Microsoft's attempts to crack the mobile market have thus far failed.
The latest comScore data shows it is still losing marketshare in the U.S., even with critically acclaimed phones from Nokia. It's in fourth place, behind Research In Motion, and far behind Apple and Android who are running away with the market.
As a result of being backed into a corner, it apparently now feels the need to make its own smartphone, putting it in direct competition with its most important mobile partner, Nokia, as well as other manufacturing partners like HTC and Samsung.
Our snap reaction to Microsoft's decision to make its own phone is that it's a big mistake. On further reflection, we think it makes sense. Microsoft is pretty much screwed either way, so it might as well go down swinging and make its own phone.
We laid out the reasons for Microsoft to skip making its own phone. They're pretty straightforward, and obvious.
The main point is that Microsoft's smartphone partners are making really good phones. The Lumia 920 looks great. The HTC Windows Phone 8X also looks like a solid phone. This is the key difference between the smartphone market and the tablet market. Microsoft's computer partners were not going to make great tablets, therefore it had to build the Surface. With smartphones, Microsoft doesn't have to make a phone. It can trust its partners to make good hardware.
This argument is weak, though. As long as Microsoft makes a phone that's as good as Nokia and HTC, then that's good enough.
It all comes down to the look of the hardware, the software, and the marketing of the phone. If Microsoft can make a good looking phone that competes with its partners, then markets it well, the Microsoft has as good a chance as anyone.
But won't Microsoft infuriate its partners? We've got two words to say about that: Who cares.
Nokia decided to bet the company on Windows Phone software. It has no choice but to work with Microsoft. HTC just made a huge investment in Windows Phone, building the 8X from scratch. It's not going to throw in the towel on that effort right away. Plus, HTC isn't exactly doing all that well with just Android. It needs Microsoft.
Besides, the entire idea of competing with partners is overblown. Imagine if Apple suddenly had a change of heart and decided to license iOS to anyone in the world. Do you think HTC, Samsung, and even Nokia, would pass on using iOS because Apple makes iPhones? Of course not. Those companies would immediately jump at the opportunity because iOS is good software people love.
If, against all odds, Microsoft builds a phone, and it's a smash hit, it's good news for HTC and Nokia. It means consumers want Windows Phone 8 software. Nokia and HTC will be able to go to consumers with alternative options to Microsoft's phone.
There's another reason for Microsoft to do its own phone. The Windows business model that once made Microsoft the most valuable company in tech doesn't work in mobile. It can't charge partners $80 for Windows Phone software. It charges much less, thus making less money. If it can sell phones, and copy the Apple model of charging carriers $600 for a phone that sells for $200, then it could net $400 per phone, which is obviously much better.
Most importantly from Microsoft's perspective, the Nokia and HTC phones are not working. We can't emphasize this enough. We want to shout it: Microsoft's current plan is not working!
So, it can stick with Nokia and HTC because it doesn't want to hurt their feelings, or it can strike out on its own and take a chance building and marketing its own phone.
When you think about it like that, Microsoft making its own phones isn't a crazy decision, it's Microsoft's only decision.
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