Will Microsoft's Windows Phone 7 Series Bring Focus Back on End-User?

Software behemoth Microsoft is usually not the company that gets top-of-the-mind recall when someone mentions smartphones. Particularly, in the post-iPhone era, Microsoft's foray into building software platforms for smartphones has been turning into an eminently forgettable chapter. And it is not just mindshare, the numbers speak for themselves. Gartner has recently published its 2009 handset market share figures, and Microsoft's slide is evident. The company slipped from its third position in 2008 to fourth behind Symbian, RIM and Apple, accounting for only 8.7% of all smartphones shipped globally.

Microsoft appears to have recognized the precarious position that it is in, one bordering on irrelevancy in the market for a mobile operating system. And in a manner which is very un-typical of the company, Microsoft chose to tackle the problem head-on with its launch of the Windows Phone 7 Series, which despite being a mouthful, packs a punch. While Microsoft has take a completely different and bold approach to the design of the OS, it is more interesting to see the impact that Microsoft can have on the overall smartphone ecosystem, that increasingly appears to be to shaping up as a bubble that I had earlier alluded to, one dominated by an inordinate focus on mobile applications.

The smartphone market has been in a phase of hyper-attention (and strong growth too, I must add) for the last couple of years. More so with the significant attention that is being paid to applications and their ever-increasing download numbers, particularly from the Apple Store. This overwhelming focus on applications has meant that every player in the telecoms and handset space, and their neighbor, has an app store. However, increasingly, the discussion appeared to be veering so much towards applications, that the overall user experience and a primary focus on the end-user was probably lost along the way. While Apple offered a highly engaged audience for mobile developers, Android with its open approach promised to unshackle developers from the restrictive rules of Apple's vertically integrated ecosystem. Phone launches were accompanied by significant noise on how many applications that users can download. More worryingly, the primary target market for smartphone vendors appeared to be developers and how to bring them aboard. The implicit assumption has been that users will flock to the platform that has more applications. Take the recent announcement of the Wholesale Applications Community from the grand alliance of 27 mobile operators and device vendors which was clearly aimed at attracting developers onto a platform that they control. And this thinking is increasingly becoming more prominent. Indeed, a Wall Street Journal story suggests that the recent purge of risque apps on the Apple store might get developers to abandon ship and move to Android. Like most of the focus in recent times, the end-user is completely missing from the picture. The singular focus on developers is too hard to miss.

I am in no way denying the important role that developers get to play in the smartphone ecosystem. Indeed, I'd attribute the strong success of smartphones as a category to a potent combo of killer apps + high carrier subsidies. However, that should not be reason for any one stakeholder in the ecosystem to upend the consumer's position.

It is in this context that I find the Microsoft approach to a mobile platform refreshing. The UI in itself has eliminated the need for users to jump between applications. While it might be a tiny change in the overall context, however, I view that as indicative of the consumer returning to the forefront. It represents a design where the end-user takes precedence over all other stakeholders. Microsoft's presentation at the MWC has been remarkably bereft of a focus on applications. In fact, the company has gone on to the extent of not disclosing much info for the developer community, reserving it for a separate developer-focussed event.

Microsoft's focus on the consumer, and this time the enterprise category, with exchange, sharepoint and office functionality in-built is likely to work in favor of a significant proportion of enterprise users. In the smartphone space, players including Apple and Android vendors have targeted this segment as an after-thought. Driven by the idea that enterprise consumers can be a profitable proposition, multiple vendors and carriers have tried to push through smartphones into the enterprise, but haven't seen real great successes against the likes of RIM. However, Microsoft's Windows Phone 7 arguably holds the strongest potential for enterprise adoption, thanks to its native feature-set.

Microsoft has, over the years, shown that it has vision when it comes to desktop computing, user interfaces and the like; and this launch certainly proves that they have the potential and capability to boldly think out of the box when it comes to mobile platforms. However, it remains to be seen if this vision can be translated to execution. But as far as I am concerned, I believe Microsoft has already made its contribution in changing the course of the smartphone industry. By bringing the focus back on the end-user, it is forcing its current competitors to acknowledge and act. And in the long-run, despite the success or failure of Windows Phone 7, this development is likely to have a positive impact on the overall industry. Indeed, there are very few, if any, examples of industries that have thrived by focusing on any element of the value-chain that reads other than end-users.

