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Summary:

Microsoft recognizes the fastest growing smartphone segment is the low-cost market. In a note to employees, Stephen Elop reiterated that with renewed focus on markets where Microsoft is already succeeding. It’s a better play than focusing on the high-end, established markets.

lumia 520

In a mobile world dominated by Android and iOS, how can Microsoft gain market share with its Windows Phone devices? It’s not a new question, and hints of the answer have been around for the past year or so. Now the strategy is available in public view via Executive Vice President, Microsoft Devices Group, Stephen Elop’s message to employees explaining both staff reductions and future plans:

“In short, we will focus on driving Lumia volume in the areas where we are already successful today in order to make the market for Windows Phone. With more speed, we will build on our success in the affordable smartphone space with new products offering more differentiation. We’ll focus on acquiring new customers in the markets where Microsoft’s services and products are most concentrated. And, we’ll continue building momentum around applications.”

Microsoft has been happy to tout how well its Windows Phone handsets are doing in particular regions. At this week’s Windows Partner Conference, the company reiterated data from earlier this year saying Windows Phones are outshipping iPhones in 24 markets. The platform also holds the no. 2 spot in these 14 countries: India, Mexico, Italy, Chile, Thailand, Vietnam, Malaysia, Poland, South Africa, Ukraine, Hungary, Finland, Czech Republic and Greece.

Look at the bestselling phone, though, and it’s not a device that competes with the iPhone or a comparable Android handset based on price: It’s the Lumia 520, which is the cheapest Windows Phone device and has the most meager hardware components. Look also at the first phones to ship with Windows Phone 8.1: The Lumia 630 and 635 which are also inexpensive; you can buy one outright on pre-paid service for $99.

Stephen Elop, executive vice president of devices and services at Nokia, introduces the new Nokia 930 during the 2014 Microsoft Build developer conference on April 2, 2014 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

Stephen Elop, executive vice president of devices and services at Nokia, introduces the new Nokia 930 during the 2014 Microsoft Build developer conference on April 2, 2014 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

Now that Microsoft has effectively killed off Android as the software on the inexpensive Nokia X handsets, it’s clear the company thinks it can provide solid Windows Phone experiences for a low cost. And according to Elop’s note, that’s where the focus will be going forward: In the budget-friendly segment, particularly where the company already has a market-share foothold.

Does that mean we won’t see high-end Lumias? Of course not: The new Lumia 930 available around the globe — but not in the U.S. — is a perfect example to suggest otherwise.

Photo by Kevin Tofel/Gigaom

Photo by Kevin Tofel/Gigaom

But my guess, based on Elop’s note and the company’s actions leading up to it, is that we’ll see far more of a push in the lower-cost Lumias. These will likely launch first in the areas where Windows Phone is already on the rise and slowly filter to the regions where iOS and Android dominate (and probably without much fanfare there).

It’s a smart strategy, and at this point in time, it may be the only one that can work. It’s easier to acquire customers in this market as opposed to consumers in smartphone-saturated markets who have been using alternatives for the past few years.

Application lock-in costs are a barrier to switching platforms, for example. Why not target markets that are not just the fastest growing right now but are also ripe to get customers locked in to Windows Phone apps? Once these customers are ready to step up to a better phone, Microsoft will have a mid-range or high-end Lumia waiting for them.

  1. Can’t complain about a smartphone that does the job for minimal $$$!

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  2. Blair MacGregor Thursday, July 17, 2014

    Here’s the problem with this strategy: people in emerging markets have very little money to spend on apps and other mobile services. Google, through its OEMs, can push Android to all corners of the planet because they have a foothold on large chunks of the high to mid-range market; basically, the users in countries that have higher levels of ARPU subsidize efforts to convert users in countries that don’t. Moreover, they don’t mind if people don’t buy huge numbers of apps because for them, it’s all about pushing Google services (and by extension, ads) to the masses.

    How is Microsoft going to support an entire device strategy and app ecosystem by being #2 in developing countries? I know they’re trying to salvage something out of Ballmer’s disastrous “Windows everywhere” strategy but I just find it hard to believe they would keep pushing Windows Phone to consumers. The costs to keep WP going must be insane and are probably taking away from other verticals/product lines where there’s still potential for Microsoft to do really well in.

    Maybe they don’t want to cut the cord all at once but I still think you’re going to see MSFT abandon mobile hardware entirely by the time it’s all said and done.

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    1. Oh, I agree that it’s not a bulletproof strategy without some challenges, Blair. You’ve hit a few of them in your comment. I think it’s a better strategy of trying to compete first or primarily at the top-end though. And I’m not sure I can think of a better approach at this point in time.

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      1. I can only guess the ‘strategy’ is: Keep what works. And hope that over time the low-end market become cloud services users. It’s low risk, low gain for that sector. The real game is vs. Apple / IBM in enterprise; And pre-emptive to Google’s whose early lead in Cloud office productivity still suffers from lack of stability / fit and finish.

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        1. True that, RE: the new new Apple / IBM alliance. That’s gotta hurt Microsoft morale….

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    2. A Ch0w, sneeze Thursday, July 17, 2014

      Another person who thinks only dumb phones sell in emerging markets.

      Try spending a summer in a developing country to rid yourself of this wrong perception.

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      1. Blair MacGregor Thursday, July 17, 2014

        That’s not what I said. I said that people don’t have the money to spend on apps and accompanying services for their phones, not that smartphones don’t sell in the developing world. There are plenty of solid, entry level smartphones being sold in emerging markets that have come down in price to the point where in 4-5 years, dumbphones won’t even be made anymore.

        The problem is that in most cases, people at that price point usually buy the phone and nothing else. They don’t buy apps and they don’t buy subscription services associated with those apps. The ARPU is exceedingly low, even for the low end Android market in the U.S. let alone the developing world. And that’s fine if you’re Google because you’re only after reach anyway. But it makes it very hard for Microsoft to support an entire mobile ecosystem (not just hardware but apps, support etc.) if few people are spending money in that ecosystem.

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  3. I wonder if this means that MS will be pushing to move carriers away from the contract model to the prepaid model where customers are more sensitive to price.

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  4. What a losing proposition! They were too late with too little. Kiss of death.

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  5. Gadgety Gadgety Saturday, July 19, 2014

    Provided WP has what it takes, Microsoft will have to create another brand to avoid tainting them as cheap low end phones. It’s also funny that Elop was hired to Nokia to break into the US market…

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