Microsoft Does Not Need A Smartphone To Be A Mobile Force

Radio-Free Mobile, one of my favorite blogs, posited recently that Microsoft may be making plans to walk away from its smartphone business. After all, Microsoft is not known for competing in segments in which it cannot dominate, much less, as in the case of smartphone operating systems, achieve just 3 percent market share globally. Cutting ties with former Nokia CEO Stephen Elop makes such a decision seem more plausible.

If Microsoft did that, I wouldn’t expect its mobile ambitions to diminish. Fulfilling Nokia’s vision of creating a third ecosystem after iOS and Android might end, but there’s still a rich mobile future in sight for Redmond.

Pursuing this would require that Microsoft break from conventional wisdom, which is that in order for any mobile ecosystem to flourish, it must:

  1. Combine hardware and software.

  2. Create a lucrative marketplace for app and content publishers to offer their wares to consumers.

  3. Enable operators and retailers to get a piece of the action through monthly data charges.

While Apple and Google have all these elements, we should reject the notion that this is the only way to go.

Instead, what really counts is a powerful software platform that’s open to third party development and attracts a massive audience willing to exchange something of value for the stuff they can get on that platform.

Hardware? Mobile operators? You’re both optional.

If you find yourself doubting this, ask yourself: what is Facebook if not a mobile ecosystem? It attracts 1.25 billion mobile users per month. WhatsApp (800 million users) and Facebook Messenger (700 million users), its two messaging apps, combine to attract even more users, all of them mobile. We spend about an hour a day on Facebook and Instagram, which explains how they have come to attract one out of every five minutes spent in mobile apps. Not surprisingly, companies in seemingly every vertical have flocked to the platform to advertise and sell things.

Facebook has achieved all this without making its own phone. In fact, if you think about it, when traditional software companies attempt to make and sell their own phones, the results typically are pretty lousy. The only company that has pulled it off is Apple. Microsoft, Amazon, and even Google – all software-first companies – have tried. None of them are going to put the results front and center in their annual reports to shareholders.

Without a smartphone hardware business, Microsoft easily satisfies two-thirds of my mobile ecosystem definition: software and scale.  Between Office, Outlook, OneNote, SharePoint, Dynamics CRM, Lync, and Skype, the company possesses best-in-class software that hundreds of millions of people use every day on phones, tablets, and PCs. It also sells computing bandwidth in the form of Azure, its cloud service.

What Microsoft lacks is a third party marketplace that sits on top of this software (though one exists for Azure). If Microsoft could find a way to open all this software to developers and distribute their apps through its marketplace, it would have created a mobile ecosystem unlike no other: one built entirely for the mobile enterprise. Just as Apple uses its App Store to sustain its devices margins, Microsoft could use third-party apps built for its enterprise software to make more money from the subscriptions it charges for these services.

Verizon, AT&T, and T-Mobile all crave a vibrant third smartphone ecosystem to serve as a competitive balance to Apple and Google. Microsoft can afford to keep losing money in its smartphone business in an attempt to do that, though I’m sure it’s asking itself what in the market would need to change to increase its market share by 10 fold. That’s what it would take to get to 25 percent market share and respectability in this space.

In case it has no answers, it can offer something no one else can: a mobile ecosystem built for better work.

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