Is a Smartphone Bubble Building Up?

The signs are getting clear by the day. What started off as a category created by a blockbuster product, is today being heralded as the savior of the mobile handset industry. Correction, the mobile industry in itself. Smartphones, and I am referring to the genre that has unleashed itself post the advent of the iPhone, have seen a smart uptick in sales in recent years. Driven by significant carrier subsidies in the US and elsewhere, and a renewed focus on mobile applications, this category has rapidly gained, both in user acceptance, and in industry attention.

Indeed, for the first time in years, smartphones, coupled with an open mobile ecosystem where customers are not bound by walled gardens, are helping in creating an industry of their own with stakeholders as varied as advertisers, ad networks, mobile developers, and others. Of course, the carriers and the handset vendors still figure in the equation, however, they appear to be increasingly dis-intermediated by either large Internet players such as Google or by innovative device entrants such as Apple, who have successfully recreated walled gardens of a different type. While all of this portends great for the consumer, however, the manner in which the hype is building up in the smartphone space, dominated by discussions over mobile applications, makes one wonder if there is indeed a bubble that's building up, across two of the important elements of this value chain, applications and devices.

The mobile applications space refuses to show signs of any letdown in activity. First it was the spate of announcements over mobile application store launches, and now the focus appears to be on other enablers of the value chain such as ad networks. Apple's App Store sure has seen a couple of billion downloads and a catalog of over 100,000 applications, however, the marginal utility of an ever-increasing number of apps is highly debatable. And not to be outdone, Google's Android marketplace has over 10,000 applications already. Which begs the question, how much is enough? For the consumers, discoverability becomes a huge hurdle, while for the developers, the ecosystem is beginning to act as a strong black hole. Sure there are AAA app developers who've struck it rich, but then, like in the case of any other content businesses, it is only a few apps that hit the jackpot. However, the mobile apps business sure is showing no signs of acknowledging this fact. To add to the overall confusion, multiple versions (Android 1, 1.5 and now 2.0!) of OS platforms are currently out in the market simultaneously, which has significant potential to alientate customers that can't figure out why a specific app is working on their friend's Android phone and not theirs. Yet, device vendors continue to create platforms to attract developers, Samsung's Bada being the latest to join the bandwagon. And with increasing apps, comes the realization of the need for monetization. And this is where ad networks like Admob hit paydirt. Their acquisition for $750 Mn is indeed seen as a validation of the potential of the mobile advertising space, and of course, without underplaying any of the value that in-app usage data that Google gets along.

On the device side, Apple continues to see rising sales. Forecasts are now coming in on how smartphones will likely make up for the bulk of handset sales 18 months from now! Players like Sony Ericsson and Motorola have kind of decided to go away from their low-cost handset focus and invest more on high-end smartphones. And we have even more new entrants in to the smartphone space. Dell, which has been on the fence for quite a while, has finally decided to take the plunge and is launching its smartphone in two of the world's largest emerging markets of Brazil and China. Android is now in to V2, with the Motorola Droid appearing to get early traction.

Rapid growth in any industry segment is always welcome. It indicates that there is significant previously unmet customer demand that newer products are meeting. However, the risk of such rapid growth lies in the possibility of over-the-top exuberance when it comes to estimating future growth. As a wise man once said, most forecasts are over-estimated in the short-term and under-estimated in the long term. Smartphones and mobile applications appear to fit this bill. One can only hope that the current hyper-growth phase is also likely to act as a natural shakeup with the result being fewer smartphone platforms, more open standards for mobile application development, an ecosystem that offers genuine revenue prospects for developers, ad networks, and advertisers, and most importantly, a top-notch customer experience, rather than morph itself in to an uncontrollable bubble.

