Can Windows Phone Gain Ground?

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AT&T (NYSE: T) and Verizon (NYSE: VZ) have announced their commitment to promoting the Windows Phone. The smartphone operating system from Microsoft (NASDAQ: MSFT) powers AT&T’s new Nokia Lumia 900 and could help both carriers reduce dependence on other products, particularly those from Apple (NASDAQ: AAPL).  

Apple forces the carriers to pay a subsidy in order to have the right to sell iPhones. It’s been speculated the subsidies could amount to a $600 payment from the carriers for a basic iPhone 4S that’s sold to consumers for $200, with a contract. The price disparity is part of the reason AT&T’s newly announced earnings report reflected a revenue gain, despite a 43% decrease in iPhone sales from the previous quarter.  

It’s doubtful that the carriers will be able to get out of the subsidy payments anytime soon. CLSA analyst Avi Silver explained to investors that the carriers likely signed multi-year subsidy contracts that could include the tech equivalent of a most favored nation clause. The clause would prevent a carrier with an expired contract from reducing subsidies if the competing carriers were still covered by contracts.

The contracts don’t prevent the carriers from reducing dependency with a broader portfolio of products. With Android still popular but sliding due to fragmentation, and RIM (NASDAQ: BBRY) performing a slow motion car wreck that everyone's watching from the shoulder, the Windows Phone seems like a viable option.

Small Market Share

Read articles about Windows Phone products for the past year and you'll notice the theme is that the Windows Phone’s problems have less to do with quality than the fact that few people seem to be willing to give the devices a try.

The MobiLens division of research firm comScore earlier this month released mobile market share data that placed Microsoft near the bottom of smartphone platforms. The only platform that performed worse was Symbian, the outdated OS that Nokia is sending to pasture in favor of the Windows Phone, and it stands with RIM as the only two to suffer a loss of users during the periods analyzed. (Note that the data covers a period before the release of the Nokia Lumia 900). 

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The dismal market performance belies the fact that there aren’t any major flaws with the Windows Phone 7. The platform does lack some popular applications (notably the booming Instagram, which recently came to Android) but there are 80,000 apps to choose from so it isn’t a ghost town in there. Debates about the various systems become heated easily due to the fact that it largely comes down to personal preference. Android and Apple have their own flaws and the Windows Phone is certainly closer in spirit to those devices than to BlackBerry.

The primary flaw with the Windows Phone is that it doesn’t have a strongly defined brand personality. Sure, most people are familiar with Windows as a computer operating system, but there isn’t a mobile version that will spring into the mind of the average consumer upon hearing the name. In broadly generalized terms, Apple products are often characterized as being trend-setting and cutting-edge. Android has app-centric devices for those who hate Apple products. RIM has BlackBerry, which still carries brand recognition amongst the business set.

The majority of commercials for the Nokia Lumia 900 that I’ve seen haven’t even mentioned that it was a Windows Phone. It’s a bad sign for an operating system if it isn’t worth a mention in the advertising.

The Near Future

The Nokia Lumia 900 is selling fairly well, predicted to reach 1 million devices sold in its debut quarter, despite a rocky start that involved a software glitch and an associated refund that briefly made the device free with contract. But it hasn’t been made clear yet whether the device will upgrade to Windows Phone 8, the new operating system launching this fall.

Microsoft has a lot riding on Windows Phone 8. That’s when Verizon’s Windows push will begin. A new wave of 8 devices will also come to market. If the showing is strong, the devices may gain consumers defecting from Android and RIM. If the showing is weak, Windows Phones could follow RIM and Symbian down to the bottom.

LynBetz has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, and Microsoft. Motley Fool newsletter services recommend Apple, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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