Introduction

Since the introduction of Apple’s iPhone in 2007, Microsoft’s former strong position in the Smartphone market has crumbled. Business users have turned to new features provided by RIM, while casual users regard the last Windows Mobile Operating System too difficult to handle and turned to the easier-to-use iPhone. Microsoft’s only response to the changing market environment was to pursue incremental updates of their Windows Mobile platform, which many sources considered an uttermost failure without any real new features. While the user interface changed to mirror the designs of the iPhone, the quality of the work was doubtful.

With this in mind, Microsoft plans to introduce the Windows Phone 7, a radical new development of the Windows Mobile platform, with introductions of a new User Interface, full incorporation of mobile gaming and many more features. This new OS is considered as Microsoft’s last stand in the smartphone industry.

In this blog, we address the issue of how Microsoft is going to win back former customers, gain new ones, and which strategies can be utilized to gain a major share in the Smartphone market again, despite the tough competition by RIM and Apple.

References:

PCWorld, "Windows Mobile 6.5 Arrives, Mostly disappoints", Oct 6, 2009, http://www.pcworld.com/article/173186/windows_mobile_65_arrives_mostly_disappoints.html
Engadget, "Windows Phone 7: the complete guide", Mar 18, 2010, http://www.engadget.com/2010/03/18/windows-phone-7-series-the-complete-guide/

Microsoft's current position in the mobile technology market

Windows Market Share on the International Level

The graph below illustrates the Smartphone market share on an international level.  Windows Mobile share of the Smartphone market has fallen year-on-year, decreasing 20% in third quarter of 2009.  It is the 5th most popular smartphone operating system, with a 2% share of the worldwide smartphone market (after Symbian, blackberry, Andorid and iPhone.).

AdMob-Study: Mobile Metrics Report February 2010

The chart below is showing a huge growth in 2009 for Android as more phones appear using the Google mobile software. Android’s marketshare more than tripled in 2009 to 3.9 percent of the market, putting the platform in sixth place with 10 million sales for last year.  On the other end of the spectrum, Nokia’a platform Symbian held 52.4% of marketsharte in 2008, the chart illustrates some loss from 200 8 into 2009.  Although still the international leader, the Symbian platform currently holds 46.9% market share.

Gartner Group Study: Worldwide Smartphone Sales

Windows Market Share on the US Level

Climbing up strongly is Google’s Android, although still behind RIM, Apple, and Microsoft, their market is rapidly gaining more ground. Since November 2009, they increased 5.2 percent from 3.8% to 9.0%.  They can attribute this to strong sales of Motorola Droid, we may continue to see more growth as new android phones such as HTC Incredible, Samsung Galaxy S, and EVO 4G  are released.  Microsoft is in third position owning 15.1%, but as of last November their share has dropped by 4.0% from 19.1%.

ComScore Study: Top Smartphone Platforms

Mobile Content Usage

Results of ComScore’s Mobile Content usage shows that since November 2009, social networking has increased 3.3 % from 13.8% to 17.1%.    Game usage has slightly increased 0.4% from 21.3% to 21.7%.  With their upcoming releases focusing on gamers and social networking fans, these categories should continue to grow giving Microsoft a stronger hold in Market Share.

ComScore Study: Mobile Content Usage

Main Competition

Google’ droid and Apples’ iPhone are the main competitors for Windows Mobile.  The above graph compares the sales results through each of their respective first 74 days. The launch dates were: iPhone, June 29, 2007 and Droid, November 5, 2009.  As Apple and Google go compete for market share, the Google Nexus one is failing which could slow down their progress in the market.

In conclusion, Microsoft was in the past and is currently loosing market share. Although the Windows Mobile Platform still holds a big size in the Smartphone market, the competition has gotten rougher. On the bright side, the newest developments of user activities to more online gaming and social interaction can give the Phone 7 a huge positive force for introducing their new OS.


