As Microsoft focuses on mobile, Windows 10 will be key

The success of any new Lumia smartphones unveiled Tuesday is uncertain

windows 10 phone mobile desktop
Credit: Reuters/Thomas Mukoya

Windows 10 -- and the fate of Microsoft's smartphones -- will be front and center at the company's event Tuesday as the Redmond, Wash. developer highlights its focus on mobile with expected announcements of new Lumia smartphones, the next Surface Pro 2-in-1 device and an updated Microsoft Band smart wristband.

The live event, held in New York, will be Webcast at 10 a.m. ET (7 a.m. PT).

Windows 10, released in late July, will likely run on all the new devices, with cross-platform functions that aren't yet completely understood or fully appreciated by most users. To wit: If a new Lumia smartphone with various apps can easily complement software running on a Windows 10 desktop PC, laptop, tablet or Surface Pro, then the Lumia could be seen as a powerful tool -- especially for business users.

So far, however, Microsoft hasn't done well with Windows smartphones; it garnered just 2.8% of sales in the second quarter of this year, well below the 84% share for Android and 12% for Apple's iOS, according to Gartner numbers released in August.

Tuong Nguyen, an analyst at Gartner, agreed that Microsoft has faced a "tough go at targeting the mass market" with its smartphones. And any Lumia announcements on Tuesday won't trigger an immediate turnaround.

"The focus with Windows 10 seems to be the bigger picture," Nguyen said. "Their hope is to have Win10 be a platform that appeals enough for consumers that they will opt to carry that brand and experience over to the phone and tablet world."

But that carryover effect, Nguyen said, is more suitable for mature markets like the U.S and the U.K.,where consumers are more likely to use PCs. "Developing markets tend to be mobile-first or mobile-only, so they could potentially overlook Win10s' [cross-platform] benefits. As such, this narrows [Microsoft's] addressable market."

In that scenario, it also doesn't help that smartphone sales have slowed in developed countries, while the biggest growth is in emerging markets.

Nguyen also questioned the value of a Lumia smartphone for the enterprise user, since many businesses rely on a bring-your-own-device approach, which has heavily favored iOS and Android smartphones. "Consumers have a hard time associating Microsoft with mobile," he said. "As the market becomes increasingly mobile, it only becomes more of a challenge for Microsoft to get a foothold."

Patrick Moorhead, an analyst at Moor Insights & Strategy, saw more opportunity for Microsoft.

"Extending a Windows 10 experience alone won't move masses of consumers over to Windows 10 smartphones, but I do see potential for enterprise phones," he said. "Microsoft could have success in enterprise phones with Windows 10, but they have to provide the apps and security that businesses expect, but be close enough to a consumer look and feel so employees will accept them."

Another problem Microsoft will need to move beyond: The acquisition of Nokia in 2013 that was widely seen as disastrous. In July, the company wrote off $7.6 billion as an "impairment charge" related to that deal.

On the other hand, the Surface Pro -- billed by some as a tablet, but advertised by Microsoft as a 2-in-1 that functions as a lightweight laptop when a detachable keyboard is added -- has done better than the phones. The Surface line, driven by the Surface Pro 3, was up 24% for the fiscal second quarter, topping $1.1 billion, Microsoft reported in January.

Both Google, with its new Pixel C tablet and Apple, with a larger iPad Pro on the way later this year, are competing in roughly the same market as the Surface Pro.

"When you include the PC and 2-in-1 alone, the Windows 10 platform is valuable," said Moorhead. "Neither Google nor Apple has been able to take meaningful chunks of business out of the PC space. Volumes aren't growing, but they're not shrinking like the tablet market. And now, Apple and Google are doing 2-in-1s, a testimonial to the strength of the Windows platform."

If new Lumia smartphones are seen as secondary in importance to a new Surface Pro 4, an updated Microsoft Band would fall into third place in importance. The $200 band first went on sale nearly a year ago, but was quickly out of stock.

Microsoft advertised its original Band as a way for users to experience the Microsoft Health app, so the question to be answered is what kind of new functions can be added to the next-generation device.

This story, "As Microsoft focuses on mobile, Windows 10 will be key" was originally published by Computerworld.

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