Microsoft Pink, Why is this Big News in smartphones?

Microsoft is about to release its first branded phones, and the first is targeted at women users who are heavily into social networking, instant messaging and SMS texting, and is called Pink. It debuts on Verizon's network in the USA. The story broke on Wall Street Journal and as the WSJ has a paid site for the full article, we get the main facts here reported by Information Week.

PROJECT PINK

So there are apparently 2 phones, under the Pink project, called Turtle and Pure. Both are smartphones running Microsoft's Windows Mobile operating system but not the full Windows Phone 7 system (which is scheduled to be released sometime towards the end of the year). They are clearly evolution of Microsoft's purchase of Danger which was the small handset maker that made the Sidekick that was popular with youth users because of its QWERTY keyboard. Both Turtle and Pure have slider QWERTY keypads, so these phones will go against the Blackberry youth segment (like the consumer users of Nokia E-Series) and not so much targeting the non-QWERTY touch screen devices like the iPhone, Google Nexus One etc.

Now, first note that this is a 'giant' change in Microsoft's strategy. Up to now, Microsoft has only been selling the operating systems for personal computers and smartphones. HTC was its biggest manufacturer of smartphones using the Windows Mobile operating system. With computers, we never saw a PC made by Microsoft, yet Microsoft grew to become the biggest computer industry company, far bigger than the hardware-making 'box movers' like IBM, HP, Dell, Toshiba etc all which used the Microsoft DOS or Windows operating systems.

But do bear in mind that if Microsoft now announces Pink phones on Verizon, that won't give them the world, not even the US market. They are on one carrier who has one quarter of the US market. It will be a long haul from here to set up the dealership networks to the other carriers. And a Verizon phone is a CDMA model, so Microsoft is not even able to sell the original Pink models to 80% of the planet that are on GSM networks. We need much more development still here, to get to any significant numbers on a global level, outside of the USA. But its a significant start.

IMPACT TO HTC

Now Microsoft has been observing the computer industry shift to smartphones. They seemed to pay lip service to the smartphone market, but last year the big announcements came from so many of their suppliers like Dell, Lenovo, Acer etc (all announcing moves to smartphones) and many existing players like Toshiba already making smartphones, and its biggest US rival, Apple already having dropped 'computer' from its name - shifting Apple to become a mobile company. Even Google Microsoft's biggest consumer PC software rival - shitted to smartphones. The trend is inevitable, and Microsoft was there already, but just as the smartphone market was shifting from niche to mass market, Microsoft was all but 'dropped' by its main hardware manufacturer. At the start of 2009 HTC announced that it had shipped 80% of all Windows Mobile smartphones ever made - yet HTC decided to focus on Android phones, not Windows Mobile. Just in Monday's blog I told you that HTC is witnessing its best quarter ever, with sales growting at 19% from one quarter to the next, and market share in smartphones growting from 5% to 6%. Very good news from HTC.

But this comes at a very bad time for Microsoft. For 8 years they saw their operating system struggle in the shadow of Symbian and decline from a peak of 30% market share to its current 6%. Meanwhile HTC is hitting that 6% for the latest quarter, powered by the hot new Android OS and its more appealing devices.

Windows Mobile is not dead by any means. There are for example new Samsung devices shipping with WinMo and HTC has said it will ship Windows Phone 7 devices when that OS becomes available towards the end of the year. But currently, Microsoft's market share is in tailspin. Apple's own iPhones outsell all smartphones made by a dozen manufacturers for Microsoft by 2.5 to 1.

So now we have Microsoft branded smartphones. Not just one, like Google's and Apple's first entries to the smartphone market, Microsoft is coming in with two models right off the bat. What this tells me, first of all, is that Microsoft is now becoming 'serious' in mobile. If they make phones on their own brand, they have to support those, they will be monitored in the market place, and their market success (or lack thereof) will be monitored by the industry analysts whose comments will reflect on expectations on the stock market. Its a big change.

