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By Rob Garretson

Microsoft Corp's latest attempt to crack the fast-growing but crowded smartphone market earned some initial praise on Monday, but may rest on how well the phones fare in the enterprise against incumbent leader Research in Motion and its popular BlackBerry devices, according to some analysts and observers.

Microsoft unveiled a lineup of nine smartphones from four manufacturers that run its revamped Windows Phone 7 operating system, in what many observers characterized as a last-ditch effort remain a player in the mobile business. Beginning next month AT&T Mobility will offer models from HTC, Samsung, and LG Electronics, while T-Mobile will sell units from HTC Corp. and Dell Computer. The nation’s largest carrier, Verizon Wireless, and Sprint Nextel won’t offer Windows Phone 7 models until next year.

"I've been looking forward to this day for some time," said Microsoft Chief Executive Steve Ballmer at a launch event in New York, acknowledging that the world’s largest software company had "missed a generation" with its previous Windows Mobile offerings, and said new Windows Phone 7 devices would eventually be available from 60 wireless carriers in 30 countries.

Microsoft’s share of the worldwide smartphone market fell to 5 percent in the second quarter, down from 9.3 percent during the same period the prior year, according to the research firm Gartner Inc. Android jumped from less than 2 percent to 17.2 percent in the year ended June 30, 2010, while the iPhone rose to 14.2 percent from 13 percent, and BlackBerry dipped from 19 percent to 18.2 percent.

The nine smartphones Microsoft unveiled at the New York event and planned for the holiday season include the Focus by Samsung, the Quantum by LG and the Surround from HTC, all priced at $199.99 with two-year service contract by AT&T, planned for release in early November. T-Mobile will offer the HTC HD7 and Dell’s Venue Pro in mid November, though it did not disclose pricing.

Microsoft’s new Windows Phone 7 software has earned generally positive reviews for originality, and Monday Microsoft touted a bevy of consumer-oriented features such as connections to the Xbox Live gaming service, music and video playback capabilities like its Zune HD, and links to video services such as Netflix and AT&T’s U-verse TV offerings; all designed to compete with Apple’s iPhone and Google’s wildly popular Android platform. Yet is also features a customizable start page and integration with Microsoft's enterprise software including its Office productivity applications, Exchange for e-mail and SharePoint for document sharing.

The software displays commonly used applications on a home screen in large blocks that Microsoft calls “tiles,” rather than the smaller icons used on competing smartphones, which Microsoft officials insist are overly complicated. The tiles display content, such as photos or status updates from Facebook friends, updated in real time via the devices Internet connection. The software remains a work in progress, however, missing some key features – such as the ability to cut and paste text among apps – that Microsoft officials promised will be included in an update early next year.

Ballmer said the company would spend more than $100 million on marketing the new Windows Phone 7 phones, in conjunction with device manufacturers and wireless carriers, including heavy TV advertising during the holiday shopping season. Despite the serious consumer push, however, analysts remain cautious about Microsoft’s prospects in blunting either Apple’s or Google’s momentum in the consumer market. Apple’s user base has proven extremely loyal; witness the brisk sales of the iPhone 4 amid the well-publicized “Antennagate” controversy over reported reception problems. And virtually all Android-powered phones are still locked into two-year carrier contracts. 

The biggest opportunity for Microsoft to make inroads in the mobile market – aside from brand new smartphone users – is the enterprise, where the vast installed base of BlackBerry devices could be vulnerable to the lure of Microsoft’s new operating system. Oft criticized as slow, buggy and not competitive with Apple's iOS and Google's Android operating system, the latest release of the BlackBerry OS, version 6, has met with lukewarm reviews. And the first BlackBerry OS 6 device, the Torch, has suffered lackluster sales compared to the hot-selling iPhone and a slew of new Android-based smartphones, and its next OS refresh isn’t due until sometime next year with the launch of RIM’s Playbook tablet.

"We are the first to admit that Microsoft is fighting for third place, not first or even second, at this point,” Wells Fargo analyst Jason Maynard said in a research note to investors, “but we believe this is a key step toward rebuilding confidence in their ability to innovate in mobile.

"This isn't going to move the market share needle in the short term," he added.

Microsoft has a massive consumer education campaign ahead of it, if it hopes to compete with Apple and Google, analyst Jack Gold of J.Gold Associates told Reuters. "This is Microsoft's last chance to be a major player in the smartphone market," he said.

"This is a marathon, not a sprint,” noted Michael Gartenberg, an analyst at Gartner. “They are not going to change their position today or in the next month, but they've established themselves as a credible player."

Windows Phone 7 will gain some traction in the market, Gartner’ Ken Dulaney told the Wall Street Journal, "But I think it’s going to take a few more iterations to get truly competitive."

Worldwide Smartphone Sales to End Users by Operating System in 2Q10 (Thousands of Units)

Source: Gartner (August 2010)

Comments (1)

	1. 10-14-2010 10:43
	MS is in a very difficult position. While it is true that RIM's hold on the enterprise is slipping, that seems an opportunity to more likely be exploited by Apple/Android given that enterprises increasingly seem to be giving in to consumer-driven selection of mobile devices. The best thing a device can have going for it now is compelling user experience and a large app store. I just gave up my Windows-based Treo for a Droid2 and have not regretted it for a minute. Registered

Fred Kauber

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