As Microsoft Updates Mobile Software, a Cautionary Tale

OCTOBER 14, 2013, 8:00 AM

As Microsoft Updates Mobile Software, a Cautionary Tale

By NICK WINGFIELD

REDMOND, Wash. — If Microsoft has learned anything while competing against Google in the Internet search business, it’s that Google clings to a dominant position like a squatter does a house. The lesson is a relevant one for Microsoft’s mobile phone business. Microsoft is discovering that gains in market share for its phones are incremental, slowly acquired and ultimately dwarfed by Google’s position. Just as in search, Microsoft steadily rolls out nice improvements to its mobile products, the latest batch of which are being announced Monday. At least in the past, though, these refinements have not created a swell of people who find them compelling enough to choose Microsoft over Google’s Android system.The update Microsoft is announcing Monday to its mobile operating system — its third to Windows Phone 8 — isn’t a drastic set of changes. There is support for quad core processors that can give more oomph to applications, support for higher resolutions on big-screen mobile phones and a new driving mode that limits notifications people receive when they’re behind the wheel.

The updates, Microsoft said, are one example of how the company is constantly chipping away at the reasons people have for buying iPhones and Google’s Android phones instead of Windows Phones. Microsoft has long been trying to fill holes in the app library for Windows Phone. The company is also buying Nokia’s handset business to strengthen its mobile products.

“We’ve seen our sales rate improving and improving,” Joe Belfiore, the Microsoft corporate vice president in charge of the design of Windows Phone, said in an interview last week.

But Windows Phone is still a very small part of the market. Its global share of smartphone shipments is expected to be 3.9 percent this year, said IDC, the research firm. Its share in the United States, where Apple and Samsung reign supreme, is expected to be even weaker at 2.8 percent, IDC said.

Microsoft is doing better in emerging markets where Nokia, which accounts for the vast majority of Windows Phones sold, is an established brand and where the smartphone business is at an earlier stage of development, said Kevin Restivo, an analyst at IDC.

In Mexico, for instance, Windows Phone is in second place, ahead of Apple but far behind Android phones. Microsoft is also eating share from a much-weakened BlackBerry.

But Microsoft’s slow progress in search offers a cautionary tale for its mobile efforts. Microsoft’s search engine, Bing, has steadily gained share in recent years to account for nearly 18 percent of searches in the United States, according to comScore.

It has accomplished the gains partly by stealing share from Yahoo, for which Bing has powered searches since 2010. The combined share of Bing and Yahoo has changed little in the last few years.

Google, meanwhile, increased its search share slightly, to 66.9 percent during that period, according to comScore. And the discrepancy means money. Microsoft had nearly $1.3 billion in operating losses in online services during its last fiscal year, while Google made more than $11.6 billion in net profit during that same time.

Can Microsoft do better in mobile?

At a recent meeting of Microsoft investors, Steven A. Ballmer, the company’s outgoing chief executive, stated the obvious, but in starker terms than he ordinarily does. “Mobile devices — we have almost no share,” he said.

He didn’t let the statement hang in the air for very long before adding, “But I’m an optimistic guy. Any time we have low market share sounds like upside opportunity to me.”

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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