Why It Doesn't Make Sense For Microsoft To Make Its Own Phone

Business Insider

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Steve Ballmer

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Since last October, Microsoft has been reorganizing itself around the idea that it's a "devices and services" company

The company has plenty of services, but not so many devices. If it's really going to become a devices company, then it stands to reason that it needs a few more devices. 

The most important missing device from Microsoft's line up is a smartphone. So, naturally, it would make sense for Microsoft to build its own smartphone, right? 

Well, never say never, but we don't think Microsoft is going to enter the smartphone business despite the fact that it's focusing itself on devices and services. 

There are three reasons for Microsoft to steer clear of the smartphone business: 

1. Carrier distribution is complicated. 

2. Nokia and HTC are making good Windows Phones. 

3. Microsoft's Windows Phone failures don't have anything to do with bad hardware.

After Microsoft released its own tablet, the Surface, chatter of a Surface smartphone started kicking up

There are, however, many important differences between the tablet market and the smartphone market.

In the tablet market,  Microsoft  just has to ship the Surface and let users fire it up with WiFi. 

To enter the phone market, Microsoft would have to build a global distribution network, as well as secure contracts with carriers around the world.

Each carrier is going to have its own specifications, and its own demands. That's a headache Microsoft doesn't want, or need. 

Look at Apple. Despite selling the most influential phone,  it's only on 240 carriers . Samsung, by contrast, is on 800 carriers.  

This is part of the reason Apple's iPhone isn't winning on market share, while at the same time the iPad remains relatively strong in tablet market share. 

There's another key difference between the Surface tablet and the current smartphone market. 

Microsoft's PC partners weren't making great computers with strong brands. 

Quick quiz: What's the best Android smartphone on the market?

If you're paying attention at all, you would probably guess the Samsung S4, or maybe just, Samsung. (The correct answer is actually the HTC One, but that's another story. The important thing here is that there is at least one well-known Android brand for hardware.)

Next question! What's the best Windows-based computer on the market?

You're probably stumped.  This is a problem for Microsoft.

If a consumer walks into Best Buy, he or she has no problem asking for a MacBook, or an iPad. Which Windows-based PC would he or she ask for? An Acer Aspire S7? An Asus Zenbook Prime? The Sony Vaio Pro 13?  They don't exactly roll off the tongue, or come to mind very easily. 

The hope for Microsoft is that the Surface can become a strong brand that rivals iPad, or MacBooks. Consumers can walk into a store and say, "I want a Surface."

Microsoft wanted to have at least one premier Windows 8 device when it launched Windows 8 last year. Because Windows 8 was such a radical departure from what Microsoft had been doing, it had to have at least one device it could confidently say did exactly what it wanted. 

Its PC partners were dragging their feet in the tablet market, and Microsoft wasn't sure it could rely on them to produce something that competes with the iPad. 

In the smartphone market, these problems don't exist to the same degree.

HTC and Nokia both make high-quality hardware. There's almost nothing Microsoft can do that will be better on the hardware side than either of them. 

As for branding, Nokia's Lumia brand isn't exactly killing it, but Nokia is a brand on its own, and Windows Phone is slowly developing into a brand. 

If a consumer walks into a Best Buy looking for a Windows Phone, it won't take much to get the best Windows Phone in his or her hands. 

It's important to note that Nokia and HTC are both sickly companies. If they were to face serious financial problems, then we would expect Microsoft to either step in with a big check to bail them out, or it would be forced to go on its own and make a phone. 

Until then, we think it stays out of the phone manufacturing business. 

Just because Microsoft is developing into a devices and services company, it doesn't mean it has to make all the devices. It just means it has to work well on devices. 

The reason Windows Phone hasn't caught on has less to do with hardware, and more to do with software and apps.  A Microsoft-built smartphone wouldn't change that. 

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