References:

InformationWeek, "Air Pressure: Why IT Must Sort Out App Mobilization Challenges", Dez 5, 2009, http://www.informationweek.com/news/mobility/business/showArticle.jhtml?articleID=222000504
Flurry Blog, "Day 74 Sales: Apple iPhone vs. Google Nexus One vs. Motorola Droid", Mar 16, 2010, http://blog.flurry.com/bid/31410/Day-74-Sales-Apple-iPhone-vs-Google-Nexus-One-vs-Motorola-Droid
AdMob, "Mobile Metrics Report February 2010", http://metrics.admob.com/wp-content/uploads/2010/03/AdMob-Mobile-Metrics-Feb-10.pdf
comScore, "Android shows strength as mobile usage grows", Mar 10, 2010, http://searchengineland.com/comscore-android-shows-strength-as-mobile-web-usage-grows-37777
IntoMobile, "ComScore: Android gaining traction but rim, apple still ahead", April 5, 2010, http://www.intomobile.com/2010/04/05/comscore-android-gaining-traction-but-rim-apple-still-ahead.html
AllThingsDigital, "A Growth spurt for Android's Market Share", April 5, 2010, http://digitaldaily.allthingsd.com/20100405/a-growth-spurt-for-androids-market-share/?mod=ATD_rss
HiTechnoCorner, "Microsoft Will Release Their Mobile Phone Next Week ???", April 6, 2010, http://hitechnocorner.blogspot.com/2010/04/microsoft-will-release-their-mobile.html
CultOfMac, "Report: iPhone is No. 3 Smartphone, Shipping 24.9m handsets in 2009", Feb 23, 2010, http://www.cultofmac.com/report-iphone-is-no-3-smartphone-shipping-24-9m-handsets-in-2009/31305

SWOT-Analysis

Strengths:

One of their biggest strengths is that they have full compatibility between their product lines like Sharepoint and Office and their new OS right from the start, giving them a head-start before other companies. Since their software is from the same company and Phone 7 developers have internal knowledge, they can easier implement data exchange interfaces between the Smartphone and the Software than external developers. Also most people are familiar with the typical “look and feel” of a Microsoft product through their dominance in the desktop computer market, giving adopters of the Smartphone a shorter period of time to learn the functionality than with other Smartphones. Another issue is that the connection to the Xbox Live is a proprietary one. It cannot be easily copied by the competition and is thus a major competitive advantage. Since Microsoft has a strong financial basis, a short period of financial losses in the Smartphone market can be endured to push the OS into the market.

Weaknesses:

Although Microsoft is having a $7B budget for research and development, they have been known in the past for their inability to market their innovations successfully. In this regard it is quite possible that developments, that would have further enhanced the Phone 7, have been held back. Also, with the introduction of their new OS, they have tightened control over the applications that can be used on the Phone 7. The most rigid one is that only those applications can be used that have been received through their marketplace.

Opportunities:

A major opportunity is that the Smartphone market itself is still growing rapidly, giving even a niche position a profitable outlook. As long as Microsoft does not completely drop out of the market, the investments in the Phone 7 may be profitable. The biggest opportunity for Microsoft is having a first-mover advantage in tapping into the Mobile Gaming Market. Although the iPhone and Android are supporting online gaming, none of the competitors have a thorough integration of the Mobile Gaming business. Being the first ones in this market could lead to a very high competitive advantage similar to Amazons movement into the online retailing business. Also, like iPod customers moved to the iPhone and then to the recently published iPad, Microsoft can draw from their customer base of Windows Mobile 6.5 and the Zune player. If the sales are similar to Apple’s experiences, the sales would not cannibalize the Zune sales.

Threats:

A threat that Microsoft has to actively engage is their bad reputation and their past bad marketing efforts. Even though they may have the best technology, they constantly fell short in showing their customers how they could improve their lifestyle. On the other hand, Apple has shown numerous times how a great marketing campaign can lead to a tremendous success. Also, Microsoft will not be alone in the race over the domination in the Mobile Gaming Market. Nintendo has announced that they develop themselves a new mobile gaming device. This could be a new, major entrant in this area. The last major threat is that the Smartphone market field is highly competitive and that other vendors will most likely release new phones in a matter of months, putting Microsoft under severe pressure to be innovative.

The following graphic will summarize our findings:

References:

SearchExchange, "What Microsoft gets for its $7B R&D budget", Jun 10, 2004, http://searchexchange.techtarget.com/news/article/0,,sid43_gci969606,00.html

 DigitalTrends, "Windows Phone 7 Apps: Only from Microsoft's store", Mar 16, 2010, http://www.digitaltrends.com/mobile/windows-phone-7-apps-only-from-microsofts-store/

 Fortune Magazine, "Piper Jaffray survey of iPad buyers: 74% owned Macs; 66% had iPhones", http://tech.fortune.cnn.com/2010/04/05/piper-jaffray-survey-of-ipad-buyers-74-owned-macs-66-had-iphones/