Update 1: It didn't take long for the next major announcement in smartphones. Techcrunch's quoting unnamed sources that claim Google is close to launching its own smartphone ! Highly doubtful why they want to do that, given manufacturers are already making a beeline to adopt Android. Would Google want to compete with its partners? And more importantly, can Google ensure rapid adoption of its services through its own phone, as opposed to collaborating through the Android ecosystem. Nevertheless, up goes the hype curve !

Functional Ecosystems: The Need of the Hour?

In recent times there has been a lot of noise around ecosystems, and how open ecosystems, given Google's flashy entry, are now here to stay. In the mobile space, the transition to open mobile ecosystems appears to be happening rapidly, with traditionally open Symbian, having had to re-position itself, and older consortiums such as LiMo trying hard to tell people that they've been around for a while. Android in particular is increasingly being touted as the platform of the future. With reports coming in of Android deployment not just on smartphones, but on netbooks/set-top-boxes and what not, the clamour around the potential of these open ecosystems appears all set to rise further.

However, amidst this cacophony, it will be pertinent to take a step back and see what lessons existing systems have for us. Arguably, one of the most successful ecosystems in recent years has been the iPod-iPhone-iTunes combo. Apple has successfully created a completely vertically integrated system that made the user-experience a stroll in the park. Consumers were offered a simple way of downloading content/apps with billing tightly integrated. On the supply side, Apple maintained a stranglehold on pricing, availability and distribution. It stood up to content majors in deciding the pricing of single tracks, and it made the app store proposition attractive to mobile developers by keeping only a flat 30% retainer. The results are out for everyone to see. The iPod has become one of the best selling portable devices of all time, while the iPhone has set the cat amongst the device manufacturers aflutter.

The other successful ecosystem example in recent times has been the Amazon Kindle. The Kindle, in both its iterations, has consistently been sold-out, with varying sales estimates. Again, the Kindle too offers a vertically integrated ecosystem with mobile connectivity built into the cost of the device, and content availability driven by Amazon. Despite the high price tag, the simplicity of the offering, is attracting customers in droves. And like the Apple ecosystem, Amazon too exercises tight control over what can and cannot be viewed. And it is to Amazon's credit that by limiting, rather inconveniencing, usage of the Kindle, they can even charge for pulling RSS feeds !

In both these cases, consumers have shown a clear preference towards a simplified usage-experience, and one that is devoid of roundabouts. Consumers do not want to be bothered about confusing options around content discovery or billing. And this is something that device vendors, telcos and content players alike need to imbibe in future offerings. While early adopters will always be willing to go through a couple of hoops, however, hitting the mainstream will require players to bring elegant integrated and transparent solutions. Players along the value chain will increasingly need to collaborate in driving uptake. Traditional models that have worked in the past will not work in the future. For instance, while telcos have been able to get away with high revenue share for any third-party service in the past, increasingly, they will have to come to terms with the changed reality and accordingly price their role in a ecosystem. A delay in doing so will hurt everyone involved in the process. Amazon's attempts at launching Kindle in Europe have apparently been stalled due to breakdown of talks with telcos on revenue-share and pricing of connectivity. Likewise, Nokia's attempts at easing consumer hassles by having integrated carrier billing are slowing up their rollout of Ovi Store, giving its competitors strong headway.

It is indeed true that advent of digital media has had a strong impact on existing business models, however, the true benefits of digital media can only be achieved if and when competency-based collaboration kicks in the industry. End of day, as the Kindle and iPod/iPhone examples have shown, consumers are least bothered with the question of an open or closed ecosystem, all they crave for is a functional ecosystem which meets their needs!

Is Apple Making its Biggest Push for Enterprises Ever?

Is Apple getting ready to finally change gears and look beyond the consumer market? That is what appears on the surface given some of the recent moves coming out of 1, Infinite Loop.

