Windows Phone 8: What Microsoft Needs To Compete

Microsoft may never have a better opportunity to gain share in the hotly competitive smartphone market than it does right now with Windows Phone 8. And it's not because the upcoming Microsoft platform is good enough to compete against Apple and Google, although it is. Nor is it because the just-unveiled smartphones from Nokia and Samsung are competitive, which they seem to be.

All else being equal, those two things are enough to give Windows Phone 8 a place in the race. But they're not enough to change the standings. The momentum for the smartphone juggernauts is far too great.

To move the market-share needle, Microsoft will have to fix something that bothers us about the platforms we're carrying around today. They'll also have to solve something the carriers don't like about Android and iOS.

If Microsoft understands those hurdles--and I sense that it does--then we'll see Windows Phone snag share in the coming quarters.

Barring an unexpectedly large leap forward this week by the iPhone, what we've seen thus far of the upcoming Windows Phone 8 hardware lineup is good enough to be competitive. Samsung's Ativ S takes to the next level what the company does best in the smartphone market--beautiful displays and muscular processors, crowbarred into impossibly lean devices. And the Lumia 920, introduced last week by Nokia as its flagship offering, features some very compelling camera capabilities.

[ They're here, but does anyone care? See Nokia Windows Phone 8 Devices Arrive With Thud. ]

If Microsoft really wants to grab market share, though, it will need to address something that bothers us about our existing platforms. In that regard, the area with the most low-hanging fruit is personal privacy. I won't belabor the point now. (That's because I've already belabored the point.) I'll just say that consumers generally are queasy about how much personal information passes through their smartphones, and would prefer that their platform providers know less about them than they do. Microsoft could really make inroads in the smartphone market by taking the high road on privacy. Just a few features sprinkled here and there would send the message that Microsoft is going the extra mile to keep your personal information confidential.

Microsoft hasn't exposed enough of its upcoming phone OS to gauge whether it intends to exploit the gift that the market leaders have laid at its feet. There are signs that Microsoft comprehends the opportunity, though. On the new Outlook.com, for example, the company pledges not to push targeted ads, which some smartphone users find invasive.

Wooing us is important, but don't forget: we're not the only important constituents here. In fact, we're arguably not even the most important. If the phones and the OS are good enough, the carriers have the heft and influence to change the market landscape. It's a major reason why Android enjoys the share it commands today.

Recall that in late 2009, Verizon was uncomfortable enough with Apple's market clout that it invested heavily to neutralize it. It introduced the Droid line and backed it with a $100 million marketing campaign. In the third quarter of 2009, 30% of U.S. smartphones shipped were iPhones, compared to 5.4% for all Android smartphones combined. (Market figures courtesy of Gartner.)

The following quarter, Android's U.S. share nearly quadrupled to 20.4%. And a full year after the Droid campaign began, Android owned 51.6% of all U.S. smartphones shipped, while iOS share fell to 20.1%.

Windows Phone won't be able to replicate that success story because there's not enough play left in the smartphone market. Android snatched a lot of its share from declining platforms like BlackBerry and Symbian, while Windows Phone would need to take it from the incumbents. Still, there's enough room for the carriers to elevate Windows Phone into a viable contender if they wanted to.

And many of them do want to, as it turns out.

Verizon has already signaled that it is uncomfortable with how much control Apple and Google have over the smartphone market and intends to feature Windows Phone 8 this holiday season. Reports are that Nokia is having some success courting European operators with exclusive arrangements.

Microsoft would do well to build on those efforts, offering carriers a stronger voice than they have in their dealings with Apple and Google. The software giant can also lean on its handset partners to provide preferential pricing to the carriers. The partners will listen.

Samsung is still smarting from the sting of a $1 billion judgment in the Apple patent suit, so it's probably especially flexible. But others are anxious for another, potentially more profitable OS alternative to Android, and one that would also be open to taking better care of the carriers.

After decades of watching Microsoft scorch the competitive landscape in the PC arena, it's surreal to think of the PC platform colossus as the underdog in a market in which the consumers and the channel both feel exploited by the incumbents. If Rip Van Winkle woke up today after a 20-year slumber he'd probably have an easier time coming to grips with the fact that Arnold Schwarzenegger and Jesse "The Body" Ventura had each served as governor.

Strange or not, that's the situation now confronting Microsoft. It has a viable platform in Windows Phone 8 and a competitive stable of handsets. So all that's left for Microsoft to win share is to listen to its constituents and give them what the market leaders aren't giving us.

That's a gap wide enough for even Microsoft to push through.