MocoNews.Net, "Microsoft's Windows Mobile has A Marketing Problem", Oct 7, 2009, http://moconews.net/article/419-microsofts-windows-mobile-has-a-marketing-problem/

IT Chuiko, "New mobile gaming device, Nintendo can get 3G functionality", Mar 21, 2010, http://it-chuiko.com/gadgets/2963-new-mobile-gaming-device-nintendo-can-get-3g.html

Usability Strategy - Part 1: Appearance and Hubs

Appearance:

Microsoft has stood out as a laggard when it comes to Smartphones. There are about 42.7 million Smartphone users in the United States alone (Paul).  Smartphones offer our generation endless possibilities at their fingertips, with computer capabilities in one single technology. Apple’s iPhone and the Blackberry have been big players in the Smartphone market.  When Microsoft launched the Windows Mobile 6.5 users were disappointed with the “clunky design” and consumers claimed it was not designed with ease of use in mind, but now, everything that users disliked about Windows Mobile 6.5 has disappeared with the new Windows Mobile 7. Even though the new Series 7 phone will not be released until the end of the year, Microsoft is attempting to regain to mobile market by offering an interface that combines applications and media.  Topolsky states, “If they can deliver on the promises of 7 Series, this could change the current landscape of the Smartphone market.”

Windows Phone 7 Appearance

The physical appearance of the phone has completely changed, especially since touch screen functionality has become a necessity. The desktop scroll bar, that was previously viewed as a negative feature, has been replaced with a smooth-scrolling grid. The complaints of the Windows 6.5 not being finger friendly is also out the door. The new phone has a refreshing feel, emails, text messages are displayed neatly with each panel rotating from side-to-side as opposed to the iPhone’s up-and-down motion.  There is also a 5 megapixel camera with a flash.

The tile function screen replaces the icon display that Apple iPhone is known for. This function alone makes the phone physically appealing and users will know what is going on without having to open any applications. The start screen’s tiles represent either contacts or links to their applications. Each icon is displayed in a pattern of 4x4, which differentiates it from other phones. The sliding physical keyboard also makes the phone easy to type emails and messages.

All Windows phone devices will work the same with the exception of customizing colors and the layout.  All of the Series 7 phones must have the same three physical buttons: Home, Search, and Back.  The overall feel is clutter free, unlike the other Smartphones in the market. There aren’t any 3D drop-downs or shaded backgrounds; the feel of the phone is clutter free.

Windows Phone 7 at Mix Conference 2010

Key Features:

The Series 7 phone is focused on users who have a deep interest in social networking with Web based email. Microsoft is even thinking outside the box by expanding to the gaming marketing. The new Xbox LIVE feature would allow for millions of users. The Windows Phone 7 experience is integrated with its products including Xbox. Microsoft will also allow users to access the new version of Microsoft Office for mobile devices; this includes OneNote and SharePoint Workspaces.

Every phone will have a Bing Search and a Bing Start button. Applications for Windows Phone 7 will take advantage of some of the same frameworks that iPhone Apps can, including an accelerometer for motion control, location-based services, multitouch, camera and microphone, and push notification. Also, similarly to the iPhone, Windows 7 will allow for third party applications to run one at a time, the twist would be that Microsoft will offer a push notification which sends a message to the mobile application instead of running the application and calling for updates.

Hubs are the clearinghouses for the phone's core functionality, broken down by genre -- it's a unique (and rather intuitive) concept unlike anything we've seen on other mobile platforms. Third-party developers will be able to tap into these hubs to enhance them.

People hub: Pulls in contacts from Gmail, Exchange, Facebook, Twitter, Windows Live and others, aggregating contact information, status updates, and contact images into a single view (or views, really).

Pictures hub: An aggregate of your locally stored photos, cloud-based Facebook, Windows Live, or other connected picture galleries, and feeds of your contacts' recently updated images.

Games hub: Integrates with Xbox Live, including the housing of a miniature version of your avatar (in 3D and everything), Xbox LIVE games and achievements, Spotlight feeds, and the ability to browse gamer profiles.

Music + Video hub: It's a Zune HD in your phone. Seriously, it's exactly like the Zune HD experience. You're able to utilize Zune Pass here too, including the ability to browse and download new music over WiFi and 3G. Video is a go too, and we assume that means rentals as well as purchases.

