Microsoft (MSFT) is in a difficult position when it comes to the smartphone market. Its Windows Phone 8 operating system clawed its way into third place for global market share last year and was the fastest-growing mobile OS of 2013.
The “difficult” part of that position is that even at 104% growth on the year, it still only amounts to a paltry 4% of the market.
Plus, much of that was stolen from battered BlackBerry (BBRY), not to mention that almost all the Windows smartphones were from a single manufacturer: Nokia (NOK). Ergo, MSFT is going to have a very difficult time clawing out more significant smartphone share, especially when it charges hardware manufacturers for a Windows Phone license in a world in which Google (GOOG) gives Android away for free.
Windows Phone 8 Should Be Free for All
We’ve just seen the first cracks in Microsoft’s resolve to keep its smartphone operating system as a profit center with news MSFT has agreed to waive licensing fees for two Indian smartphone manufacturers. The company claims it’s doing so to help boost adoption in the country.
In essentially offering Windows Phone for free, Microsoft puts its operating system (for those two vendors) on a level playing field with Android — it costs the two companies nothing to release a smartphone running either OS.
Make no mistake, that license fee is a big deal. Smartphones are an extremely low-margin business for most manufacturers, and many actually lose money on every device they sell. Just two — Apple (AAPL) and Samsung (SSNLF) — have the industry profits literally locked up.
Apple’s iOS and BlackBerry’s BB10 are proprietary operating systems. So, as a smartphone manufacturer, you basically have two primary options:
- You can release an Android smartphone to a market clamoring for these devices, you don’t have to pay Google anything, and you’re still lucky to break even on the device — unless you’re Samsung, in which case you’re doing just fine.
- Or, you can choose to go with a Windows Phone 8 smartphone, try to sell it in a market with minuscule demand for such devices and fork over $20 or $30 to MSFT for each one you sell, effectively guaranteeing a loss on every smartphone while seeing your brand plummet in market share.
Which is why the only way Microsoft has a shot of goosing Windows Phone 8 adoption is if it just makes the operating system free for all manufacturers.
And yet … even that doesn’t solve the inertia problem.
With Android dominating smartphones, convincing consumers to risk their hard-earned cash on a Windows Phone 8 device next time instead of sticking with the familiarity of Android will be a tough sell. That sell is tougher still when you consider current Android phone owners might be invested in the ecosystem — they’ve paid for apps, and those apps won’t run on Windows Phone 8.
That’s where dual-boot smartphones come in.