Secondly, it is a slap in the face of Microsoft's handset manufacturer 'partners'. Just as much as Google's Nexus One was, but note this means we have no major smartphone OS platforms that do not have their parents as manufacturers. If you are say LG or SonyEricsson, its not a 'neutral' OS question anymore, if you go Symbian, that is part of Nokia's 'influenece' (Symbian is a foundation and open source). If they go Android they are supporting Google who also now makes phones. If they support Windows Mobile/Windows Phone - they support Microsoft also now a rival handset maker. That is easily seen as 'unfair' where a handset maker competes against you while supplying your operating system (we don't see any Apple OS/X or RIM Blackberry OS based phones by rival makers).

ANDROID AND APPLE NOT AFFECTED

I would think, that first of all, this means a boost for Google Android. If any 'independent' handset makers fell out of love with Symbian after Nokia bought out the Symbian owners (like Motorola, SonyEricsson, Panasonic etc) and then felt Google 'double-crossed' them by launching a Google branded phone, now that Microsoft has also their own phone, it makes Google look less 'evil' and further lessens appeal of Microsoft's OS. Android is new, hot, desirable, so if both Google and Microsoft are now equally 'evil' rivals making their own smartphones, why not go with the OS that is growing - Android - rather than the OS that is severely declining - Windows Mobile.

Secondly, I think this must have been coming for quite a while, after Microsoft bought Danger. And there must have been discussions with HTC about it. When HTC 'spat in the face' so to speak to its long-term OS provider Microsoft, by switching to Android, that gave Microsoft good reason to launch its Pink series of smartphones. Now that Pink is coming, it gives HTC even more reason to give Android devices preferred treatment in its portfolio - even when Windows Phone 7 arrives.

Meanwhile many IT analysts think Microsoft and Apple are natural rivals. Therefore, if Apple has a 'smartphone' called iPhone and Microsoft has a 'smartphone' on the Pink platform, they must be rivals. They aren't. Apple continues to go head-to-head against most (but not all) Google Android devices and (outside of the USA obviously) the big rival to the iPhone is Nokia N-Series. The Pink phones don't target this touch-screen consumer internet segment.

BLACKBERRY IS HIT HARD, AS IS E-SERIES

But Pink is bad news for RIM. Blackberry has been eating up that customer segment that once was loyal to the Sidekick by Danger. Blackberry has ridden that growth in all countries around the world, becoming the most desirable smartphone among the 16-24 year old segment in just about everywhere from India to Britain to Brazil. Blackerry's primary rival in the youth texting segment has become the Nokia E-Series and various Nokia QWERTY phones. But Nokia has often the 'stain' in its reputation among the youth, that its "our parents' phone" - so its often seen as not cool and sexy, not like the far more sexy phone brands like SonyEricsson or Apple or Blackberry. Nokia was not cool. Once the Sidekick was cool to a small segment in America. Now Microsoft has a good chance to gain that appeal once again. And certainly contest for that segment.

Bear in mind, Microsoft 'avoids' most of the 'rivals' that are 'supremely cool' in the QWERTY space, like Apple and most Android devices. Rather Microsoft sees the 'boring' rivals that were originally designed for business/enterprise utilitarian use, Blackberry and E-Series. It is far easier to become 'more cool' by design in this end of the spectrum, against Blackbery and E-Series, than it would be at the iPhone end of the spectrum with Google Nexus One etc.

BIG BOYS BIG BUCKS

A bit of market reality here - Microsoft as a company is twice the size of Apple, twice the size of Motorola and three times the size of Google by revenues. (But now smaller than Nokia, used to be the other way around with Nokia just a few years ago). So if Apple says its a 'mobile company' now, and goes full steam to mobile, and Google is going 'mobile first' - imagine what Microsoft could do, if it sets its mind to this market? Microsoft is by far the most profitable Fortune 500 company over longer periods of time like say a full decade, than any other IT industry company. They have very deep pockets.

