Windows Phone 7: Miserable Failure, or Success in the Making?

Windows Phone 7 could earn Microsoft significant market share against the iPhone and Android over the next few years, or totally fail--depending on which analyst you ask.

Will Windows Phone 7 fail?

That's the question likely keeping more than one Microsoft executive awake late into the night. As the company prepares to launch its newest smartphone platform Oct. 11, the stakes could not be higher: a successful line of devices will give Microsoft some much-needed momentum in its long-term smartphone battle against both the Apple iPhone and Google Android. Failure, though, could reduce Microsoft to a bit player in one of the fastest-growing tech segments.

Pressure, what?

Microsoft is betting that Windows Phone 7's unique user interface will help differentiate it in a crowded marketplace. Unlike Google Android and the Apple iPhone, which present users with grid-like screens of individual apps, Microsoft's offering aggregates Web content and applications into subject-specific "Hubs" such as "Office" and "People." Microsoft's first advertisements for the platform focus on its supposed ability to streamline and speed users' interactions with their phone.

More broadly, Microsoft's smartphone strategy sits on three pillars: design, integrated experiences-i.e., the "Hubs"-and a hardware-optimized ecosystem.

"One of the problems the phones are going through right now is fragmentation," Andy Lees, senior vice president of Microsoft's Mobile Communications Business, told an audience during Microsoft's Worldwide Partner Conference in July. "For developers and ISVs, it makes it very difficult. We're making sure our software is fully optimized" to run with manufacturers' phone hardware.

Lees also suggested that, although Microsoft has bled market share for the past several quarters, there was still a substantial chance for the company to gain it back-because the smartphone arena itself is still in a state of massive flux. "The phone is going through a massive inflection point," he said. "There's immense competition, but in many respects, things are just beginning."

Some research firms, however, think Windows Phone 7 won't prevent Microsoft from continuing to lose market traction in smartphones. For its part, Gartner predicts that Microsoft's share will drop from 4.7 percent in 2010 to 3.9 percent by 2014, following a brief uptick in 2011.

"Launches of updated operating systems-such as Apple iOS 4, BlackBerry OS 6, Symbian 3 and Symbian 4, and Windows Phone 7-will help maintain strong growth in smartphones in 2H10 and 2011 and spur innovation," Roberta Cozza, an analyst at Gartner, wrote in a Sept. 10 research note. "However, we believe that market share in the OS space will consolidate around a few key OS providers that have the most support from CSPs and developers and strong brand awareness with consumer and enterprise customers."

But that contrasts with predictions by IDC, whose analysts see market share increases for both Windows Phone and Google Android between 2010 and 2014. The research firm predicts that "Windows Mobile," which presumably groups the legacy Windows Mobile with Windows Phone 7 and any successive versions, will grow from 6.8 percent to 9.8 percent of the smartphone market during that period.

"IDC believes the market with comfortably support up to five OS players over the next five years," Kevin Restivo, an analyst with IDC's Worldwide Quarterly Mobile Phone Tracker, wrote in a Sept. 7 statement. "Shorter replacement cycles and an ample feature phone to smartphone upgrade opportunity means the smartphone OS market will remain fragmented but healthy for the foreseeable future." Within that context, no smartphone platform will dominate the others.

Microsoft realizes the stakes: Its board recently paid CEO Steve Ballmer only half of his potential bonus for fiscal 2010, in part due to the "loss of market share in the company's mobile phone business" under his watch. The question is whether its strategy-backed by nearly a half-billion dollars' worth of marketing muscle-will succeed in a rapidly evolving landscape. The analysts themselves seem divided on that question.