As of August 2010, there were 254 million smartphone users in the United States. 45.4 million of those individuals purchased and activated their smartphone between January and April of this year, months before the release of Apple Inc.‘s (NASDAQ: APPL) iPhone 4 and Motorola‘s (NYSE: MOT) Droid X. Those devices, the respective flagship machines of mobile carriers AT&T (NYSE: T) and Verizon (NYSE: VZ), have sold nearly 5 million units between them since June. Smartphones are, after years of technological refinement and price stabilization, big business. While the consumer and investor worlds have focused on all things iOS and Google (NASDAQ: GOOG) Android though, Microsoft (NASDAQ: MSFT) has watched their share of the smartphone market diminish. At the end of 2009, Microsoft controlled 9.3% of the smartphone market, market share that had diminished to 5% by the second quarter of calendar 2010. Rather than cede the market to its competitors, Microsoft has been working on an operating system to not only win back its lost control of the market, but overtake Apple, Google, and Research in Motion (NASDAQ: RIMM). On October 11th, the house that Bill Gates built will officially debut their new smartphone operating system Windows Phone 7 in addition to a variety of actual smartphones running on the software. Can Microsoft disrupt Google’s ascendance and take on Apple for the smartphone crown? Or will Windows Phone 7 be Windows Mobile 6 all over again?
A report at the Wall Street Journal leaked the details of Microsoft’s coming out party for Windows Phone 7 in New York City scheduled for October 11th. Multiple smartphones using the operating system will be shown off at the event: the Cetus from Samsung (LI: SMSN), the Optimus 7 from LG Electronics (ETR: LGLG), and the HTC Corporation‘s (TWSE: 2498) Spark and Mondrian phones. Like Apple’s iPhones, none of the initial Windows Phone 7 devices will be built for CDMA networks. The similarities don’t end there. When the Windows Phone 7 smartphones go on sale on November 8th, AT&T will act as the sole carrier. Verizon was expected to be a major Windows Phone 7 supporter until mid-September when the carrier’s spokeswoman Brenda Raney confirmed that the lack of CDMA Windows Phone 7 devices would keep Microsoft’s platform bound to AT&T until later in 2011. While carrier exclusivity hasn’t prevented Apple from creating a massive base of iPhone users, it will prevent Microsoft from making inroads against Google’s Android for the foreseeable future.
Timing is crucial if Windows Phone 7 is to be a major success for Microsoft. The operating system cannot stay locked to AT&T throughout 2011 as Apple is all but guaranteed to be releasing new iPhone models that will be carried by Verizon, T-Mobile USA (PINK: DTEGY), and possibly even Sprint (NYSE: S). They also need to make sure that Windows Phone 7’s exclusive features, such as the incorporation of online video gaming network Xbox Live, are fully functional and content rich at launch. Their window to experiment and refine the service is small given the strong awareness of the robust Apple and Google app stores. Microsoft is said to have $500 million devoted purely to marketing the Windows Phone 7 platform this fall. They have the money to raise awareness of their bid for smartphone dominance, but shareholders don’t have any assurances that they have a product that will sell.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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