Nokia is hitting back already, rolling out several QWERTY smartphones in the low end of the market, and now launching non-smartphones with QWERTY screens. These are not 'enterprise' phones like the E-Series, they are consumer (youth, texting) phones. Here is the big battle globally for the QWERTY consumer clients.

As to enterprise customers? Windows Mobile is the big 'third ranked' smartphone OS platform for enterprise/corporate clients globally, behind RIM Blackberry and Nokia E-Series. In North America Windows Mobile ranks number 2 in enterprise behind only RIM. What of these 2 new phones? No effect, they seem very much oriented as consumer devices, I don't see them in any way threatening RIM's dominance of the enterprise/corporate client space.

SHARP GAINS

What of Sharp? Who? Sharp, the Japanese electronics giant (a bit bigger than Google, a bit smaller than Apple) which happens to be the world's 9th largest mobile phone maker. Sharp does lots of different types of electronics, but like their Japanese rivals like Panasonic, Hitatchi, NEC, etc - Sharp has retreated from the world market for mobile phones, and only sold in the domestic market for the past few years. It does however, serve the worlds' most demanding mobile phone market (Japan) so advanced, that the original iPhone 2G was so out-of-date in 2007 for Japan, it was considered obsolete and not even launched there (Japan is the world's first country where 2G networks will be turned off totally this year, by 2007 they had stopped selling 2G phones totally). So Sharp comes with some very clever knowhow about phones. Including its patents and innovations about 3D screens that work on a phone, that do not require any special glasses to view the 3D image. Sharp is introducing the first consumer gadgets using 3D screens this Autumn in Japan. They may be smartphones or they may be gaming devices or digital cameras, but they are coming.

So, suddenly Japan's largest domestic mobile phone maker - who makes far more phones than say Palm or HTC - takes a giant leap into the US market. Sharp is running neck-to-neck with Apple iPhone for global shipments. This is a major player suddenly waking up to smartphones, and for Microsoft, if they lost HTC as a partner, they picked up one of the few existing rivals who is actually stronger than HTC as a partner. Very shrewd by Microsoft and for Sharp, it clearly signals a hunger to return to global phone markets.

MICROSOFT IS REAL

Uo to now Microsoft has been teasing us with occasional input into the mobile market, but never a wholehearted effort. Now we see a clear change. Can they reclaim 30% of the smartphone market, not with two phones, not this year, not when they start only on Verizon in the USA. But they can start to stem the tide, and perhaps stop the devastating loss of Windows Mobile's market share. (To quote Winston Churchill after the battle of El Alamein - this is not the end, this is not even the beginning of the end, but this is, perhaps, the end of the beginning). Yes, now Microsoft tells us they are serious about the mobile space.

Now they need more new phone models. Some can be their own, others will need to come from their handset partners. I still see Microsoft in the 5% market share in smartphones (and thus 1% in all phones) for the full year, but if you thought Microsoft was about to disappear, now that they announce their own branded phones, no matter what the cost of this bloodbath this year, Microsoft has suddenly validated its position and is definite to be here for at least a couple of years to come. But yes, brave move, when their base is enterprise/corporate phones, they go to the consumer space. In the consumer space, they don't go against Apple and the crowded touch screen internet/media phones space, they go to the youth texting QWERTY space. Hey, that sounds almost like they've read my two open letters to Microsoft and how Motorola could be saved. Cool. Welcome back Microsoft. We missed you!

Comments

[sachendra]

Great analysis Tomi. I have seen microsoft being written off at least 4 times in the last 15 years and each time they bounced back with a vengeance. I am quite confident they will bounce back again.

[Peter Cranstone]

Spot on. I've been saying for years not to count Microsoft out. Now people will start paying attention. Early reports by people I've talked to is that the new OS is very, very good. Now we'll see if they can execute and if the developers like it.

[Tomi T Ahonen]

Hi sachendra and Peter

Thanks, yeah, this is the Microsoft we want in mobile, carrying its load and helping make better phones and software for all. Not just sitting on the sidelines haha..

