Microsoft may be building the Surface tablet, but it isn't making its own phones, at least for now. Microsoft exec Greg Sullivan told Information Week that the company absolutely, positively doesn't have a Microsoft Phone in the works - no matter what some random analysts with unnamed sources say.
I believe him. There are two reasons Microsoft isn't building its own phones: carriers and distribution. Let me explain.
Carriers: Hey, Remember The Kin?
Microsoft "built" a phone before. (I'm using the word "built" loosely because, while Microsoft-branded, Sharp did the actual manufacturing.) It was called the Kin. It was a disaster.
Unless you're Apple, whether your phone succeeds in North America largely comes down to one thing: how's your relationship with the carriers? This is true in most of western Europe, too. Carriers control massive distribution networks, they spend millions on advertising specific phones, and they provide the all-important subsidies that make handsets look much less expensive than they actually are. They also sometimes dictate the service plan on which your phone will operate.
Microsoft signed an exclusive deal with Verizon to sell the Kin - so far, so good - and then Verizon completely screwed Microsoft on the service plans. Designed as an entry-level "texting phone plus," the Kin got priced and sold like far more capable smartphones, and it went nowhere.
Samsung, HTC, Nokia, and even Huawei have spent years nurturing carriers, and they have broad product lines that make their conversations with carriers a two-way street. If Carrier X really wants to customize Hot Phone Y, the OEM may talk it into accepting Windows Phone Z as well. Microsoft simply doesn't have the level of trust or long-term relationships with the carriers to make that work yet.
Distribution: That Nokia Deal
Microsoft has decent sales relationships with mainstream electronics stores. But that's not generally where people go to buy cell phones. To buy phones, people generally go to carriers, to specialized phone retailers like Europe's Carphone Warehouse, or even to general stores that don't carry a lot of other electronic equipment.
One of the reasons Microsoft partnered with Nokia is that Nokia has an amazing level of distribution in much of the world. We don't see Nokia's penetration here in the U.S., but Nokia has 21 "care centers" in South Africa, 21 in just the city of Delhi, and 13 in Kazakhstan. Kazakhstan. And those are just the premier support centers; Nokia devices are sold by hundreds of shops in each of those places.
Working with other OEMs gives Microsoft even greater distribution. Samsung has 130 of its own branded retail and support centers in Korea alone. A March 27 article in the Taipei Times said HTC plans to expand its presence in China from 2,000 to 4,000 retail stores.
Apple, of course, owns several hundred retail stores in 13 countries and has relationships with a slew of independent vendors as well.
Microsoft just doesn't have that level of distribution for mobile phone hardware - at least yet. The company could be working on building such a network, perhaps by convincing stores to carry its Surface tablet. Or it could just buy Nokia.
Why Surface Doesn't = Phone
So that might leave you wondering: why is Microsoft building Surface, but not a phone?
Surface (and Xbox, for that matter), don't have the same issues phones do. We've seen reports that the first Surface tablets will be Wi-Fi-only - that's specifically so Microsoft will never have to deal with carriers. And Surface tablets will probably be sold through computer retailers, with which Microsoft already has a relationship.
Surface can lay the groundwork for a future phone, though. Carrier versions of Surface will eventually develop, and the relationships Microsoft forges there could lead to talks about Microsoft-branded phones. And Microsoft, possibly through a Nokia acquisition, will work on extending its retail reach.
Microsoft's OEMs are clearly concerned. I've heard from several insiders that Samsung, the most financially successful mobile-phone company other than Apple, is working on various plans to nuture its own operating systems in case Microsoft and Google become competitors rather than vendors. Samsung's existing Bada, Tizen, and even a possible BlackBerry 10 buy are in play. But this is long-term planning, not an immediate or definite jump.
Is Microsoft building a phone today? I don't think so. Will it ever? Maybe when Windows Phone 9 rolls around.
For more, see Eyes On With Microsoft's Windows Phone 8.
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