Is Microsoft really building its own Windows Phone? Well, building definitely. Planning to bring to market? I’m not so sure. And if they do, what does that really mean?
Microsoft has always been building Windows Phones. One of the original development platforms for Windows Phone 7 was a device that Microsoft Research designed for its own research efforts and then did a manufacturing run to give to the Windows Phone development team. And Microsoft has long done reference designs for new systems and offered them to OEMs either purely for reference or even for licensing to build and sell on their own. I don’t know if any of the WP7 or 7.5 devices were based on Microsoft’s designs for a hero phone, though I doubt it. Instead OEMs seem to have focused on taking their original designs (for Android or Symbian) and reworking them to meet the Windows Phone specs. So we can’t be sure that a leak about a Microsoft-branded Windows Phone is for a reference design they’ll use internally or is something they will actually bring to market.
Microsoft’s problem with Windows Phone isn’t with its OEMs. The crop of Windows Phone 8 devices is plenty compelling enough to compete with the iPhone and latest Android phones. Microsoft’s problem is with marketing and with its reliance on Carriers. Having their own phone gives them a channel to help address the marketing problem, but does nothing to solve the fact that despite all the rhetoric the carriers are OS agnostic. They just want your monthly service fee. And that makes selling iPhones and Android the path of least resistance. Stick a Surface Phone in an AT&T store and it isn’t going to get any more love than a Nokia Lumia 920 gets. And Microsoft’s own retail footprint is so small that it is immaterial. You aren’t going to impact market share by even a 100th of a percent by sales of Surface Phone’s through the Microsoft Stores.
What a Surface Phone would do is give Microsoft something to market directly rather than indirectly through OEMs and Carriers. I think they’ve concluded that promoting “Windows Phone” doesn’t get them anywhere. Verizon’s advertising for Droid phones, not the Android OS, made Android popular here in the U.S. People then walked into stores asking about a “Droid” and were sold whatever Android phones that carrier offered. Microsoft could advertise the heck out of a Surface Phone, with the real intent of legitimizing Windows Phone. If it offered said Surface Phone only through limited channels (as is the plan with Surface tablets), perhaps explicitly not including carrier stores initially, it would actually help drive sales of Nokia and other OEM devices.
But for a Surface Phone (or other Microsoft branded device) to really move the needle on Windows Phone market share Microsoft would need to somehow change the game in terms of the carriers. That is, they’d have to figure out how to take the carriers out of the loop. And that is a wildly larger challenge to consider than just introducing a phone with their own branding.
Hal's (Im)Perfect Vision 
Windows Phone was a poor name choice and the launch and subsequent update process was deeply flawed on virtually all dimensions. Which is too bad because the OS itself is some of the best work MS has ever done. I too am trying to figure out the logic of them making their own phone just as OEMs are finally releasing some half decent looking units. There doesn’t seem to be an obvious answer beyond having one more item to fill the shelves at their retail locations. But two things make me wonder if something broader isn’t going on. The first is Elop’s comments on this story, which sounded like things between MS and Nokia aren’t 100% (even by normal partner imperfection standards). The second is Ballmer’s recent comment about MS being a “devices and services” company in the future. Usually I’d just write that off as typical Ballmer fantasy, but perhaps there’s more to it. Maybe, like your last paragraph indicates, they’ve realized that in order to win they need to attempt to change the game completely.
Windows RT is also a terrible name choice.
“Windows Live” was also awful. Microsoft erased billions of dollars worth of brand equity when it threw out MSN. (Heck, even MSNBC doesn’t feel the need to delete “MS” from its name, even though Microsoft’s share was bought out long ago.)
Microsoft has good technologists, but awful businesspeople. Just look at all those wasteful acquisitions they made (and are still making).
“Devices + services” simply reflects the fact that Apple makes $350 in profit on each iPhone, while Microsoft takes in $25 in revenue (not profit) for each Windows Phone. This is worse than in the days of Mac vs. Windows. Clearly, the old OEM model is no longer working — heck, even Xbox managed to work its way into profitability. It’s a hardware world now, so Microsoft either has to participate or get left behind.
MSNBC no longer exists.
Well, I have to agree grudgingly. My friend was in the game for a new phone with a good enough budget to try the starter Lumia phones. Windows Phone OS + Nokia is so good a proposition that I immediately started lusting after them. But she told me, “all said and done it was a Windows phone after all.” Whaaat?
But I then explained to her how smooth and buttery its interface was, and it was Nokia after all! Grudgingly she accepted that one of her friend had one, and it was really spectacular. But she wanted android, because it sounded cool. It is a good thing Nokia invented the Lumia name, else Windows Phone would have been too dismal to make an impact at all.
“I think they’ve concluded that promoting “Windows Phone” doesn’t get them anywhere.”
But the recent branding of the upcoming HTC phones as “Windows Phone 8X” and “Windows Phone 8S” seems to show that Microsoft and/or HTC still has the (misguided?) belief that the “Windows Phone” brand still has some value.
I’m surprised at all these leaks about Microsoft’s rumored phone, especially after they’ve managed to keep the Surface tablet a secret. Even if it’s true, I’m not even sure if it’s smart to use the Surface brand for phones. They already have Surface RT which doesn’t run everything Surface Pro can. Then a Surface Phone that won’t share apps with the tablets at all. (Well, Samsung is following the same tack with the ATIV brand, so maybe it can work.)
As for keeping the carriers out of the loop, it’s been done before, with little success: Google’s first attempt with the Nexus One, Nokia’s Symbian smartphones in the US, Dell with the Venue Pro. Google’s $350 Galaxy Nexus is a pretty good deal for an unlocked, unsubsidized phone, but sales still pale in comparison to the Galaxy S III.
Possible solution: use software vendor MSFT partners to sell WP to businesses.
An information worker is a consumer at home. Once they have a WP, their iPhone will eventually be abandoned and no second phone for personal entertainment will be needed.
Meanwhile the business IT people will like that everyone has the same phone at work. Unlike carriers, the MSFT partners have an incentive to sell MSFT products.
These partners are one of the pillars of the MSFT sustainable competitive advantage.
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