Tomi Ahonen :-)

[Joey1058]

"Welcome back, Microsoft, we missed you." LOL! MS has their fingers in so many pies, they look like a group of school children stealing the bakery. Their "wait and see" approach can be infuriatingly annoying. But damn if they don't always manage to pull a rabbit out of their hat.

The thing is, they *ARE* Microsoft! It's one of the few companies that can get away with doing what they do, and STILL make everyone at least sit up and take notice. And as you pointed out, everyone has scrambled to reposition themselves in the industry.

[Steve Ives]

When I first saw the Pink announcement I was thinking "this is really dumb from Microsoft" (not going for the hot touch screen space, splitting its own developer community between 2 different and incompatible Microsoft software platforms).

But now I'm beginning to see (thanks Tomi) some really smart thinking by MS that could make this a fascinating comeback story (or it could of course crash and burn).

First, attack where your strongest opposition (especially Apple, Nokia) is weakest - the sheltered US CDMA carrier markets.

Second, gain access to some totally leading- edge hardware capability from Japan - from Sharp - a company which is not yet heavily invested in Android technology and who does not have to capability to drive Android volumes in the Western markets

Third, focus on the most valuable consumer demographic - the 18-24 market - "Pioneer Youth" - a beachhead from where you can build a cool brand.

Fourth, work your relationships (XBox 360) with the games studios to bring a whole new dimension of fun to the world of often-somewhat-boring Qwerty devices. Not much has been revealed yet about Pink's gaming capabilities, but given the target demographic this is a natural step for MS.

As always, its not enough to have a great strategy. Now Microsoft really have to execute in mobile, like they've never done before.

[Polly]

But now I'm beginning to see (thanks Tomi) some really smart thinking by MS that could make this a fascinating comeback story (or it could of course crash and burn).

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When I first saw the Pink announcement I was thinking "this is really dumb from Microsoft" (not going for the hot touch screen space, splitting its own developer community between 2 different and incompatible Microsoft software platforms).

But now I'm beginning to see (thanks Tomi) some really smart thinking by MS that could make this a fascinating comeback story (or it could of course crash and burn).

First, attack where your strongest opposition (especially Apple, Nokia) is weakest - the sheltered US CDMA carrier markets.

Second, gain access to some totally leading- edge hardware capability from Japan - from Sharp - a company which is not yet heavily invested in Android technology and who does not have to capability to drive Android volumes in the Western markets

Third, focus on the most valuable consumer demographic - the 18-24 market - "Pioneer Youth" - a beachhead from where you can build a cool brand.

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Microsoft is about to release its first branded phones, and the first is targeted at women users who are heavily into social networking, instant messaging and SMS texting, and is called Pink. It debuts on Verizon's network in the USA.

[Charles Woodson Jersey]

What of Sharp? Who? Sharp, the Japanese electronics giant (a bit bigger than Google, a bit smaller than Apple) which happens to be the world's 9th largest mobile phone maker.

[B.J. Raji Jersey]

A bit of market reality here - Microsoft as a company is twice the size of Apple, twice the size of Motorola and three times the size of Google by revenues. (But now smaller than Nokia, used to be the other way around with Nokia just a few years ago).

[Donald Driver Jersey]

It does however, serve the worlds' most demanding mobile phone market (Japan) so advanced, that the original iPhone 2G was so out-of-date in 2007 for Japan, it was considered obsolete and not even launched there (Japan is the world's first country where 2G networks will be turned off totally this year, by 2007 they had stopped selling 2G phones totally).

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As to enterprise customers? Windows Mobile is the big 'third ranked' smartphone OS platform for enterprise/corporate clients globally, behind RIM Blackberry and Nokia E-Series.

[John Kuhn Jersey]

(To quote Winston Churchill after the battle of El Alamein - this is not the end, this is not even the beginning of the end, but this is, perhaps, the end of the beginning).

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Very shrewd by Microsoft and for Sharp, it clearly signals a hunger to return to global phone markets.