Marketplace hub: Microsoft is deeply rethinking its Marketplace strategy for Windows Phone 7 Series right down to the name -- it's now officially "Windows Phone Marketplace," a minor tweak from the Windows Marketplace for Mobile moniker they'd used before. The revised Marketplace will be much more than an app store -- instead, it'll be billed as a one-stop shop for a variety of content from apps and Xbox games to music, and carriers will also have the ability to customize it by adding their own highlighted content.

Office hub: Microsoft's bread and butter, but so far we've just seen the hub itself -- none of its deeper functionality like document editing. There's an emphasis on OneNote and SharePoint Workspace that should be pretty interesting.

The Email application will be Outlook and the browser will be Internet Explorer. Windows 7 phones will also have Bing maps which allows for street view maps along with a 3D view and directions to help you get to your destination. The libraries will allow make it easier to search and organize documents, pictures, and music. The Media Player 12 plays popular audio such as 3GP, AAC , and AVCHD.

References:

ArsTechnica, "Microsoft unveils Windows Phone 7 Series hotness", Feb 2010, http://arstechnica.com/microsoft/news/2010/02/microsoft-unveils-windows-phone-7-series.ars

PCWorld, "Windows Phone 7 Series: Everything you need to know", Mar 16, 2010, http://www.pcworld.com/article/191631/windows_phone_7_series_everything_you_need_to_know.html

Gizmodo, "Windows Phone 7 Series: Everything is different now", Feb 2010, http://gizmodo.com/5471805/windows-phone-7-series-everything-is-different-now

Microsoft Watch, "Windows 7 - Microsoft Exec Offers First Look At Windows Phone 7 Series Device", Mar 1, 2010, http://www.microsoft-watch.com/content/windows_7/microsoft_exec_offers_first_look_at_windows_phone_7_series_device.html

TheNextWeb.com, "7 Reasons Why The Windows 7 Phone is THE iPhone Killer", Mar 16, 2010, http://thenextweb.com/mobile/2010/03/16/7-reasons-windows-7-phone-iphone-killer/#

YouTube, "Windows Phone 7 Features", http://www.youtube.com/watch?v=7IOTrqlz4jo&feature=player_embedded

Wired.com, "Microsoft Tells Windows Phone 7's App Story", Mar 15, 2010, http://www.wired.com/gadgetlab/2010/03/windows-phone-7-apps/

Usability Strategy - Part 2: Hardware Strategy

One of Microsoft's biggest problems in the past was that they did not enforce minimum hardware requirements for Smartphones who used their Windows Mobile Operating System. Depending on the Smartphone manufacturer, the appearance could widely differ and with that the user experience. Although the manufacturers were to blame for this, the users perceived the Operating System for many faults. To avoid a similar disaster, Microsoft decided to force the standards for its new mobile platform on hardware manufacturers.  With this they ensure that the Windows 7 operates on a top notch hardware and there are no performance issues due to hardware limitations. All users are getting the same basic experience, independent of the Smartphone.

Let’s take a look at the proposed hardware:

Processor: ARM v6+, L2 Cache, VFP, Open GL ES 2.0 graphics HW (QCOM 8k, Nvidia Tegra AP15/16* and TI 3430 all meet spec).  With this top notch mobile processor, Microsoft wants to emphasize low power consumption (long battery life) and high performance for playing video and audio.

Memory:  256MB+ DRAM, 1G+ Flash (at least 512MB fast flash 5MB/s unbuffered read @4K block size).  This minimum amount of on-board memory will guarantee that OS will work with enough resources to smoothly work on each phone.  Flash memory will ensure that users have extra storage to move files, pictures, and music from the phone to PC and back to the phone.

Display: WVGA (800 480) or FWVGA (854 480) 3.5 or greater. This display format will enable full page viewing of webpages.

Touch: 4 point multi-touch required. This is an enhancement to touchscreen technology, which provides the user with the ability to apply multiple finger gestures simultaneously onto the electronic visual display to send complex commands to the device.

Controls: Start, Back, Search are required (soft controls allowed as long as they are always present)  This keyboard minimum requirement is geared toward smooth browsing of the Internet as well as going back and forth in the menus of the phone.

Camera: 5MP+, flash optional, 2nd camera optional (VGA resolution sufficient).  The high resolution camera will allow the phone to act as a camera and a camcorder.

Sensors: Light Sensor, Compass (3 axis, 5 degrees, 100 Hz sample rate), Accelerometer (3 axis, 2mg resolution, 100 Hz sample rate).  Mostly used for GPS calibration.

USB: High speed required, 20 MB/s transfer rate. This fast speed will enable fast synch between the phone and the PC.

