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Did HTC and Windows Phone just shoot themselves in the foot?

Earlier this week HTC announced its Windows Phone 8 line-up, and with the official support of Steve Ballmer unveiled the Windows Phone 8 “Signature” device, the Windows Phone 8X. Nokia’s reaction to HTC claiming “favored child” status was immediate and epidermic, with Nokia’s Marketing Head Chris Weber dissing HTC’s effort as a “tactical rebranding”.

All this is misplaced energy and poor marketing execution for the Windows Phone ecosystem, which really needs all partners to put aside their differences and work shoulder to shoulder to build a bigger opportunity for all of them, rather than fight one another before entering the ring to see who will get the bigger crumbles from a still tiny market.

Clearly the new WP8X is a nice looking device, with a design reminiscent of Nokia’s Lumia 900 and 920, which is probably not a coincidence but rather a planned move from Microsoft’s design leadership working with handset manufacturers to establish a common and recognizable upscale design across all handsets (in a similar vein as the Windows Vista Design Language and Design Kit for PC manufacturers which I worked on in 2005 in the Msft Hardware Innovation Group). The specs are very solid and the WP8X easily qualifies for Superphone status with a large 1280×720 screen, a 2MP wide angle front camera clearly built for a great Skype video conferencing experience, and an 8MP camera, Beats Audio sound, dual core CPU, etc.

Great phone…but frankly poor marketing coordination and execution to introduce a new entrant in a predatory manner, with an exclusionary positioning of “we are the one…” and putting down the other Windows Phone handsets from Nokia (and Samsung).

To survive and succeed, Windows Phone needs a family of handsets that build on one another to generate buzz, momentum, carrier and store presence. Microsoft must act in a fatherly figure and keep all its children in line, working as a team to push their way into a market held by Apple and Android/Samsung. The Windows Phone playground is too small to be viable – for handset OEMs, for carriers, for apps and accessories developers, for consumers. Microsoft must manage its Windows Phone ecosystem to all march forward in a coordinated front to expand their playground, and win market share over Android and Apple. Any share gain by Windows Phone as a whole benefits all of its players. And conversely, any loss hurts all of them equally.

This is not an easy market, and Nokia and HTC both have a lot at stake this fall. There might be good reasons why Microsoft chose to endorse HTC’s positioning of the Windows Phone 8X. Given its past history and relationship with Microsoft, HTC may prove to be a much more flexible and amenable partner than Nokia, willing to follow Microsoft’s Smartphone design ambitions much more closely, whereas Nokia wants to maintain control of its own design and brand identity. HTC seems to have more success than Nokia in securing much needed carrier support (some of which I venture is related to Nokia’s lacking Android handsets to make it a more attractive handset OEM for carriers – see my previous post on the topic).

Unfortunately, and whatever the underlying reasoning may be, the outside view is one of a Windows Phone strategy that lacks unity, with ecosystem partners fighting one another and Microsoft either playing them against one another or not being in control of the ecosystem marketing strategy at a most critical time for the Windows Phone evolution.

The big winners in all of this? Apple and Samsung, sitting on the sidelines and comforting their leading positions.

Smartphones – winning is no longer about handset features

As we near the availability of the iPhone 5, the Smartphone competition is displaying frustration with the apparent unstoppable consumer desire for the Apple handsets (ands the preorders that go with it), even though many perceive the iPhone 5 to be a small improvement to the iPhone 4S, and lagging behind the latest offerings from Android or Windows Phone. The Facebook pages of many Microsoftees point to the innovative features of the Nokia handsets with wireless charging and NFC, and Samsung makes things official by releasing online ads that directly make fun of the Apple loyalsrefusing to see the superiority of the Samsung Galaxy.

iphone5.blog

The fact that “superior” handset specs can’t convince iPhone buyers to switch should be taken as an indication that the Smartphone market has matured to a point where the size and momentum of brands and their ecosystem has become too important to be overcome by a handset product launch. Microsoft knows this situation very well, it mastered and perfected this market position with Windows PCs for almost two decades – by building an amazing network of software and hardware developers and service partners that all worked in unison to build, grow, support, and profit from hundreds of millions of users using and relying on Windows as their computing platform.

Today, Apple has the leading ecosystem. With 750,000 active applications in its App Store, and close to two hundred thousand iOS developers, and tens of thousands of references of i-accessories, Apple dominates all other players. Android follows closely with over 500,000 apps in the Google Play store, and thousands of accessories (though the number of accessories compatible with a given handset model will be less due to the more diverse (fragmented) types of Android handsets). Windows Phone and Blackberry World have each North of 100,000 apps.

