I want to make a small point here about this week’s Windows Phone 7 launch from Microsoft. Now you can take this with a grain of salt given that I was an iPhone user until I switched this summer to Blackberry for my Startup Tour. So I am not exactly unbiased. But is it just me or are you, too, having a hard time seeing the $400 million that Microsoft claims to be spending on this product launch?
Redmond spent $100 million launching Windows 95, a number that set something of a record for its time and stood for long as the standard amount to spend if big companies were trying to make a point based mainly on the depth of their pockets. For Windows 7 (not Windows 7 Phone) I recall Microsoft set a new record, blowing-through $200 million. So when I read that they’d be spending $400 million on Windows Phone 7 — now this was something I had to see. I expected to find a Microsoft billboard on my garage door.
Given inflation (remember that?) $400 million doesn’t buy what it used to, but I still expected Windows Phone 7 to be as omnipresent as Windows 95 or Windows 7. And it’s out there, but the effort simply doesn’t feel like $400 million worth of marketing oomph.
But maybe this just isn’t the kind of oomph we’re used to, I thought. Maybe Microsoft is putting half or more of the money into subsidizing the handsets. If that were the case, though, wouldn’t the new Windows Phone 7 phones be cheaper than they are?
From what I have read these new phones are all around $200, which is the going rate for high-end smart phones these days on two-year contracts. So they are being subsidized, certainly by the carriers and perhaps by Microsoft, but the companies are just matching the competition: they aren’t trying to buy market share with lower prices.
I think that’s a mistake. I think lower handset prices right now are exactly what Windows Phone 7 needs to have a chance of building market share. Maybe that’s what Microsoft intended but the carriers are keeping the prices up by taking the Microsoft subsidies for themselves. If that’s so then the carriers are betting on Windows Phone 7’s eventual failure.
Maybe Microsoft had to give the carriers those subsidies in order to get enthusiastic adoption of yet another smart phone platform. This could all be more or less out of Microsoft’s control, much like getting Matt Lauer to correctly pronounce Steve Ballmer’s name on the TODAY Show.
How can you mispronounce a name like “Ballmer?” Lauer can, but I can’t even phonetically replicate his effort here, it was so strange (and he did it twice).
Microsoft is in trouble right out of the gate because the rule of thumb is you need two or more clearly superior points of differentiation in order to gain share from an underdog position in a technology market. I don’t think Microsoft has two.
Microsoft is counting on the innate newness of Windows Phone 7, on its clever streamlined interface, on what Redmond believes — really believes (I know these guys and they love their product) — to be superior performance. That’s plenty of points of differentiation only some of them aren’t real.
Microsoft isn’t Apple. Even Microsoft knows that. So the value of “new” isn’t very much in this case. It didn’t work for the Kin, did it? It didn’t work for Bob, either. New never works if it doesn’t also mean “better,” and this doesn’t — at least not yet.
While Windows Phone 7 may or may not be technically superior, it isn’t so much superior that I can make a judgement that will stick. These phones aren’t out yet, nobody has really used them, and they haven’t been proven on a network (remember Antennagate at Apple?). So Windows Phone 7 may be dramatically superior but who would know? Is the sizzle alone enough to keep us from buying or renewing an iPhone or Android phone while waiting for the Windows Phone 7 handsets to ship? I doubt it.
Then there’s the App Store, or sparseness of it. iPhone and Android have between them about 250,000 more native applications available than does Windows Phone 7. Ironically Microsoft is the underdog here, fighting uphill againsst its own favorite strategy of market dominance. I don’t doubt their heart or determination to do so, but this is new territory for Redmond and I’m not sure they can make it.
So if I was Microsoft and had $400 million marketing dollars to throw at this new platform, I’d make every phone cost $99 or less. I’d bull my way into the market through sheer financial muscle, sending signals all the way down to my Mom in Arkansas that there’s a new sheriff in town.
Only Microsoft didn’t do that.
Maybe they couldn’t force such pricing on the carriers. More likely they are holding price cuts in reserve to be used only if needed — if the market doesn’t otherwise respond to what Microsoft sees as its clear advantages.
I can tell you right now that’s a mistake. If the goal is to get consumers to wait before buying a phone there will have to be some economic component of that motivation in the form of dramatically lower prices.
Having not started with lower prices from the very first minute, Microsoft may well have already lost the battle, no matter how good the phones actually are.