Microsoft's smart strategy to take on Android

Microsoft and Nokia are committing to ensuring that current devices will support the Windows Phone 8.1 upgrade

Windows Phone is anything but the monster hit Microsoft hoped for three and a half years ago when the Windows Mobile successor finally came to market. Today, it's a distant third in the mobile market, far behind Android and iOS -- and it's only that high because of BlackBerry's implosion.

Microsoft made all the classic arrogant Microsoft mistakes: In 2010, the first Windows Phone version, 7, couldn't even copy and paste. Each major new version -- 7.5, then 8.0 -- orphaned the immediate-predecessor devices. Windows Phone didn't support business-class security until 2012's version 8. It was as if Microsoft had never heard of 2007's iPhone or 2008's Android.

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I certainly couldn't take Windows Phone seriously, and it was clear that the hardware makers weren't doing so either, given that Samsung and HTC had all but abandoned the market to Nokia, whose smartphone unit was a unit of Microsoft in everything but name, and soon will be officially part of Microsoft.

Thus, when Microsoft and Nokia execs prattled on about Windows Phone at the excruciatingly long Build conference keynote this week, I was surprised to hear a smart strategy emerge for a smartphone that has been terribly mishandled since its inception.

What was so smart? Nokia/Microsoft's commitment to making the forthcoming Windows Phone 8.1 update run on all recent Nokia Lumia Windows Phone devices and on recent models from other makers. The company is even willing to give up some market share to make that happen -- to ensure future compatibility, a certain hardware level must be maintained, and doing so raises costs. Given that Microsoft's pushing Windows Phone hardest in poorer markets like India and Eastern Europe, that extra cost can really hurt it.

Apple has long made sure its iPhones run at least a couple future versions of iOS, but iPhones are premium-priced. Android smartphones, on the other hand, range from barely functional but very cheap to very functional and iPhone-priced. In the developing markets to which Microsoft has pinned its Windows Phone goals, a nearly Google-free version of Android called AOSP powers most of those supercheap Android devices. They almost never are able to run new versions of Android -- in fact, even the middle-of-the-road Android devices are not guaranteed to support the next Android version.

"Nokiasoft" clearly gets the pain that causes buyers in those countries -- cheap phones are stuck running old operating systems, and the problems of a fractured ecosystem is starting to become apparent to app and service providers, as well as their customers. "Nokiasoft" hopes to be the better, more reliable platform for all but the poorest of the poor. After all, a phone that can be used for three or four years is usually a better bargain than one that has to be replaced even twice in that period.

"Nokiasoft" may make less on the hardware that way, but it creates the basis for where Microsoft expects to make the real money: from its cut of app sales and through its Office 365 subscription services.

In developed countries, a guarantee of future compatibility for a reasonable period is great for customer loyalty, and it reflects the fact that people are hanging on to smartphones longer than before, now that mobile technology's innovation pace has slowed.

What "Nokiasoft" is doing with Windows Phone compatibility seems obvious, doesn't it? It does echo Apple's successful financial strategy (Apple makes three-quarters of the profts in the smartphone industry while selling only a sixth of the devices), though with a greater emphasis on service revenues than hardware earnings.

But the AOSP cheap-at-any-cost approach of the last few years essentially made such a choice not that obvious. Apple has been strongly criticized for not going cheap, and even "real" Android devices have struggled against the disposably cheap AOSP phones. It looks like people in those countries are waking up to the negatives of supercheap, and "Nokiasoft" is wisely tapping into that realization.

Even better, not only is it the smart approach, it's also the right one if you want a long-term future -- which Microsoft sorely does.

This article, "Microsoft's smart strategy to take on Android," was originally published at Read more of Galen Gruman's Mobile Edge blog and follow the latest developments in mobile technology at Follow Galen's mobile musings on Twitter at MobileGalen. For the latest business technology news, follow on Twitter.

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