Marketing Lessons Learned from Microsoft Smartphone

January 09, 2012

Friday, The New York Times had an interesting article about Microsoft's new Windows phone. The article's author, Nick Wingfield, details the strides that Microsoft has made to overcome its own mistakes. In coming up with its new smartphone OS, which is getting rave reviews in the tech world, Microsoft scrapped everything it had put into previous Windows phone. Essentially, already behind the competition, Microsoft started from zero, giving up even more market to Apple and Google.

I find this whole thing interesting for two reasons. First, the barrier for entry into the smartphone market is becoming increasingly more difficult. The maturity of the market is pretty impressive. Just five years ago, before the first iPhone, there were only a couple of consumer cell phones with real advertising. Mobile advertising was pretty much limited to the service providers. For those who don't remember, the market went something like this:

  1. I pick service provider with best price.
  2. I get free phone of my choice.
  3. I wait for my contract to expire.
  4. I then sign contract and get new phone from another provider.

This is pretty much how the process worked from 2000-2007. I went from T-Mobile to Cingular to AT&T which then turned into Cingular which then turned back into AT&T.

During this time, devices were secondary to price and reception in the area where you lived. With few exceptions, there weren't many must-have phones. The primary function was making calls, which was largely dependent on your service.

Of course, the iPhone completely changed that. Suddenly, the capabilities of the device became as important as the service provider. I even said things like, "Making phone calls is the least important thing I need from my iPhone." More importantly, the iPhone turned the cell phone itself into a status symbol. Now, it wasn't just important to have a cell phone, but you had to have the right cell phone. When a mixture of functionality and status come into play, my marketing juices get cooking. Now we can have some fun.

The other interesting thing about smartphones, and specifically the iPhone, is how it really changes the way the market operates. Unlike five years ago in the mobile industry, we know when millions of wireless contracts expire; freeing users to upgrade or move on to another wireless company.

Specifically, because of Apple's release schedule, we know that millions of iPhone users come due in June/July. The window probably increases to include May and August. For instance, I bought an iPhone in June 2009. Even though I now have an Android, I am still in the May/June window. I think it is fair to say that if you wanted to target the smartphone early adopter crowd when they have the fewest barriers to adoption, it would be during that window. Even still, that second tier of adopters--not quite early, but not late either--still fall into roughly that same window. From a marketing perspective, this means January through May is going to be an important time to get the message out there for Windows phones.

Granted, carving out a base from iPhone and Android users will be a difficult proposition for Microsoft, but it should make for an interesting marketing battle. The key will be identifying the real benefit of a Windows-based phone. The OS is getting great reviews for its look and feel (something new for Microsoft for sure), as well as its intelligent integration with social networks like Facebook and Twitter, but those aren't really differentiators. Even if it does SM integration better than the iPhone 4S and the Galaxy Nexus, I don't believe that puts a Windows phone over the top compared to the more established iOS and Android. And since I don't see many of these ads anymore, I am guessing they found that that wasn't a major driver for adoption either.

So what is the real benefit? Well, I think we can see the benefit Microsoft wants to push through its current commercial: Out of the box integration with Microsoft products--which neither Apple nor Google can claim. Tie the OS in with good phone and tablet hardware and now you have something that the Blackberry Playbook never managed--a valuable commercial-use tablet and smartphone.

Sidenote: I love OneNote. I used it extensively while in graduate school. It is a fantastic note taking application.

I know, I know. The iPad is already gaining ground in the business world and being adopted in all kinds of places. But that is the current environment with no real competitors. If there were no way for a company to overcome an established leader, Apple wouldn't exist today. It is about marketing and improving your product. Apple is the leader, and it has many strong qualities that make it a good company with a good product. But as Microsoft continues to come around to its shortcomings, it is only going to add more competition to the market. Also, don't forget that for the millions of people who have smartphones, there are still millions more who don't. Granted, convincing non-early adopters to go with an unproven technology can be just as difficult as luring away iPhone and Android users. But there is still a significant portion of pie up for grabs, which is to say while it is late in the game, it isn't over yet.

Also, don't forget that Microsoft has the Xbox Kinect, which is becoming incredibly popular. I would imagine that will be tied into advertising of its phones, which could be a huge selling point to a significant segment of the consumer smartphone market. According to Microsoft, they have 40 million subscribers to its Xbox Live service. I'd be willing to bet there is a sizable chunk of that crowd looking for a smartphone who might like having their Xbox on their phones. Additionally, more people are using an Xbox to stream entertainment content--again something that would be nice to control with your phone.

The point of all this is that Microsoft is in a good position to parlay across-the-board device integration into a solid selling point. And it looks like they are trying to do that. It is a good strategy. In fairness, it is their only option right now. But can it be enough?

I think it is undeniable that Microsoft has probably lost a generation of smartphone users. There is definitely a segment of users who won't come back from Apple or Android. Why? According to a GfK study in the UK, nearly 20 percent of consumers who own both an iPad and an iPhone say switching their smartphone is more difficult than changing bank accounts. They say the more integrated a person perceives their phone to be, the more difficult they believe it would be to change phones. This isn't groundbreaking by any means. But it is an important point when considering all the Google apps and their integration with Android phones. The road to wooing existing smartphone users appears fraught with danger.

But, the great thing about markets is new people are always coming along who have different brand preferences. I mean, if that weren't the case, we would still be drinking Schlitz Beer and brushing our teeth with Pepsodent.

If these numbers from 2010 hold true, OS retention rates for the big two are high. But, there is still plenty of opportunity--particular among Blackberry users. Microsoft is still Microsoft. Millions of people use its products, which makes a well-designed Windows phone viable. I think at the outset they are going to be competing for non-iPhone and non-Android users. But there are enough of those users out there to make a Windows phone competitive--they just have to target them well and deliver the goods.

What I find particularly poignant about this is that Apple is winning with a device that combines great design with functionality. Something Microsoft has struggled to understand with everything they created until Windows 7. On the other hand, Google is winning by having the foresight to develop free products that fit into a person's digital life. Where Outlook, Hotmail, and Office all failed to evolve quickly enough into a 21st-century world, Google swooped in with products that could match those capabilities (more in some cases, less in others) in a way that matched the needs of consumers. Microsoft had the products in place to be Google, but it didn't appreciate its customers or at least didn't understand them well enough.

That is the part of marketing people forget too often. Part of your job is not just understanding your product, but understanding the market. And, to some extent, being able to predict how it will change over time. That is the genius Apple will miss in Steve Jobs. The ability to understand technology and the needs of the market--not just delivering what they want but what people will want eventually. That is really where MS fell behind, by not recognizing the ways that its products needed to evolve.

I think the Hotmail situation is the one place where they are irretrievably sunk. I would never consider changing my email address at this point, just like I wouldn't change my phone number--there is just too much to undo in a switch. But I still use all the Office products and prefer them to the free, open-source alternatives. I love my Windows PC and would probably consider getting an Xbox given its Windows Media Center integration capabilities. Moreover, I have personally been really disillusioned with Google and the handling of the Ice Cream Sandwich upgrades. I know that part of the problem is the carrier involvement in supporting the upgrade, but at the same time that is the reason why I bought a pure Google phone--because I was supposed to not have to deal with that type of nonsense. Ironically, these marketing gaffes, the same ones that led to Microsoft's own falterings, are the type of openings that will allow its phone to gain traction in the existing market.

Thanks to Alex Hazel for contributing to this post.

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Jeff Francis is a marketing geek who would never refer to himself as a guru. He is that weird sort who enjoys watching commercials and analyzing communication strategies. He is also available for hire and would love to hear from you. So, head on over to the contact page and get in touch.

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