With Android plateauing, can Microsoft take advantage?

With Android plateauing, can Microsoft take advantage?

In the second quarter of 2013, technology company Google's Android based mobile phones comprised 90% of the total smartphone market in India. Seattle-based Microsoft's Windows OS for mobile phones stood second, though with a paltry 5%. Android had similar market share in Q1 as well. BlackBerry and Apple took the rest of the sizeable market. Some industry analysts feel that Android has probably peaked, though a sizeable minority still does not buy this.

In the United States, according to research firm Kantar Worldpanel, Apple's smartphone market share for the three-month period ending July 2013 has increased to 43.4%, up from 35.6% of the corresponding quarter of previous year.

Windows also jumped up a half a percentage to 3.5%, a 17% year-on-year increase. However, Android dropped from 58.7% market share to 51.1%, inviting scrutiny on whether the OS is already past its prime. "Probably it has saturated the market or may be a a couple of percentage points away from the peak either way," says Shiv Putcha, a principle consumer analyst with telecom consulting firm Ovum.

Experts say that Microsoft's acquisition of Nokia has come at the right time, if it could seize the opportunity. "Android's decline in sales is due to its decreasing share of first-time smartphone buyers, a key consumer group in the US, as over half of the market still own a basic feature phone," says Kantar Worldpanel.

In India, smartphones still accounted for 15% of the total mobile sales in the second quarter. And the sales almost grew three fold year-on-year during the second quarter. The market is big enough and growing rapidly. Analysts feel that Nokia has a big brand image in the country and still has time to capture a big slice of the smartphone market. But to take advantage of the opportunity Microsoft faces two tricky situations that is Android's strength and weakness.

The battle for emerging markets is driven by costs. Samsung might be the cheerleader for Android globally, but the ecosystem is not a monolithic. Android does not even have a Google identity in China, where most of its products are banned, and the players have separate App stores to boot. In India the largest Android sales comprised of innumerable small players and Samsung accounted for well less than a third of all Android phones sold. Samsung might be cornering most of the profits derived by original equipment manufacturers (OEMs) who are using Android, but its dominance in emerging economies has to do with the success of local minions.

Experts feel that most of the consumers were willing to go for a smaller brand in favour of more features or a bigger screen. According to IDC, almost 30% of the total smartphone sales comprised of phones that had screen sizes between 5-7 inches. Reports suggest that Nokia is also set to launch many models with various screen size options. Earlier there were talks that Microsoft was talking to many local players in various countries to bring cheaper Windows phones. With this deal, the other device manufacturers will be wary of Microsoft, say industry analysts.

The recently launched Lumia 520 helped Nokia pick up volumes towards the lower end, says IDC. The dedicated advertising and marketing push towards positioning Lumia phones as a quicker and cooler replacement to other brands is working in its favour, it notes. "Hardware is highly commoditised with every possible screen sizes, processing power and memory out there. Microsoft has a chance to differentiate with software and build quality, the way Apple has done successfully, but at much lower costs," Putcha says. He feels that an aggressive roll-out of cheaper devices is on cards along with bringing Asha feature phones more in line with Windows OS and App store.

The $7.2 billion acquisition is also expected to open up possibilities for Microsoft to lower its mobile OS licensing costs, thereby bringing down the total cost of owning a mobile device. "Nokia also gives Microsoft an enhanced access to emerging markets with an access to widespread channel partner and hardware manufacturing ecosystem," IDC says in a note.

Microsoft seems to understand the issue well and has its focus on emerging economies. "Today's agreement will accelerate the momentum of Nokia's devices and services, bringing the world's most innovative smartphones to more people, while continuing to connect the next billion people with Nokia's mobile phone portfolio," Microsoft says in a press statement.

Another issue Microsoft faces in India, according to Putcha, is its lack of connect with consumers in the country. Microsoft, which has a strong enterprise connect and success in India, does not have had a strong consumer product. Its mail, maps and search products usually comes after Google and Yahoo in brand recall. "Unlike in US where most of the consumers who buy phones already has a Windows computer, their Office products, Xbox; in India they don't have any recall value and hence need to invest a lot in building the brand. With Nokia, they have a strong reason to do that," Putcha says.

The acquisition has the potential to be highly beneficial to Microsoft as it would help build a stronger and wider mobile (tablet and phone) presence. "A greater benefit might be to the broader market (especially India) where the adoption of smartphones might be accelerated and a more robust mobile app ecosystem would be formed," says IDC in a note.

According to Tony Cripps, principal device analyst at Ovum, the future of consumer technology industry more generally and a symbolic end to the mobile phone industry as we have known until today has ceased to exist. "The sale of Nokia's mobile phone business demonstrates conclusively the need for major consumer technology vendors to create ever deeper and wider offerings to consumers and ecosystem participants in terms of their device, platform and service offerings. This approach is no longer simply an option but a pre-requisite to competing successfully in this highly converged market," Cripps says.

Microsoft feels that success in phones is important for success in tablets; and success in tablets will help its PC business. Most of the Microsoft products are now offered as services on most of these devices. It also feels that the acquisition protects the future of the Windows Phone, which is highly concentrated with Nokia, with 80% share among Windows phones sold. "First party hardware ensures Windows Phone presence; OEM model alone expensive in this market position," says a Microsoft presentation.

Nokia's Windows phones already has double digits market share in countries like Mexico and Italy. Experts feel that even a 15% market share for Microsoft globally, up from the 3-4% it holds now, would be a significant achievement for the Redmond-based software giant.