Should Microsoft be worried about Windows Phone’s falling market share?

Lumia 635

Research firm IDC released its quarterly smartphone sales data on Thursday, estimating that Android and iOS phones combined for 96.4 percent of the phones shipped last quarter. That leaves just a meager 3.3 percent of the market for Microsoft’s Windows Phones as well as handsets that run BlackBerry or some other software. Windows Phone is the clear third horse in this race but even so, it’s market share declined by nearly 10 percent in the past year.

Nokia Lumia 930

That’s a bit concerning since the smartphone market as a whole continues to grow. Unfortunately for Microsoft, it’s growing its market share slower than the overall market is expanding. Apple lost share as well — dropping to 11.7 percent share in the second quarter of this year compared to 13 percent a year ago. There’s a difference though: Apple’s sales actually increased from the year ago period while Microsoft’s fell, based on IDC’s data. [Note that IDC’s data shows shipments for all since only Apple reports actual sales.]

So while Apple didn’t expand as quickly as the overall market it actually increased revenues; Microsoft and its hardware partners as a whole clearly didn’t. The only way these companies could have increased revenues on fewer sales would be if a greater mix of more expensive Windows Phone devices were purchased by consumers.

Again, IDC’s data splashes water on that bit of optimism: A tad more than 60 percent of all Windows Phones shipped in the last quarter were in the low-price range of $0 to $200. Looking at the chart you can see the other challenge presented to Microsoft. Its platform is competing heavily with Android at the same price range.

Essentially, Windows Phone is losing out to iOS on the high-end and Android on the low-end.

Some think there’s still reason to be optimistic about Windows Phone. Paul Thurrott, for example, thinks negative reactions to the IDC data is overblown because it’s only looking at one quarter’s worth of sales data. That’s a fair point. But taken in context of the past several years where Microsoft has retooled its mobile software twice while iOS and Android gobbled up the market, every quarter is important now. Still, Thurrott does see a few reasons for Microsoft to bounce back:

“But in April, everything changed. Microsoft announced “zero dollar” (i.e. free) licensing for Windows Phone. And it dramatically modified the hardware maker requirements for the platform to make it easier for Android device makers (i.e. every single device maker on earth except Apple) to reuse their existing device platforms to make Windows Phone handsets.

Device makers responded in force. Fully 14 new device makers signed on to make Windows Phone handsets in the first quarter during which these changes were in place—and the same quarter in which IDC claims Windows Phone sales fell to 2.5 percent of the market. There are 11 new devices hitting the market now, or soon, and many more in time for the holidays.”

I agree that the free Windows Phone licensing will bring more handset partners to Microsoft’s smartphone army. It already has. And Microsoft has radically improved Windows Phone 8.1. Subsidizing the licenses to gain market share isn’t a good long-term strategy, however. If it helps boost market share in the short term, it would certainly help change some developers minds from creating apps just for Android or iOS. Perhaps it would even get a few programmers to develop first for Windows Phone.

To me, that’s the bigger issue here and it’s a catch-22 of sorts for Microsoft: The company needs market share to attract more developer interest but it needs more developer interest to help sell phones with apps found on competing platforms.

Joe Belfiore, corporate vice president and manager for Windows Phone, holds Windows phones as delivers a keynote address during the 2014 Microsoft Build developer conference on April 2, 2014 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

Joe Belfiore, corporate vice president and manager for Windows Phone, holds Windows phones as delivers a keynote address during the 2014 Microsoft Build developer conference on April 2, 2014 in San Francisco, California. (Photo by Justin Sullivan/Getty Images)

At this point, Microsoft has developed a mobile operating system that I no longer hesistate to recommend to the masses. Hardware is also solid with a wide range of partners offering devices at different price points. And the early “app gap” has been closing: There are very few apps I personally I use on Android or iOS that are missing on Windows Phone. There are still a few; Google’s apps in particular are a big hole here for me, but certainly not for everyone.

Unfortunately, I don’t yet see a compelling reason to switch to Windows Phone from Android or iOS or choose it outright. Apparently, neither did nearly 97 percent of all other smartphone buyers in the three months. And perhaps that’s Microsoft’s biggest problem of all, regardless of whether its market share is rising or falling.

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