In the rapidly evolving smartphone space, Apple's version 3.0 of its iPhone software marks Apple's biggest move to challenge RIM's domination in the enterprise space. With support for push email, Exchange, voice memos, and (finally!) copy/paste support, the iPhone now appears an option that enterprises can consider. Add to that, support for remote data wipe, hardware encryption, and tethering, and you now have a compelling smartphone, that can finally do all that has been done by a lot of other phones, but in a much more smarter and user-friendly manner. 

The App store that Apple has built also brings a key differentiating point to the table in its favor. While RIM and Microsoft are now making moves into the app store arena, Apple's app store already offers a straight-forward and tightly integrated solution for downloading apps. While enterprises will continue to have security issues around making available their internal apps on a public list, however, it is quite possible that Apple can create customized app stores that allow enteprises the security and privacy that they so desire in creating and pushing applications to their employees. 

Sure, there are a host of challenges that Apple still needs to surmount if its devices/software can even be considered for an enterprise-deployment scenario. However, Apple has its best shot at gaining a foothold in enterprises with its iPhone. With mobile workers requiring increasingly 'smart' devices, and the growing appreciation of vertically integrated solutions, such as the iTunes-iPhone combo, it is only but natural that enterprises consider the iPhone as a compelling alternate to the Blackberrys. It also helps that the iPhone has been seeing what can probably be described as the best growth ever for any smartphone. Apple, though, will have to ensure that it does away with its current adhoc approach and bring more transparency, and a sense of stability to its software release process if it hopes to convince enterprises to sign up.

The App Store Gold Rush

Describing the current flurry of announcements around app stores as anything but a gold rush would be an understatement. Driven by the wild (?) success that the Apple app store has seen, operators, online players, and device manufacturers are making a beeline to courting developers with promises of riches unseen ! With majors such as Nokia, Microsoft, RIM, Vodafone, Verizon, France Telecom, and China Mobile committing to either launch app stores and/or greater co-operation with developers, competition for the consumer's discretionary spending on mobile apps/content is only set to increase. And not to forget, the ubiquitous Google, with its Android Market, which appears to be seeing strong traction with the first wave of customers. However, lost in all this cacophony is the increasing fragmentation that is likely to set in once all these app stores are launched. While Apple has had a strong success with its version, however, a large portion of that success can be easily traced to the limited portfolio of its devices (all of two-iphone and ipod touch), however, the same cannot be said for other app store operators. Numbers are being bandied about on how Apple's store crossed, in two years, the number of apps that Microsoft took over 9 years to build. What is clearly overlooked in this apples and oranges comparison is how apps built for a windows Mobile platform are meant to work on a much wider range of handset portfolio. Ensuring mass customization by using a narrow range of devices, as in the case of Apple, significantly reduces development, porting, and testing costs for a developer.

While development costs are one aspect of the complexity that having multiple platforms entails, a larger problem would be to encourage adoption beyond the early adopters and uber geeks, for creating an efficient billing platform is certainly no stroll in the park. Most of these app stores have exhibited an intention of cutting off the mobile operator from the picture, thereby complicating the billing mechanisms, and consequently risk alienating significant portion of the user base that would prefer the convenience of tying all mobile-based purchases to the carrier bill. And this is where mobile operators believe they can drive home their advantage. The announcements from China Mobile and Verizon need to be seen in this light. AT&T as well appears to be taking early steps with its App Beta program. In Europe, Orange too appears to be hitching the app store bandwagon.

The success that Apple has seen can be clearly traced to the virtually complete control that it has of the value chain; right from the device to the software, to the iTunes interface, to the payment mechanism, and in some cases, down to the operator (thro' exclusive agreements) ! However, the same is not really viable/practicable for any of the other new entrants. Fragmentation is a reality that they have to adapt to. And consequently, they might never be in the same league of the Apple app store. And more importantly, whether they like it or not, it will indeed be very challenging for either content companies or device vendors to create alternate mobile payment gateways bypassing the carrier billing.

The app store phenomenon will likely act as the final nail in the coffin for operator walled gardens. It remains to be seen how operators ensure they can find their collective bearings and work towards creating an ecosystem that offers value to the customer and monies to their pockets !