  

A typical Windows Phone 7 Smartphone: Dell Lightning

Microsoft is making sure that their software, Silverlight functionality, and the user experience is always top, and the only way to do that is by mandating the hardware that powers it.  Microsoft wants you to love using your phone, and not worry about a process slowing you down.  This can become a great strategy because it will ensure that users have a fast and responsive phone experience.  By imposing higher regulations, they try to avoid a repeating of previous failures where the OS was good but hardware was sub-par, causing users to complain about the experience.  Microsoft wants to avoid compatibility issues and it wants to reduce the amount of time it takes phone manufacturers to take the Windows Phone operating system and create a device with it, making a single basic hardware platform a major advantage.

References:

Gizmodo, "What's Wrong With Windows Mobile And How WM7 and WM8 Are Going To Fix It", Dec 14, 2007, http://gizmodo.com/333536/whats-wrong-with-windows-mobile-and-how-wm7-and-wm8-are-going-to-fix-it
MostlyTech, "Windows Mobile 7 minimum hardware requirements", http://mostlytech.wordpress.com/2009/09/12/windows-mobile-7-minimum-hardware-requirements/
KnowYourCell, "Windows Mobile 7 minimum hardware requirements outed", Jan 28, 2010, http://www.knowyourcell.com/news/406317/windows_mobile_7_minimum_hardware_requirements_outed.html
Mashable, "Dell Lightning Is the Windows Phone 7 Device You Have Been Craving", Apr 22, 2010, 
http://mashable.com/2010/04/22/dell-lightning/
Redmond Pie, "Windows Phone 7 vs. iPhone", Feb 16, 2010, 
http://www.redmondpie.com/iphone-vs-windows-phone-7-series-9140452/

Marketing Strategy - Part 1: Gaming Strategy

Microsoft's strong push into the mobile gaming market:

Microsoft has decided to integrate a whole new gaming experience for the Windows Phone 7.  Microsoft decided to make gaming a priority with the new phone by making it a major hub in the interface.  Microsoft has taken note of the success of Apple in mobile gaming.  The mobile gaming market is a major market that Microsoft would like to increase their share in, and expand it as Apple has done.

Windows Phone 7 - Games Hub

Microsoft will offer users the ability to purchase and play games with their Windows Marketplace for Mobile.  This provides similar service to the already successful App store for the iPhone.  Apple’s success in the mobile gaming market is too large to ignore.  The iPhone and iPod Touch game revenue grew from $115 million in 2008 to $500 million in 2009.

Mobile Gaming Software Market Share

As you can see, in only a few years, Apple has already grown to be the #2 player in mobile gaming.  Microsoft’s strategy is to establish itself as a major player in this market. The reason behind is that the mobile gaming market in the US has grown from 20% to 25% of the overall gaming marketplace and will likely increase even further in the future.

A big strategy for Microsoft is to observe what is working and to expand upon it.  They are doing this by allowing their games to work across multiple platforms: Windows Mobile 7, X-box 360, Zune, XP, Vista, Java-based phones, and Windows 7.  This allows the gamer to play their purchased games on multiple platforms and in some instances play multiplayer games over these platforms with friends on X-Box Live.  This is further explained below.

Microsoft has a major advantage in the gaming marketplace because of the already large and successful X-Box Live.  Their marketing strategy needs to focus on the aspects of the Windows Mobile 7 experience that cannot be recreated with other phones.  Apple and Blackberry can’t easily develop an X-Box Live like service.  They also both don’t have other platforms that offer the interoperability that Windows 7, Xbox 360, and Windows Mobile 7 do.  I would suggest a campaign similar to Apple’s gaming commercials that highlighted the ease of use and fun of the device, but hone in on situations that show these unique aspects of the phone.

Expanding on X-Box Live and Other Gaming Features:

As of January 2010, Microsoft announced that they have sold 39 million consoles, and have about 20 million customers of X-box live.  Microsoft has initiated their “Live Everywhere” strategy by taking the success of X-Box Live from the console and bringing it to their phone.  By doing this, it opens up Windows Mobile 7 to interact and play games with the already established 20 million X-Box Live customers.

This Live Anywhere allows users to game over multiple platforms.  A user can be playing a game on his computer and continue where he left off on his phone or X-Box 360.  The user can also play multiplayer games against X-Box live customers.  He can play against his friends that are home on the X-Box 360 while he is out with his phone.  For those that are playing asynchronous games such as Scrabble or Chess, the gamer-on-the-go’s phone will be notified when his opponent makes a move.  Other interesting notification features are the “Live Tiles” which are interactive icon displays in the phone that casually alert the user that he may have friend requests or other gaming actions on the user’s Live account.

