HTC HD2 Sales Could Be Hurt by Lack of Upgrade

HTC's HD2 smartphone, which runs Windows Mobile 6.5, goes on sale in the U.S. on March 24. While the device contains many software and hardware features that could give it substantial appeal in the consumer market, the potential lack of an upgrade to Microsoft's upcoming Windows Phone 7 Series could have a negative impact on sales. Windows Mobile 6.5's share of the overall smartphone market has been in steady decline over the past few months, pressuring Microsoft to do something radical to boost its presence, but also putting current users of Windows Mobile 6.5 and the existing Windows Marketplace for Mobile at risk of being left behind by a radical upgrade.

When the HTC HD2 smartphone goes on sale in the U.S. on March 24, it faces the same vexing question as a number of other recently-released devices running Windows Mobile 6.5: will consumers flock to purchase one, knowing that Microsoft intends to release a totally new smartphone operating system, Windows Phone 7 Series, by the end of the year? With no clear upgrade path between Windows Mobile and Windows Phone 7, and news from the ongoing MIX 10 conference that applications developed for Windows Mobile will not be transferable to the new smartphone OS, the possibility exists that sales of Windows Mobile devices could be adversely affected.

The HTC HD2 is heavily reminiscent of devices such as the Apple iPhone and Google Android, particularly HTC's own Droid Eris, with its 4.3-inch capacitive touch-screen. The device itself measures a slim 2.64 inches wide by 4.74 inches tall by 0.43 inches thick, and weighs 5.54 ounces with the battery. HTC is emphasizing the smartphone's social networking abilities, such as its Facebook integration and HTC Peep widget.

Other high-end features include a 5-megapixel camera with auto-focus and a dual LED flashlight, a 1GHz Snapdragon processor, integrated GPS, and an estimated talk-time of between 280 and 320 minutes, depending on whether the device is running on GSM or WCDMA interface standard. Users will also be able to download e-books courtesy of Barnes & Noble's e-book storefront.

But the HTC HD2 also enters a market where its operating system, Windows Mobile 6.5, is in decline. Although Microsoft has publicly stated it will continue to support Mobile 6.5 following the release of Windows Phone 7 Series sometime late in 2010, the question emerges over whether third-party developers will want to continue creating applications for a platform due to be eclipsed.

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Microsoft's mobile-applications store, Windows Marketplace for Mobile, currently contains just north of 718 mobile apps for U.S.-based Mobile 6.x smartphones, a small number when compared to the apps available through Apple's App Store or Google's Android Market. While Microsoft executives had hoped for 600 apps at the time of Marketplace for Mobile's Oct. 6 release, the actual number ended up being less than half of that.

During the ramp-up to the Marketplace for Mobile rollout, Microsoft attempted to attract developers by encouraging them to offer their products at a higher price point. "We would definitely want to promote [the idea] that you make more money selling applications than selling your application in a dollar store," Loke Uei, senior technical product manager for Microsoft's Mobile Developer Experience Team, told mobile application developers in Redmond, Wash., on Aug. 19. "But 99 cents, come on, I think your app is worth more than that."

Following the release, Microsoft also made a number of tweaks to the storefront, such as allowing phones running Windows Mobile 6.0 and Mobile 6.1 to access the Marketplace. Microsoft engineers also upgraded the store with additional anti-piracy protections and PC-based shopping and account management.

Nonetheless, the market-share for Windows Mobile 6.5 continued to dip, with analytics firm ComScore estimating a 4-percent slide for the period between October 2009 and January 2010, a few weeks before Microsoft unveiled Windows Phone 7 Series at a Feb. 15 press conference in Barcelona. According to ComScore, Microsoft's share of the smartphone OS market now stands at around 15.7 percent.

Microsoft might have doomed its Mobile 6.5 market-share even further, though, by denying devices currently running the operating system-in addition to its apps-the ability to upgrade to Windows Phone 7 Series. Windows Marketplace for Mobile, furthermore, will be replaced by a new mobile-apps storefront, branded Windows Phone Marketplace.

"We do recognize that there are a lot of folks who have been writing apps for Windows Mobile for some time," Larry Lieberman, senior product manager for Microsoft's Mobile Developer Experience, told eWEEK in a March 15 interview. "But we recognize that the landscape has changed, and as we've been looking at stuff, we had to drastically change our game, and really the only way to do that was to look at what we were offering and what we could do to address this in a competitive accelerated manner."

The lack of an upgrade path for applications, Lieberman also noted, was at least partially due to the schedule for delivering Windows Phone 7 Series to market: "If we'd had more time and resources, we may have been able to do something in terms of backward compatibility."

Microsoft also seems determined to enforce a strict set of hardware requirements for running Windows Phone 7 Series, including one that stipulates that such devices will be limited to three mechanical buttons. The HTC HD2 has five (Talk/Send, Home, Start, Back, End/Power). Microsoft has officially refused to confirm that Mobile 6.5 devices that fit requirements for the new operating system will be upgradable, while some of its executives have indicated that the HTC HD2 will not, in fact, have an upgrade path to Windows Phone 7 Series.

If the HTC HD2 proves un-upgradable, and if developers shift from writing applications for Mobile 6.5 to Windows Phone 7, it has the potential to negatively impact sales despite Microsoft's assurance that it will continue to support both versions of its smartphone operating system. The sales numbers for the new smartphone after its March 24 release will paint a clearer picture.