More telling than the sheer size of the content supply available in these stores is the volume of content (apps, music, movies) that has been downloaded from these stores to become the property of consumers. Apple crossed the 25 Billion total apps downloaded in February of 2012, with an estimated 50 million apps downloaded daily, or a trend of 1.5 Billion apps/month. So by now there would be 34 Billion apps downloaded, with 400 million iOS devices, or over 80 apps downloaded per iOS device (as a quick reality check, I have accumulated 310 apps in my iTunes library since 2008). Add to that >15 Billion song downloads to the equation, growing at 10 million songs per day and you have a content accumulation that will make you think twice about switching platform and starting over.

Launching a great handset with innovative features is a necessary, but not sufficient, criteria for success in Smartphones. Handset OEMs must account for the user investment in apps, content and accessories and be able to attract users with a low switching cost (for porting content from the old platform to the new one), or a very high value for making the switch (something “priceless” that is worth losing all the previous investment), which must go beyond a handful of innovative handset features.

Can Nokia’s Windows Phone bet succeed without Android?

Nokia introduced its new Windows Phone 8 models last week. The phones look good (design and feature-wise), and the Lumia 920 seems poised for that Superphone status I believe Nokia needs to be a credible player (but we won’t really know until we see the final pricing on the devices).

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That may not be enough though, and the success of Nokia’s Windows Phone lineup may lie in “sleeping with the enemy” and adding Android phones in the lineup.

Could Nokia succeed with only Windows Phones?

Nokia is in the difficult position of convincing carriers that they should dedicate time, effort and shelf space to carrying its products. But with a small and fragmented Windows Phone product lineup (2 Windows Phone 8 models and 2 Windows Phone 7.5 models which may or may not stay in market), all fighting with models from Samsung and HTC for what is currently a meager 3% total Windows Phone market share, Nokia’s ROI for wireless carriers is not looking so great (Nokia and Microsoft marketing budgets help but are not infinite).

The situation is different for Samsung and HTC.

They have a relationship with carriers that rests on a complete portfolio of products, with multiple handsets at multiple prices. They don’t have to make a case for being an OEM partner, their sheer market share puts them as a top-tier partner for most if not all the carriers. They can flex their large muscles to get the attention of carriers, negotiate prime promotional space and air time. They are at the front of the line, in the VIP section.

For Carriers, selling a Samsung Windows Phone is largely an extension of doing business with Samsung. If the handset fails to perform, it will be a disappointment for both parties, but the success of the other handsets will compensate for that loss and will not jeopardize the position of Samsung as an OEM provider.

Nokia is the challenger.

To get attention it has to scream louder, be bolder. To be heard and given a chance as an established OEM provider, it has to have the promise of significant growth opportunity and market share. And right now, with only two Windows Phone 8 models, it is not easy for Nokia to do so. There is no strong past sales history, no product hit that could carry other handsets, and offering only two handsets leaves no room for negotiation or optimization of a carrier portfolio.

Could a few Nokia Android models make a difference?

Is the Android Smartphone market not already saturated by the other OEMs? Yes, it is, but in Nokia’s case it may well work to their advantage. Nokia would not seek to become the leading Android smartphone provider. It would leverage Android’s popularity to prop up its market share and provide a sales cushion to its Windows Phone products. Nokia would have a larger line-up to get carriers excited about, a larger palette for them to make choices. Today, if a carrier does not like the 820 or the 920, that is half of the Nokia line-up that goes out the window. Having 2-4 additional Android handsets would allow Nokia and carriers to optimize their choices while keeping a reasonable number of handsets alive to build a relationship on. It would be a relatively safe bet to make. Nokia can ride the Android wave and benefit from the marketing and momentum of all Android handsets.

Carriers would likely embrace having a new challenger brand in their portfolio.

That may be the most important part of all. Samsung and Apple have too much power. HTC and LG long-term futures in Smartphones is uncertain, so is Blackberry. Huawei, ZTE, Pantech are here to stay but they have nowhere the brand value or marketing power that Nokia and Microsoft have. Nokia, with Microsoft, could build a strong enough position to help carriers push back on Samsung and Apple. But for that to happen they have to maintain their seat at the carrier bargaining table. And Android may be the necessary evil Nokia needs to get there.