The X-Box Live hub in the phones display will show the user’s customized avatar.  The X-Box live avatar is a personalized cartoon figure designed by the user.  Once the user enters the hub, the phone is automatically synchronized with the users account for account information such as purchased and installed games.  The hub will beautifully display the available games and also recommended new games for the user to try.  Again, the hub is a horizontal display that allows the user to pan across and access more information that is displayed immediately in front of them.

The interesting part of Microsoft’s strategy is that it is encouraging their current X-Box Live clientele to upgrade to a Windows Mobile 7 smart phone so that they can get the most out of their X-Box Live gaming experience.  They are also encouraging non-gamers that purchase the phone, and see how robust, fun, and easy to use X-Box Live is.  This will encourage phone users, who decide to subscribe to X-Box Live, to consider Windows operating systems and also X-Box 360 to continue their gaming on either platform.

References:

CNet, "iPhone stealing game market share from Sony, Nintendo", Mar 22, 2010, http://news.cnet.com/8301-13579_3-10470102-37.html
BNet, "Apple Didn't Take Video Game Market Share; the iPhone Expanded It", Mar 23, 2010, http://industry.bnet.com/technology/10006357/apple-didnt-take-video-game-market-share-the-iphone-expanded-it/
CNet, "Microsoft hits redial in phone effort (Q&A)", Feb 15, 2010, http://news.cnet.com/8301-13860_3-10452710-56.html

Marketing Strategy - Part 2: Targeting customers

Microsoft gave an answer to the corporate users and it goes something like this: Windows Phone 7 isn’t for you. It’s for consumers. We may come around to you later. Talk about forgetting the base. Microsoft in its envy of Apple’s iPhone may be about to exclude it’s most important group of customers—the enterprise.

Charlie Kindel, who’s spearheading the Windows Phone 7 development charge said:  “We don’t expect enterprises to go out there and buy these (Windows Phone 7 devices) en masse for their employees.”

Microsoft’s target is the consumer who wants to do a limited amount of enterprise tasks (pretty much exclusively through the Office hub). Microsoft has no plans to offer any kind of migration tools for enterprise developers to help them move existing Windows Mobile apps to the new platform.

Steve Balmer on the Windows Phone 7 Mobile Strategy

Corporate vs. Consumer of the Phone 7:

At the core of Microsoft's launch of Windows Phone 7 is capturing the interest of shoppers in search of mobile devices that will complement their busy multimedia lifestyles. Although company officials made a passing mention of the product's business-focused features, such as Office, they emphasized the system's capabilities for social networking, games and music. Executives at the software giant have acknowledged that Windows 7 will initially be geared toward general consumers, rather than corporate customers.

Microsoft—the king of reverse compatibility (sometimes to its detriment)—is making a clean break on mobile. However, it’s unclear whether that move is such a bright idea. As players like Apple and Palm become more corporate friendly, Microsoft runs the opposite way. Research in Motion has to be smiling—it’ll own the enterprise market.

"Microsoft appears to be following the Apple formula," says Andrea Matwyshyn (Wharton legal studies and business ethics professor). "If Windows Phone 7 is designed to be a challenger to Android and the iPhone, that makes sense, but it strikes me that the enterprise route and the BlackBerry will be an easier target to work with." She adds that the level of passion for BlackBerry devices doesn't compare to the enthusiasm for Android phones and the iPhone.

But the corporate world may ultimately be Microsoft's chance to set itself apart from the competition, notes  David Hsu (Wharton management professor), who expects the company will ultimately innovate by accessing institutional documents, connecting to business applications such as Office and SharePoint, and giving companies better controls for security. Indeed, Microsoft will need every advantage it can get if the company wants to keep pace with Apple, Google and Research in Motion. "Microsoft needs to be in this business and it will need to differentiate itself," says Hsu.

Still, it is too early to predict whether Microsoft will emerge as the leader of the smart phone race. "At the end of the day, Windows Phone 7 may be like Bing," says Kartik Hosanagar (operations and information management professor at Wharton). "Bing helped Microsoft, but wasn't a game changer. I doubt Windows Phone 7 is a game changer ... just something that puts it back into the mix. Ten years ago, Microsoft had monopoly power and no one wanted to compete with it. Now, we're asking whether Microsoft can compete with the others. Things have changed."

