Windows Phone struggles to break catch-22 as app makers hold off

Mon Mar 26, 2012 2:22am EDT

A visitor talks on his phone next to a Windows Phone advertisement during the Mobile World Congress in Barcelona February 27, 2012. REUTERS/Albert Gea

A visitor talks on his phone next to a Windows Phone advertisement during the Mobile World Congress in Barcelona February 27, 2012.

Credit: Reuters/Albert Gea

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(Reuters) - Apps, apps, apps! That is the main challenge that Microsoft and Nokia, who are trying to claw back market share from Apple Inc's iPhone and Google's Android in the red hot smartphone market, face now.

And so far the going does not look too good for the challengers and their warhorse Windows Phone platform.

Apps, short for applications, are small pieces of software that do useful or fun things on cellphones. The huge number and variety of apps in Apple and Google  stores are a key factor that has helped the companies emerge as dominant players in the lucrative smartphone market.

On Monday, Microsoft and Nokia said they would invest a total of 18 million euros ($23.9 million) into a new mobile application development program, AppCampus, at Helsinki's Aalto University during the next three years.

The move underscores the seriousness with which the two companies view the problem.

Most popular global apps such as Facebook, Twitter, Foursquare and Evernote are available on the Windows Phone platform, but makers of many niche or local apps have shied away.

The number of apps available in the Windows Phone Marketplace now exceeds 65,000, surpassing those at another rival Research in Motion's BlackBerry store. But that is still far short of around half a million apps available on the Apple App Store and Google Play, according to app researcher Distimo.

Worse still, only 37 percent of developers are keen to make apps for Windows Phone, showed the latest IDC/Appcelerator survey. That number, slightly down from the previous survey, compared with the 89 percent interested in iPhone and 79 percent in Android phones.

"Mobile developers' interest for the Windows platform has been for the least very lukewarm over the last two years, with no sign of improvement," Sanford C. Bernstein analyst Pierre Ferragu said.

Microsoft launched its latest Windows Phone 7.5 operating system, Mango, last year to good reviews. And Nokia, struggling to reclaim smartphone handset marketshare from nimbler rivals such as Apple and Samsung Electronics, launched its Lumia line of phones running on Mango late last year.

Lumia phones look sleek and spiffy, with live, tiled icons that automatically update news, weather, pictures and social feeds. But the fewer number of apps and their quality are hobbling the phones' appeal to customers.

Finn Christian Lindholm, a Helsinki-based partner at digital design agency Fjord, believes the latest Windows Phones are interesting enough to challenge the iPhone.

The key to both companies' strategy to gain in the smartphone market would be how they break out of the vicious cycle -- the low sales of the Windows phones holding back app makers, and consumers shunning the phones for lack of the apps they are accustomed to.

"They need to break the Catch-22 before there is enough volume and natural pull," Lindholm said.

SHRINKING MARKETSHARE

Monday's announcement by Microsoft and Nokia is an attempt to find new solutions to the problem, in addition to paying third-party developers for the apps.

They hope the program, which will provide support, coaching and also funding for app makers, will boost the number of unique and outstanding apps on Windows Phone.

It's an uphill road for a new platform. Microsoft's share of the smartphone market fell to just 2 percent last quarter, from 3 percent a year ago and 13 percent four years earlier, according to Strategy Analytics.

Last month, Windows Phone lost also its highly respected chief of developer relations, Brandon Watson, who left for Amazon.com Inc, which is taking on established players in the mobile devices market with its Kindle e-readers.

Apart from Nokia, which has a lot riding on the platform, Microsoft has little support from other handset makers, such as Samsung, which are clearly focused on their Android offerings.

That is not surprising as the other handset makers are struggling to sell their Windows Phone models. They, unlike Nokia, can only dream of payments from Microsoft for promoting and supporting its software. Last quarter, Microsoft paid $250 million to Nokia on this account.

NO TALKING TOM CAT

On Friday, Rovio, the maker of the wildly popular Angry Birds game, created a scare when media reports said the latest version of the game -- Angry Birds Space -- will skip the Windows platform.

Rovio Chief Executive Mikael Hed later told Reuters that the company is working toward getting the game to Windows Phone but did not specify when it will be available.

Showing how difficult a task that Microsoft and Nokia face, many small app developers, such as Outfit7 -- maker of the popular Talking Tom Cat app -- and Joby -- which makes a camera app -- said they have no plans to be on Windows Phone either.

Pioneers in augmented reality -- a technology that combines the digital and real worlds, and is one of the hottest areas of wireless -- are also holding back.

"We have enough work in keeping Android and iPhone apps up to date, as well as in enhancing our augmented reality capabilities on them," said Maarten Lens-Fitzgerald, co-founder of Dutch-based augmented reality firm Layar.

Jeff Janer, co-founder and CEO of Springpad, which makes the namesake app that allows users to store, organize and share content, raised the main concern of the app makers: Will the hard work to move to a new platform pay off?

"When considering a new platform, we look to balance cost of development and support against potential return in terms of market opportunity and the ability to cost-effectively reach the market," said Janer, who currently has no plans to develop an app for Windows Phone.

For many small developers, it is a question of cost and how fast they can recoup the investment.

It would probably take six man-months to build an app for Windows phone and if that was contract work it would be $60,000 or more, said Adam Saltsman, co-founder of Semi Secret Software, which makes the Wurdle word game.

The small customer base for Windows Phone is forcing developers to charge more for the apps, turning off customers further. Most apps that are available for 99 cents on Google Play cost $2.99 on the Windows Phone Marketplace.

Andreas Bernstrom, CEO of Rebtel, one of the most popular Internet-based calling applications on iPhone and Android, said the company has Windows Phone on its development roadmap for later this year but has not yet started work.

"I don't know what the market will be like in six months, maybe we need to focus on tablets or something else," he said.

Jeffrey Glueck, chief executive of Skyfire Labs Inc, which makes the eponymous mobile Web browser, said the main driver for developing on Windows Phone will be carrier requests. "So far, we're only getting requests around Android and iPhone."

That is one more challenge for Microsoft and Nokia.

($1 = 0.7540 euros)

(Reporting by Tarmo Virki in Helsinki and Supantha Mukherjee in Bangalore; Editing by Unnikrishnan Nair)

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