and RIM smartphone created dire need. But Apple and RIM don't license their operating systems, and Android was released too late to qualify for other 2008 devices. HTC and Samsung had two choices: Symbian and Windows Mobile. Both manufacturers are major Microsoft licensees. Samsung's Omnia smartphone contributed to Windows Mobile's sales surge, according to Gartner.

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Looking ahead, tough competitors surround Windows Mobile. Fourth quarter's sales surge may yet be the operating system's last gasp. All of 2009 will be a fight for survival. Microsoft has five big problems:

  • Windows Mobile 6.5 won't ship on new devices until the second half, and a limited number at that. The operating system isn't a good enough improvement over its predecessor and lags behind Android, BlackBerry OS, iPhone OS and even Symbian when it comes to Web features. Already, HTC and Samsung are drifting away from Windows Mobile to Android or Symbian.
  • Windows Mobile has lost its one differentiating feature: Exchange sync. Microsoft now licenses the ActiveSync protocol for the other four major mobile operating systems. Enterprises depending on Exchange and Outlook now can choose, and they will, from a plethora of non-Windows Mobile smartphones.
  • Android will steal away Windows Mobile licensees. For 2008, Linux OS sales declined 4.2 percent year over year, but surged 19.4 percent in the fourth quarter. For the quarter, Linux year-over-year sales growth was 2.5 times more than Windows Mobile growth. The gains largely came from Android, which was sold on just one device from one carrier. Android accounted for 20 percent of Linux OS sales in the fourth quarter. Other carriers are lining up for Android, which looks to make big gains against the iPhone OS and Windows Mobile in 2009.
  • The BlackBerry is a seemingly unstoppable force. The devices and, subsequently, the operating system, just keep gaining share. BlackBerry sales nearly doubled year over year from 2007 to 2008. The BlackBerry OS' sequential gains were much greater than Windows Mobile's, with sales of 5.8 million units in the third quarter rising to 7.4 million in the fourth quarter. For the year, BlackBerry OS sales were more than 25 percent greater than Windows Mobile sales.
  • The sleeping giant is awake. Nokia is revamping its smartphone strategy, quite impressively. The Nokia E71 smartphone is all enterprise. The N97 touch-screen smartphone is months from release. Symbian OS still commands a huge market-share lead, even with recent declines.

There are very good reasons why Microsoft executives and product managers shouldn't get too giddy about Gartner's smartphone sales data. The future is challenging, and, based on recent Microsoft exec comments during February's Global World Congress and other recent events, there's corporate denial about Windows Mobile's perilous state. Matters would be a whole lot better, even hopeful, if Windows Mobile hadn't fallen so far behind competing operating systems. Version 7 needed to ship this year, but it's not ready.

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I predict that as the smartphone market grows, there will be tighter market-share consolidation around Symbian and BlackBerry OS devices. The question: Who gets third place? My money is on Linux OS, spurred on by Android, or iPhone OS. I don't see Windows Mobile ending 2009 in third place.

[Please send your tips or rumors to watchtips at gmail.com.]

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Comments (15)

smist08 :

The thing that strikes me the most is the complete annihilation of Motorola! Wasn't Motorola at one time the market leader in cell phones? I saw a video on how Motorola went from #1 in TV manufacturing to leaving the market (never adapted to those transistors). Back then their executives swore they had learned their lesson and would never repeat that mistake. Apparently they have with cell phones.
Suspect without any major changes, MS can only stay in the game, as the cheaper cell phones for so long. Eventually the market will lose interest no matter how much they subsidize that business.

Chip :

I'm always surprised that these discussions focus only on market share.

According to PCMag, Microsoft makes between $8 and $15 per phone sold. Using the upper end $15, that means that Windows Mobile generated $70.4 million in revenue for Microsoft this past quarter.

According to CNET, Apple makes about $667 per iPhone sold. That means that the iPhone generated $2.67 billion in revenue for Apple this past quarter. Add a likely $300,000+ from the iPhone App Store, and Apple made about $4 billion last quarter.

$4 billion versus $70 million? Do you really think there might be folks in Redmond cheering?

Chip :

Whoops. Really bad math.

The previous post should read "$3 billion versus $70 million."

Sorry.

Surur :

Wow! I dont want to read your article if the iPhone actually outsold Windows Mobile!

No credit for actually having a business model which allows any company to attack the mobile battle ground with a smartphone at all. No talk of the challenges other smartphone OS's will face. No talk of the trajectory of Windows Mobile before the iphone even came along.

Windows Mobile was growing 50,60,70 % each year well before the iPhone started hyping things. So now the iPhone actually is promoting Windows Mobile? I thought it was suppose to limit it sales? Why dont you get your story straight.

Lets add some balance to your story:

Reasons why WM will do well in 2009-
1) Aggressive action by new large licensees like LG (remember 50 new WM phones over the next 3 years).
2) Attack on the low end by netbook king Acer (remember $50 phones, free on contract)
3) Increasing skill by WM licensees like HTC, even on 6.1 (Have you seen TouchFlo3D 2?)
4) A range of new, very attractive devices like the new Touch Diamond 2 and Touch Pro 2.
5) slacking competition from RIM (who's devices are boring) and Apple (who's iPhone is getting very stale) and Adroid (who has NOTHING of note coming out very soon).

WM 6.5 will bring a much more attractive base UI, which will make it very easy for any company to enter the smartphone market, and will feature an app store, my phone web integration and Zune software. It will be a very competitve OS, even if you cant see it.

Why dont you change your URL to Microsoft-bash from microsoft-watch?

TA :

Every so often Joe goes from basher to non basher and back again.

Joe doesn't really need to bash anything. There's a bunch of regulars here who constantly bash anything MS making the comments even more unreadable than the content.