References:

Engadget, "Windows Phone 7: the complete guide", Mar 18, 2010, http://www.engadget.com/2010/03/18/windows-phone-7-series-the-complete-guide/
MSDN - Social, "Some thoughts about Windows 'Phone' 7 / Windows Mobile 7", Mar 20, 2010, http://social.msdn.microsoft.com/Forums/en-CA/windowsphone7series/thread/707a56d9-c1e1-4c0b-971a-6fc2b47ac2fa
SeekingAlpha, "Will Microsoft's iPhone Envy Punt Away The Enterprise?", Mar 16, 2010, http://seekingalpha.com/article/194004-will-microsoft-s-iphone-envy-punt-away-the-enterprise
Knowledge Wharton, "Will Windows Phone 7 Reboot Microsoft's Mobile Strategy?", Mar 31, 2010, http://knowledge.wharton.upenn.edu/article.cfm?articleid=2463

Retaining Customers

Once Microsoft has gained new customers through advertisements and promotions of the new features of the Windows Mobile 7 Operating System, the question will be: “How are they going to retain their customers in the long term and not lose them when smartphones with new features are being published?”

Retention of customers is a very important aspect in business. The costs for gaining new customers is 5 to 10 times higher compared to selling products or services to already established customers. It is thus of the uttermost importance to hold customers and tie them as deeply as possible to the company in order to not only gain a big market share, but also to ensure future profits and growth. A study by the McGraw-Hill company came to the conclusion that “highly satisfied owners are more than 50% more likely to repurchase the same brand than those who are not satisfied with their smartphone”. Loyal customers are also more likely to pay premium prices for products than new customers.

Given this big incentive to retain customers, what strategies can be followed to ensure that customers will stay with the company? One of the most important aspects is a high-level of quality in products and services offered. A delivering or over-delivering of the promised features is a very good starting point to build a relationship between the company and its customers. A direct, honest communication even after the sales are being closed helps to build trust and increases the satisfaction of the customers. Creating a place or community in which customers, suppliers of the hardware, business professionals and Microsoft can share their experiences and discuss issues and further development provides a big help with this. But besides ensuring a high quality, a company can also choose to close-in the customers through products and services that cannot be transferred to other platforms e.g. the linkage of names to photos on Facebook. Thus, a high exit-barrier can prove to be a very successful way to retain customers.

In the past, Microsoft had problems keeping their customers loyalty, especially in the Smartphone market. Before the emergence of the iPhone, Windows Mobile had market share of nearly 50% with the biggest competitor being Palm. Due to the lack of innovation in the fields of User Interfaces as well as not keeping their latest Windows Mobile 6.5 supported with continuous updates, Microsoft is not at all being perceived as an innovative and leading company, resulting in a continuing loss of market share to the 18% share today.  The major issue in this area is that in the fast paced environment of smartphones, keeping up to the latest developments and offering services that are either as well as the competitors or are proprietary is elemental to retain customers. If a newer smartphone or smartphone OS is being offered by a competitor, the customers will decide if the new services or technologies are worth to remain loyal to the brand.

Given these past problems in keeping customers loyal, Microsoft unofficially build some strategies to ensure a tighter binding of the customers to the company:

• Focus on customer experience, as we saw earlier, Microsoft does not focus on corporate users. Instead the Windows Phone 7 is build for everyone, including customers that have never pre-owned a smartphone before. The initial and continuous customer experience is one of the cornerstones of the new Windows Mobile 7 OS. An intuitive and easy to use interface that is very similar to the iPhone, but yet more advanced in this area will give users an easy access to most of the functionalities that they need and will drastically improve customer satisfaction. The keyword used by Microsoft is to provide an “integrated experience”. The close control over the hardware vendors (see Hardware requirements) will further ensure that the new features will be the same user experience on every smartphone and the lacking of these cannot be blamed on the Microsoft.
• Building of functional-hubs, to ensure that all information that the user needs is available in an instant, Microsoft build the new sorting structure named “hubs”. These hubs merge the different information streams and will show changes on the main screen. The focus in this area is to enhance the communication between people and thus concentrating on the core functionality of why customers use a smartphone. This will further enhance customer experience and be an innovation that directly aims at the key buyers, the average people.
• Mobile Gaming Feature, since the XBox Live features are proprietary to the Windows Phone 7, they cannot be copied. This imposes strong exit barriers to owners that would lose this gaming features since a transfer of data e.g. Trophies won in mobile gaming, would be inevitably lost.

