Billy Tompson: Why Windows Phone will be a success, and Ballmer was smart to kill the Kin

Is it the new 'Mango' interface that will do it? Or something else? And why was killing a phone that cost $1.5bn to get to market wise?

Listening to Microsoft's people explain the new features in "Mango" - the forthcoming (late September? October?) update to its Windows Phone platform, I had something of an epiphany, and realised a couple of things.

First: Windows Phone is going to be very successful. Within a few years it is going to be one of the three major smartphone platforms, rivalling Google's Android and Apple's iOS and ahead of RIM's BlackBerry.

Second: killing the Kin was a brilliant move. Although people are repeatedly rude about Steve Ballmer, he is actually a very smart dealmaker who does have a clear idea of where Microsoft needs to go, and how to get there. And realising that, I understood that one of the cleverest things he has done in the past year was to kill off the Kin phone.

Neither of these things, let me emphasise, was said to - or even urged on - me by anyone from Microsoft. They aren't giving any forecasts about where they expect Windows Phone to be in one year, two year, five years. They won't comment on the killing of the Kin; it was simply something that was done, and that's it. So this is my analysis, based on lots of research into the smartphone market, and Microsoft (because - can I bore you? - I'm writing a book on Microsoft, Apple and Google and their many business battles. Out next year.)

So why do I think that Windows Phone is going to be a significant player? One element was hearing the announcement on Tuesday that it's now challenging RIM for the number of apps in its store - something around 15,000. Having come from a standing start in October, that's really very impressive; RIM, which has around 55m users worldwide, has been running an app store since mid-2009. Its lack of traction is telling. What's more, at some point it is likely to have to make a smartphone OS transition that will involve QNX, the OS underlying its PlayBook tablet.

Clearly, Windows Phone has significant developer momentum. That's important.

But the real reason why the lightbulb went on is much simpler: Nokia.

This may disappoint the Windows Phone people slightly, but while I think that the interface shows a lot of promise (read my review from October) and that Mango is an improvement (listen to the discussion on the latest Tech Weekly podcast), it's not actually that important.

Nope, the thing about Nokia is that it is a steamroller. People who have been counting it out because Stephen Elop has decided to abandon Symbian, which has of course hit employee morale.

Well, these things do hurt. But Nokia is a resilient company, and its expertise is in manufacturing (if you've compared a Symbian smartphone to an Android, iPhone or... Windows Phone device lately you'll know it isn't in software).

Nokia sells around 110m handsets per quarter of which more than 20m are smartphones; and almost exactly 50% of its mobile phone revenue comes from those smartphones. Nokia is a fantastically well-oiled machine for selling phones, and has been doing it for years; it sells more phones than any other manufacturer. And it sells more smartphones per quarter than any other manufacturer.

Nokia has enormous geographical reach, and it's virtually synonymous with "mobile phone" in a number of countries. Sure, the US and Europe have been going off it. But it's strong in other regions. It has good relationships with carriers. It can shift phones when it wants to.

So if Nokia turns up in 2012 with smartphones running Windows Phone, carriers aren't going to turn it away. They're going to be delighted. Especially if Nokia can use its legendary supply chain strengths (a hardware element) to push prices down. Once Nokia starts shipping Windows Phone products in any numbers, it's going to sell them as fast as it can make them. What's not to like? It's a friendly interface. It connects. It's not maddeningly confusing.

Look at it the other way around: how, exactly, could Nokia screw this up? Only if it can't get Windows Phone to run on its phones. Likelihood? Tiny - HTC, Samsung, ZTE (new partner), LG have all managed it.

Or, alternatively, if it prices them too high. But Nokia can make in greater volume than those others.

Or if it pushes the Symbian handsets too hard. But again, that's easy enough - price Symbian to sell, price Windows Phone to profit.

Conclusion: by the end of 2012, Windows Phone sales are going to explode. Its user interface really won't matter. It's not Mango that will make it sell. It's Nokia. Quite what its market share will be in the US and Europe - and whether it will be as large as in other regions - is less sure, but (reality check) those regions aren't the world.

A prediction? Windows Phone should easily get 20% of the smartphone market by the end of 2012. It could conceivably do better.

Now to the second point: killing the Kin. What, that move that everyone said indicated that Microsoft's mobile division was in a complete state of meltdown? Yup, that decision.

In case you need reminding, the Kin was the result of Microsoft's 2008 acquisition of Danger, which had built the Hiptop, for a price rumoured at $500m. (One of the original founders of Danger was Andy Rubin, who later started a company called Android, which was acquired by Google in 2005.)

Then at a cost of around $1bn, the Kin phone was produced under the codename of "Project Pink", led by J Allard, who had previously pointed out the importance of the internet to Bill Gates in the 1990s, drove the idea of building a games console, and drove the idea of Microsoft building its own Zune music player. (Well, two out of three ain't bad.) The project then came under the control of Andy Lees, head of the Windows mobile division.

The phones were imagined as "social" devices, and were going to be based around Windows Phone 7, which was then under development; but delays there meant it had to run on Windows CE instead. Around $1bn was spent on development.

The Kin went on sale on Verizon in the US on the first fortnight of May 2010; it was Kin killed on 30 June 2010, after just 48 days on the market.

The thing about the Kin was that it was, basically, a feature phone - limited contacts, no instant messaging, no apps, no calendar syncing. Not a smartphone by a mile.

I think that Steve Ballmer could see that there was absolutely no future in the Kin. The arc of the entire mobile market is towards smartphones; in five years' time, you'll struggle to find a phone on sale that isn't what we'd now call a smartphone. Possibly that will be true even in two years' time, because that segment of the market is growing so quickly. Supporting the Kin was simply a waste of time and money, because it was already the past. Trying to support two phone operating systems at once would be a recipe for conflict and confusion within the company; outside, with carriers, it would be even worse. (That's why Windows Mobile is being slowly, and silently, wound down.)

Ballmer, I think, could see that - just as he can see (and, as Microsofties and ex-Microsofties have been telling me) that the company needs to align its focus on consumers, because there are always going to be more consumers than businesses. He has in fact been driving a relentless consumer agenda very subtly inside the company for years now, but it's in mobile that we see it come through. And he's well-advised on the direction of travel for phones generally.

Even so, Ballmer must bless the day that Elop got the gig at Nokia. It was probably inevitable that Elop would reach the conclusion he did about Symbian's essential worthlessness - the Nokia board certainly had - and look for alternatives. Then it was only a question of Ballmer closing the deal. Elop did well there: Microsoft is paying billions for the privilege of getting on Nokia's smartphones.

Which brings us to money. Having Windows Phone on lots of handsets isn't going to be the same as having it on lots of PCs. There isn't the same amount of money in a phone licence. The ancillary services (search, Skype?, others) that Microsoft is going to push won't generate as much as the PC market has. With that stagnating, it might be that Ballmer is going to have to adjust his company to a smaller future. But at least it has a future.

If that's so, though, he's positioned the company well for it. A serious contender in the smartphone business which has a clear focus.

The next couple of years are going to be very interesting.

Charles Arthur

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