You have to wonder if Microsoft (NASDAQ: MSFT) is starting to get nostalgic for last decade. 2000 was just a better year for Microsoft than 2010. Apple Inc. (NASDAQ: AAPL) is now the world’s most valuable technology company, Windows 2000 and its immediate successor Windows XP still have a larger install base than either the Windows 7 operating system, and the Pocket PC 2000, the original Windows Phone released in the April of 2000, is an all but forgotten footnote in the smartphone pantheon.
Even the Pocket PC’s descendents, phones from the past three years running Microsoft’s Windows Mobile 6, 6.1 and 6.5 platforms, have barely made a dent in a market dominated by Apple Inc.’s iOS-fueled iPhones and the fleet of phones from Motorola (NYSE: MOT), LG, and many others running the Google (NASDAQ: GOOG) Android operating system. Microsoft is saying their fortunes in the smartphone market will change come October when the company officially releases Windows Phone 7 and they are putting their money where their mouth is.
In an article for TechCrunch, writer Kim-Mai Cutler reports that Microsoft may end up spending $500 million to pave the way for their new smartphone operating system this fall. That money will partly go toward subsidies for smartphone manufacturers and developers, but the capital will predominantly go into marketing the platform. Deutsche Bank analyst Jonathan Goldberg says that Microsoft will most likely devote $400 million just for building awareness of the operating system. The key, explains Goldberg, is not to lure in iPhone and Droid owners. At least not yet. “They don’t have to take share from Android or Apple, so long as they can attract enough consumers switching from feature phones.”
While it may be true that Microsoft doesn’t need to lure away the iPhone crowd from Apple’s clutches, the same probably can’t be said of the audience using Google Android-powered phones. Microsoft needs them not to build an audience but to build smartphone manufacturers’ confidence. Microsoft’s history of failure in the space has made potential Windows Phone 7 (formerly Windows Mobile 7) makers skittish about the platform. Hewlett-Packard (NYSE: HPQ), HTC, LG, Samsung, Toshiba (LSE: TOS), Dell (NASDAQ: DELL), Sony-Ericsson, and Garmin-Asus were all going to produce phones running Windows Mobile 7 in February of 2010. Today, only HTC, Samsung, and LG are still partnered with Microsoft.
Provided those phones are of a high enough quality, Microsoft might just find the success they desire. Early reviews of Windows Phone 7 have been very favorable. Tech blog Engadget’s impressions of the platform from February 2010 said that the interface is unrecognizable in comparison to Windows Mobile 6, with a slick, animation heavy presentation that borrows the best of interfaces from other Microsoft products. Its music player interface resembles the Microsoft Zune while its games space borrows the look and feel of their home gaming console the Xbox 360. Microsoft’s senior program manager Greg Sullivan openly admits that the platform looks to take the very best from its competitors, namely the user-friendly vertical orientation of Android phones and the compact attractiveness of the iPhone.
Will these features be enough to make Microsoft’s smartphone business in 2010 look more like their business in 2000? We’ll find out in October.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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