Microsoft goes mainstream to win phone share

SEATTLE Thu May 2, 2013 7:50pm EDT

Windows Phone chief Terry Myerson attends an interview during the mobile World Congress in Barcelona February 27, 2012. REUTERS/Albert Gea

Windows Phone chief Terry Myerson attends an interview during the mobile World Congress in Barcelona February 27, 2012.

Credit: Reuters/Albert Gea

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SEATTLE (Reuters) - Microsoft Corp's phone chief hates to call the new Nokia Lumia 521 cheap, but the lower-priced smartphone launching in the United States is the company's boldest move yet to win mass market share from leaders Apple Inc and Samsung Electronics.

The world's largest software company has so far focused on putting its Windows Phone software into expensive, high-end devices - chiefly from Nokia and HTC Corp.

But the new model will go on sale at Walmart later this month at an unsubsidized price under $150, relatively cheap for a new phone running up-to-date software without a long-term contract.

"There is an opportunity for us to offer a very high quality device in the mainstream," said Terry Myerson, head of the Windows Phone unit, at Microsoft's campus near Seattle last week. "That's where we've made progress in the last couple of months and it's a strategy we'll continue to explore in the United States."

The Nokia Lumia 521 went on sale on the Home Shopping Network (HSN) last week, where it has already sold out. The 4G phone, sold overseas as the Nokia 520, is essentially a mid-range phone with some high-end features, such as four-inch touch screen, five megapixel camera and high-definition video display.

Next week the phone will go on sale at less than $150 at Walmart, along with T-Mobile US Inc's $30 per month unlimited data and text plan, which works out much cheaper over the long run than heavily subsidized iPhones and upscale Android devices that generally come with pricy long-term contracts.

The early popularity of the Lumia 521 on HSN is a minor boost for Microsoft, whose mobile plans have stuttered and stumbled since Apple's iPhone destroyed its early dominance in the smartphone market in 2007.

After completely redesigning its software, Microsoft-powered phones now have 3.2 percent of the U.S. smartphone market, compared to 39 percent for Apple and 52 percent for Google Inc's Android system, according to comScore.

Nokia, which now only makes smartphones running Windows, sold 5.6 million of its Lumia handsets in the first quarter, up 27 percent from the previous quarter, although that is still dwarfed by 37 million iPhone sales.

Microsoft does not detail overall Windows phone sales or financials, but did say last quarter that phone-related revenue rose by $259 million, which includes licensing revenue from Android phones, which use some technology patented by Microsoft.

Windows phones tend to fare better overseas, where they have as much as 20 percent share in some markets such as Mexico and Poland, and almost 7 percent in Britain, according to Microsoft.

That is partly because the role of powerful carriers such as AT&T Inc and Verizon Wireless, which dominate U.S. phone retail, is less pronounced in overseas markets.

"AT&T and Verizon have been great partners," said Myerson. "But where the market dynamics are different, and where the operators play a different role, we have done better."

Heavy up-front subsidies from AT&T and Verizon, in return for long-term service contracts, mean U.S. customers can afford the best hardware from Apple and Samsung. Even though Windows phones are also subsidized, Myerson admits it has been hard to break that lock on the home market.

"It (subsidization) is a compelling business model for them. If you are Samsung, Apple, AT&T or Verizon, it's where everything's working, you are growing share, you are growing profits," said Myerson. "If you are an incumbent with a successful business model, you're not going to be jumping to throw it out."

As a challenger to those incumbents, Myerson says Microsoft has to differentiate on more than just price.

After introducing "killer hardware", he says the next task for Windows phones is to leverage Microsoft's Office and Xbox products to make a genuinely new phone experience, whether as a work tool or advanced toy.

"I don't think we've come near to the full potential," he said. "Those are our two dimensions here, Office and Xbox. We want to bring to life getting work done and bring to life that serious fun, here on this thing in your pocket. That's going to develop over time."

Myerson played down reports that Microsoft was working on a phone of its own, to follow up on its Surface tablet.

"Nokia's doing a great job," he said. "They really are receiving all of our go-to-market energy right now."

(Reporting by Bill Rigby; Editing by Tim Dobbyn)

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Comments (4)
gfinale wrote:
Hahaha, 3.2% of the market but hey, they got a 27% blip upward on a new OS through hype in the past year! Microsoft would not seem to have ever done well on an even playing field. They did well all these years because of a monopoly situation, illegal tying of products, illegal dealings with partners/dealers, etc. They don’t have that in the smartphone and tablet world and it’s highly unlikely they can ever achieve it. Next, the real smartphone and tablet companies need to eliminate and/or replace anything Microsoft in their products so Microsoft does not make a dime for their sales. Microsoft would do better to create something new instead of competing but then again, has Microsoft ever created anything new?!

May 03, 2013 2:27am EDT  --  Report as abuse
ViFo81 wrote:
@gfinale Even if you’re young, you’re already old. You’ve seen only 1 tech business cycle and you think it will last forever, like a lot of people did with Nokia in the 90s, Apple in the 80s and so on. You see Microsoft as an evil company and you don’t notice that in the last few years has a much more open architecture than Apple. Just evolve please.

May 03, 2013 5:22am EDT  --  Report as abuse
TheNewWorld wrote:
@gfinale
Your criticism of Microsoft rang true in the 90s and early half of the last decade. Not so much now. Apple is proving much worse than MS ever was with their patent trolling, and lack of innovation sincethe first IPhone. Google is openly collecting every piece of information about your life and if you carry an android phone can accurately say where you work, where you live, where you shop, the route you take to work, who your friends are and what your interests are. They readily sale that to everyone willing to pay.

Microsofts phones are the highest rated for customer satisfaction on Amazon, and many carrier sites. The OS is fast and clean, but the lack of apps has been a major issue for acceptance. Most major apps are on the platform now, and as a past android user I can state they are superior to the same apps on Android. It isnt all there, but they have made big strides in the last year. It is way too early too count them out with their deep pockets and current leadership in innovation. Steve Wozniak (co-founder of Apple with Steve Jobs) even said that Microsoft is innovating while Apple is just recycling their past success.

May 03, 2013 6:41am EDT  --  Report as abuse
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