Let me start out by saying this is totally speculative on my part, I have no information that suggests what I’m about to describe exists anywhere in Microsoft’s thinking.
Microsoft has a huge amount riding on the launch of Windows Phone 8. OEMs have already announced compelling devices. Windows Phone 8 itself seems (which is all we can say since Microsoft has still not fully revealed it) quite compelling. The carriers are largely saying the right things. Now the devil is in the details. Which devices on each carriers at what price points. How committed are the carriers to marketing and selling Windows Phone? What will Microsoft itself do to promote Windows Phone 8? Will the concurrent launch of Windows Phone 8 and Windows 8 help or hurt the phone efforts? Etc.
It won’t take long, perhaps as little as 3-6 months, to get a good read on where Windows Phone 8 is going. Either Windows Phone market share growth accelerates substantially or it doesn’t. The worst outcome is that it accelerates somewhat but that you can’t draw a conclusion about where it will be in a couple of years. But assuming the growth rate accelerates to the point where talk about Windows Phone being the third major ecosystem goes from wishful thinking to accepted reality, Microsoft probably sticks to its current strategy.
But what if Windows Phone 8 doesn’t take off? If WP8 doesn’t take off why would anyone think that a Windows Phone 9 would? To put it bluntly, either WP8 is a winner or Microsoft has no role to play in the traditional mobile phone marketplace. So what is Plan B?
I’ll start with the recent Steve Ballmer revelation that Microsoft is becoming a “devices-and-services” company. Some people think this was just a random statement in an interview, but I’ve heard Steve has been using this phrase internally for well over a year. And certainly there have been multiple revelations over the last year that support this as being baked into the strategy rather than just a recent observation. So what if Microsoft brought “devices-and-services” to the mobile phone market?
Just coming out with a Microsoft-branded Windows Phone isn’t what I’m talking about. And sure Microsoft has some services tied to Windows Phone. But I’m talking about something bigger. If Microsoft truly can’t crack the traditional mobile phone market, how could it disrupt it?
Before I go on I know you’re already thinking that Google tried to disrupt the traditional mobile phone market with the Nexus One. Really? Coming out with your own unlocked device that you only sell online constitutes disruption? Coming out with a device that you still had to get service from a traditional carrier constitutes disruption? Google’s attempt was half-hearted and a losing proposition for most end-users. It was good as a “North Star” kind of offering to drive OEMs, but never constituted a real challenge to existing market dynamics. Forget them as a data point.
A real challenge to existing mobile phone market dynamics requires you to remove the carrier business relationship from the consumer experience. That seems like an almost insurmountable challenge to me, yet it is exactly what a Microsoft Plan B would have to do. Microsoft would need to find a way to sell a complete and compelling mobile “devices-and-services” experience that it controlled from end-to-end.
That Microsoft would have to build its own phone is a given in any Plan B. That’s the easy part. The hard part is what to do about the carriers. No, Microsoft would not acquire one nor build out a physical network of its own. That’s both impractical (on a global scale) and financially foolish (given how capital-intensive it is). But it could become a Mobile Virtual Network Operator (MVNO). Microsoft would then be capable of selling an end-to-end experience that included the device, the underlying communications service, and added value services such as music streaming.
By going the MVNO route Microsoft would be freed from carrier decisions about which phones to carry, how to price them, how to promote them, how quickly to update them (!), who shares in what parts of the subsidy pie, lock-in terms, etc. It would own its own destiny. On the flip side, it would lose the carriers’ large retail footprint and healthy marketing budgets. And carriers have developed new techniques, such as family plans, that make switching very unattractive for the consumer. But if WP8 fails using the traditional carrier model, this is a tradeoff that Microsoft would be forced to make.
In order to succeed with an end-to-end strategy Microsoft would have to accelerate the growth of its own Microsoft Store retail footprint world-wide. It would also have to forge new retail partnerships to replace the large carrier retail footprint. Just using the U.S. as a model, a strong partnership with Walmart (which fyi already has its own MVNO) to go after entry-level and budget sensitive buyers would be crucial. A partnership with Best Buy, whose focus has been shifting towards Mobile, would give it a nationwide footprint aimed at the heart of the market. There are plenty of other opportunities to build a good retail presence, such as Radio Shack, Target, Cartoys, Staples, etc. Microsoft has existing (non-phone) relationships with almost all the players, but it would require a substantial investment to build those into what is necessary to succeed in the mobile phone space.
Microsoft would also need some unique angles in order to differentiate their offering, and allow for unique marketing efforts. One that comes to mind is a focus on landline replacement. Freed from traditional carriers resistance to alternatives to their voice and SMS services, Microsoft could seamlessly integrate Skype into their end-to-end experience. Not only would this allow Microsoft to reduce the amount of bulk service the MVNO must acquire from the underlying carrier networks, it offers the possibility for all kinds of interesting home and office configurations.
There are many other areas that Microsoft can differentiate on, such as customer service. Which is to say that the approach I’m describing offers amazing opportunity, but is also fraught with risk and expense. I haven’t even touched on the fact that this would launch Microsoft into a regulated telecommunications business.
So there it is, a Plan B for Windows Phone. Put simply, it’s go it alone. Truly alone with regard to the existing mobile phone market. Is it a crazy idea? Yes. Could it happen? Yes. Could it succeed? Your guess is as good as mine.
Google has toyed with the MVNO approach, but there are no signs that it is actually going to try that route as a strategy. Imagine if Microsoft followed this approach out of desperation, and Google did it out of its longstanding desire to disrupt the current carrier model. Google’s efforts would help legitimize Microsoft’s, and between the two they would indeed represent a threat to the current carriers. At the first hints of success others, such as Facebook, would likely jump on board with their own offering. This would be one of the rare cases where the interests of the software/internet companies truly converged. In fact converged to such an extent that it challenged the telecom industry’s status quo. And that my friends would be true disruption.
So now we wait and see if Windows Phone 8 succeeds in the market using a traditional business model. And if it doesn’t, then we’ll see if Microsoft has the stomach to try to change everything.