It's Time For Microsoft To Kill Any Global Ambitions For Windows Phone

In the rush of Apple’s dominant opening weekend for the iPhone 6, and the new Android-powered handsets announced earlier this month at Berlin’s IFA, you might have forgotten all about Windows Phone and Microsoft’s promise to become “the third ecosystem”. Which is a bit of a problem for Microsoft. Now is the time for CEO Satya Nadella to take decisive action over Microsoft’s mobile plans.

Forget about the global ambition to establish Windows Phone. That moment has passed. Focus on making it a strong niche player, and stop trying to rival Android and iOS. That battle is already lost.

Microsoft’s problem is two-fold. The first is its global market share in smartphones has not reached ten percent. The second is that in some territories (predominantly those where Nokia was historically strong with its previous mobile platforms), Windows Phone has more than a ten percent market share.

The ten percent figure is key. Starting with the theories of Bruce Henderson and his Economic Rule of Three (specifically “In competitive, mature markets, there is only room for three full-line generalists, along with several (in some markets, numerous) product or market specialists”) Microsoft pitched Windows Phone as “the third platform”. The strategy would assume that Android takes around 60-70 percent market share, and both Apple (with iOS) and Microsoft (with Windows Phone) would capture about fifteen percent each.

That would allow the three operating systems to act as the three global played, with a dominance of sales, mind-share, and revenue between them.

Microsoft CEO Satya Nadella (picture: Microsoft.com)

Microsoft CEO Satya Nadella (picture: Microsoft.com)

Turning to a further study on large markets (Sheth and Sisodia’s famous 2002 study), for a company to be viable as a volume-driven major player, it must pass a critical level of market share. No matter the industry, be it smartphones, PCs, automobiles, hamburger restaurants, in fact any industry you care to study, this level is ten percent. Get above that, and you can be a ‘major’.

What happens below that? Well you have a number of niche players who can make a successful business out of being the specialists, the exclusives, and the alternatives. Again, no matter the industry area, the successful niches all operate below a five percent market share.

The squeeze happens in the middle. Between five and ten percent, it will be incredibly difficult to operate. You can either act as a niche player and hope you get back into the golden zone below five percent, or market and promote like a global player and simply burn money trying to get to ten percent. What you can’t have is long-running financial success in this death zone.

Microsoft’s adventures in the death zone with Windows Phone over the last three years will be another data point to add to these studies. Windows Phone has not broken through at a global level. To complicate matters, where it has broken through (notably in Europe), having to act like a major player hampers efforts elsewhere in the connected world, where the platform would be better served by acting as a niche player. It takes some ‘mad skilz’ to operate in the 5-10 percent zone as a major player and as a niche player at the same time.

Nokia Lumia 930 (image: Gordon Kelly, Forbes)

Nokia Lumia 930 (image: Gordon Kelly, Forbes)

Six months ago, as Microsoft completed its purchase of Nokia’s Devices and Services section, I argued that Microsoft had to get to ten percent market share as quickly as possible. Since then, Android and iOS have pulled dramatically away. The Q2 2014 market share numbers gave Android 85%, iOS 11% and everyone else (arguably Windows Phone, Blackberry, and small players such as Jolla) 4%. The new Microsoft powered handsets announced at Berlin’s IFA have been lost in a sea of Android handsets and the tsunami of the iPhone 6 and iPhone 6 Plus.

So I’m arguing for a different approach. Microsoft should  stop with ‘the third platform’ story. Put aside any illusions of breaking through and becoming one of th giants of the mobile world. Those opportunities have passed. The fall of Microsoft’s mobile solution (which at one point reached 23% globally and 42% in the UK) will be analysed for years to come, alongside the fall of Nokia. Windows Mobile is gone, the evolution of Windows Phone is not making an impression, and Nokia was dragged out of the Top Ten smartphone manufactures for the first time since Nokia created the smartphone.

Focus now on your product. Windows Phone still sells, and there are many fans of the platform. It is tightly integrated into your cloud offerings, and can work alongside your desktop and portable solutions.

It’s true that it is no longer a major player in the smartphone wars, and it never will be. Stop acting like it is. Windows Phone is a niche product. Start treating it like one and it can be nurtured, it can grow, and it can become a quiet success providing a small but positive contribution to the bottom line.

Microsoft, aim low, and hit five percent.

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