In conclusion, Microsoft did actually listen to their customers this time and provided some very good steps to keep customers closely linked to their Windows Mobile 7 OS. The mixture of providing new, proprietary technologies and experiences as well as closing-in the customers through restrictions will have to show in the future if it was successful.

References:

Relationship Marketing by Martin Christopher, Adrian Payne and David Ballantyne, Chapter 1, Butterworth-Heinemann, 2002
CNet, "Microsoft hits redial in phone effort (Q&A), Feb 15, 2010, http://news.cnet.com/8301-13860_3-10452710-56.html
ComScore, "comScore Reports December 2009 U.S. Mobile Subscriber Market Share", Feb 8, 2010,
http://www.comscore.com/index.php/Press_Events/Press_Releases/2010/2/comScore_Reports_December_2009_U.S._Mobile_Subscriber_Market_Share
PCWorld, "Windows Phone 7: An in-depth Look at the Features and Interface", Feb 15, 2010, http://www.pcworld.com/article/189347/windows_phone_7_an_indepth_look_at_the_features_and_interface.html

Issues

Ignoring the enterprise market, with their current developments, Microsoft is deliberately ignoring the enterprise markets. Since their former market dominance was heavily build upon their corporate users and there is no upgrade yet for the migration from e.g. Windows Mobile 6.5 to Windows Phone 7, the embracing of this user group could have a big potential.

Compatibility to older Software, along with Microsoft’s complete new development of the Operating System went the restriction that no older Software will be supported for Windows Phone 7. This means that especially former users that want to move the new OS would have to leave most of their precious applications behind.

History of neglecting third party developers, even though Microsoft supported developers through their Developer Network (MSDN), the support was not as major as Apple’s or Google’s.

Staying on top of technological innovation, since the Smartphone market has become very competitive, the development cycles have gotten smaller. Constantly delivering new innovations is a key element in the success in this market.

Recommendations

Enterprise Market:

Microsoft currently focuses on the leisure, highly communicative users that also want a gaming experience. By leveraging their office products more through their office hub, they could include the enterprise users easily. Also their dominance in the overall Office Software market is a huge competitive advantage that could be used in venturing into this market again. A second approach with more effort would be developing a special version for the enterprise markets with e.g. deleting the Gaming features and thus make it more business-like.

Compatibility to older Software:

Since nearly all of the software is not being supported by the new OS, this could be a huge barrier for former Windows Mobile users. By taking Java as an example, they could support old applications through a sandbox-environment that would give the users access to the applications, but could not endanger the OS as a whole.

Marketplace & Developers:

Microsoft’s mobile app strategy may also involve different tactics from those the company employed for Windows Marketplace for mobile. Now with Silverlight and XMA, there are two extremely robust, mature frameworks with a large install base. Silverlight has half a million developers worldwide, and every single one of those developers is essentially now a mobile developer.
The new windows phone marketplace will allow developers to leverage their creations for profit, offering features such as onetime credit card purchases, mobile operator billing and advertising funded applications.
In a bid to further differentiate themselves from competitors such as the App store, where prices tend toward free or else .99 cents per application, Microsoft can also encourage developers to charge more for their products. “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.

Staying Innovative:

Staying innovative is one of the most difficult issues to tackle, but they essentially took the right step by creating the Windows Phone OS from scratch and implementing the Hubs and especially the Mobile Gaming features. By constantly trying to venture into new markets, Microsoft could stay innovative in this field. Also, since their R&D budgets are one of the biggest in the industry, they simply need to try to market their innovations harder and better than in the past.

References:

eWeek, "Microsoft's Windows Mobile Phone 7 Needs to Avoid Past Strategy", Mar 16, 2010, http://www.eweek.com/c/a/Mobile-and-Wireless/Microsofts-Windows-Phone-7-Needs-to-Avoid-Past-Strategy-160244/

Conclusion

In the highly competitive market of Smartphones, the former dominant company is making it's last stand. The Windows Phone 7 will be Microsoft's last push into the market with a complete overhaul of the User Interface, including the new Hub feature. Their new approach of tightly embracing the Mobile Gaming players, Microsoft may have a future competitive advantage against their closest competitors, Google and Apple. The future will show, if the innovations will be received well by the leisure user group or if Microsoft will add to their past record of not being able to market their products.