If you are thinking of investing in Microsoft stock in anticipation of the earth-shattering impact of windows 8 on smartphones, tablets and other portable devices, you might want to hold off until you read the following news. As we have already reported before, Microsoft has been seen as a hapless bystander in the landgrab for smartphone marketshare. Its partnership with Nokia has failed to register an impact. Judging solely from its current beta download pace, its windows 8 operating system doesn’t appear to be gaining traction in the fast-growing and highly competitive mobile device space at this point in time . No wonder, the software giant has decided to release its Surface tablet hardware in a bid to stay relevant in a world that is increasingly out of its control. And it is such a fast-growing and lucrative market that Microsoft is increasingly finding itself shut out off.
Case in point: Smartphones
Apple and Google collectively have overthrown the previous category leaders in the mobile phone market. Only a few years ago, Research in Motion’s Blackberry and Nokia’s wide-ranging product line completely dominated the smartphone and mobile phone market. The share of smartphones is beginning to increase as cheaper and cheaper phones are beginning to get up at that. One cannot be really faulted for thinking that there is a big difference between a cheap regular phone and a smartphone. The massive spread of Android, the free operating system from Google, has really made price point an irrelevant issue. Cheaper and cheaper smartphones are entering the market because the Android OS is free. It’s open-source software. As such, the price-barrier that used to protect Nokia has disappeared and its marketshare has decreased tremendously. The same story applies to Research in Motion’s Blackberry phones. This used to be the dominant leader in mobile business productivity communications but given the versatility and flexibility of both Android and the iPhone, Blackberry’s share has continued to erode. Within the next five years, it is estimated that the percentage of smartphones among all phone sales will reach 75%. This poses a tremendous opportunity for Google and Apple as they continue to brush aside Nokia and RIM.
In the first quarter of 2011, Android accounted for 36% of the global smartphone operating systems market. In first quarter 2012, the Google OS accounts for 59%. Apple’s iOS operating system grew from 18% to 23% year over year on the first quarter. This signals a very worrying trend for Microsoft and other OS makers. In addition to these changes, Google’s business strategies are quickly migrating towards achieving greater control over its operating system. One key manifestation of this is that Google is looking to increase its advertising revenue from its Android platform. This is very different from its current revenue model of generating ad sales and ad revenues from web-based views and web-based searches. These new revenue focus center on Android OS itself. Another point of departure is Google is now shifting to manufacture its own devices. This gives more control instead of merely giving free software to hardware manufacturers so they can increase their marketshare. Considering the huge market change, it would not be unexpected that in the first quarter of 2013, we would be seeing even more dramatic changes in the space.