Goblin :

@TA
Of course.
Quote "There's a bunch of regulars here who constantly bash anything MS making the comments even more unreadable than the content."
-
I hope your not aiming that at me, or would you like I post links on this very site where Ive proven repeatedly that just because its Microsoft doesnt mean Ill bash it.
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I have an honest held belief that Linux is better (due to experience with both) Its not my fault if Microsoft doesnt make a Linux distro of its own is it? (Although, one could, tongue in cheek say SUSE)
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TA, if the alternatives view was limited to just this site, I may agree with you, but anyone here can check zdnet/slashdot and all the other mainstream forums to see the same comments and praise been given to alternatives to Microsoft products. Dont take my word for it, look yourself. It appears that there is more than a "bunch" of people that a writing about the better experience they have had with FOSS and/or alternatives.
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If what you say is true and people bash software because its Microsoft, maybe you could explain why it appears that many people seem to enjoy this pastime? Are you suggesting that anyone with anything negative to say about Microsoft has taken leave of their senses? or just the ones that are critical more than once? Id love to hear your explanation.

evan :

Joe, do you remember my comment a month ago? I said that there so many Windows mobile devices that came into the market the last year and that 2 years ago, if you wanted a Windows mobile phone you were restristed to 2 or 3 vendors the most. Now you can choose from 6-7 new vendors that came in last year. That is the reason that Windows Mobile is doing well. Most People buying a phone are not buying an OS, they buy a Phone. Lately, there are so many good phones (the hardware specs of these phone are excellent. Just a year a ago I could not find a WM phone with more that 64 RAM) from different vendors to choose from running Windows Mobile and thus the sales increase.
In addition, the Killer application, in my opinion, that separates WM from the rest is real time GPS Navigation Software.

billybob :

Evan, what is the best WM phone which really shows off the features to their fullest? A released phone, not something that is about to be released or has only been demoed.

Soosan Moore :

@Chip:
You kind of completely disregarded the fact that Apple makes more profit because they take a margin on the hardware too. Microsoft does not, it's partners do.

evan :

billybob,
Surur mentioned a few from HTC, LG GM series and Sony Xperia X1 among others...

Ed T :

I'm a MSFT shareholder. Chip highlights the obvious disregard Ballmer and his crew have for people like me. Their money-losing, vanity efforts in search, mobile, and gaming/devices have wasted billions of dollars in shareholder equity with no sign of any returns on that investment. They spend huge sums every year on activities labeled "R&D", again with no track record of success.

Apple's iPhone and related technologies are a moving target. Ballmer is flat footed, and IMO his team lacks the competence to even suit up to compete in the race. I wish they would just focus on their legacy business and put shareholders in the list of priorities again.

Marco :

Soosan Moore : 'Microsoft does not, it's partners do.'

----------------
Something like that?

http://www.roughlydrafted.com/2007/09/10/office-wars-3-how-microsoft-got-its-office-monopoly/
Quote:

Microsoft’s coldly calculated murder of every rival DOS application developer and later many of its Windows developers, from Novell to IBM and Sun to Netscape, is an oddly public fact treated as a taboo secret by Windows Enthusiasts, who avoid all mention of it as they talk about how Apple “can’t work with partners” in the rich, supportive way Microsoft supposedly has.

Any competition between Apple and third party developers–even with shareware programs–is paraded through the insufferable blogs of ZDNet and the pages of IDG’s InfoWorld/PCWorld/Computerworld and described as unconscionable conduct. This is from writers who all witnessed first hand Microsoft’s massacres of any and all “partners” the company decided no longer suited its fancy. Have these wags all been brainwashed, or are they just lying for money?
-------

While I am not Apple fan, I can not fail to recognise microsoft's destructiveness

Marco :

TA :
Joe doesn't really need to bash anything. There's a bunch of regulars here who constantly bash anything MS making the comments even more unreadable than the content.

And you TA what is your motive?

"Have these wags all been brainwashed, or are they just lying for money?"

rickst29 :

The BIGGEST elephant in the room is Nokia's new QT strategy. And it's not just the toolkit technology, it's also the license: LGPL, free to use in your proprietary, for-profit programs without establishing any contractual relationship with Nokia. And the terms of LGPL mean that Nokia can't change their mind about this-- QT will be free, forever. The contrast with Apple's relationship to ISV's (via "apple store" hassles and costs) is striking and attractive.

When you have a really "rich" toolkit like QT4, in which mobile Apps such as tracking bus locations and charting arrival times over wireless can be done in just a few lines, and your application can be re-platformed to Netbooks, Notebooks, and Desktops so easily, the competitors should be very scared.

WM-6.5 and WM-7 don't just have to compete against the current (and awkward, difficult) S60 toolkits, they'll have to compete against QT. And to compete, WM-7 Apps will need to port easily to Microsoft's "netbook-oriented" Windows 7 platform. I don't they'll cut the mustard. And even if they can, Microsoft licensing horrors and "hidden in secret" code policies will remain as serious disadvantages.

Nokia competitors, such as Samsung and HTC, won't be thrilled to use use QT-- even though the license is open, and Nokia wouldn't make any money from their use of QT. But I think that future smartphone platforms are going to be more and more like PC's, you aren't going to be limited to the software which the phone manufacturer wrote for it. It'll be like adding QuickBooks, or Adobe professional, or AutoCAD, or any number of similar "independent" 3rd party programs to your Windows PC. QT threatens to open compatible smartphones and Netbooks to a *true* ISV marketplace.

Thomas (Tom) Tsilionis :

Clearly apple technology by far surpassed Microsoft. Gates should consider rolling out new, more robust technology in order to keep up with the competition.

Tom Tsilionis

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