Microsoft and its Mobile

Among the companies that develop smart phone OS, Microsoft is the only company that does not manufacture its own smart phones. Apple, owner of iOS, makes iPhone, and RIM makes the Blackberry. Although Apple does not have their own phone manufacturing capability, they are producing reference phones by partnering with HTC, Samsung, and LG. Microsoft has been introducing Windows based phones through Nokia Lumia series, but its market share is minimal. On the other hand, Google Android is taking up the market by providing wide range of product lines manufactured by Samsung, HTC, and LG, reaching various segments of users. I think it is a legitimate plan for Microsoft to consider making investment to start manufacturing its own phone. Microsoft already made a huge investment in Nokia, so perhaps going further and acquiring Nokia for their manufacturing capabilities could be a possibility. Additionally, Microsoft already have experience in producing hardware from xBox and recently from Surface, and its wide distribution network will allow them to more efficiently push sales for their devices compared to slowly dying Nokia.

If manufacturing Microsoft’s own smart phone sounds too extreme, then Microsoft should at least consider producing reference phones as Google has been doing. Because Microsoft is the one that understands its Windows platform the most, it would make sense for them to design a phone that is optimized to their platform. By doing so, users will become more accustomed to Windows mobile environment, and phone manufactures can focus more on improving their hardware. It would be at Microsoft’s advantage to provide reference phones as they can consistently provide guidelines on the future development of its Windows phones to its manufacturers and users. It is for the same reason why Google is producing its Android reference phones. As many manufacturer produce Android based phones, there are differences emerging between devices around screen size, buttons, and user interfaces.

The most critical reason for Microsoft to develop its own smart phone is to hedge against its possible repercussion against its high license fee on its Windows OS. The biggest factor that hinders manufacturers to produce Windows phone is its high license fee compared to Android, which is provided for free. Not only there are intense price war in the mobile device market as these devices are becoming commoditized, but also Microsoft does not have any market power to demand premium for its Windows OS. It is natural that manufactures will not take on that extra cost to produce Windows phone especially without enough demand from users. It is similar as the Surface case. The sole reason why Windows ventured into manufacturing its Surface is because they recognized that the price has to be competitive against iPad and Kindle Fire to be successful. However with its high license fee, manufacturers had no choice but to increase the price of the device, decreasing its attractiveness to customers. By manufacturing their own smart phone, Microsoft can hedge the risk of manufacturers’ refusal of producing Windows phone as well as determining appropriate level of license fee from actually having experience in manufacturing phones and understanding the cost structure.