Research firm again cuts bullish forecast for Windows Phone

IDC wants you to know that, despite everything, it still has high hopes for Windows Phone … just not as high as before and not nearly as high as Microsoft’s.

On Wednesday, the technology market research firm released its latest forecast of mobile phone and smartphone sales. Per usual, the forecast included a long-range outlook for marketshare in smartphones.

The company predicts that the top three smartphone operating systems in 2017 will be the same ones they are today: Google’s Android, Apple’s iOS and Microsoft’s Windows Phone. So far so conventional.

What’s interesting is when you look at the actual share numbers that IDC predicts those operating systems will have in four years. IDC predicts that Android will lose significant share to Windows Phone. In fact, by 2017, IDC predicts that Windows Phone-based devices will account for 10.2 percent of the smartphone market.

There are several ways to look at that forecast for Microsoft’s operating system.

One way is that IDC, which has long been irrationally bullish on the prospects for Windows Phone, is yet again having to recognize reality and ratchet down its expectations for the operating system.

In 2010, IDC boldly predicted that Windows Phone would hold 20 percent of the smartphone market by 2015. In 2012, the firm backed off a bit, saying it expected Microsoft’s operating system to hit 19 percent of the market by 2016. Late last year, it back pedaled even more, predicting that Windows Phone would hold 11.4 percent of the market by 2016.

So, saying that it won’t hit 10.2 percent until 2017 represents yet another example of lowering expectations.

Another way to look at it, though, is that even though IDC has reduced its forecast for Windows Phone, its forecast still looks extremely optimistic.

Windows Phone has gained ground lately. But it’s gains have been exceedingly modest. According to IDC rival Gartner’s latest numbers, Windows Phone held 3.3 percent of the worldwide smartphone market in the second quarter of this year, up from 2.6 percent in the same period last year. That’s not a bad increase, but it’s not exactly evidence that Windows Phone is catching on with consumers or even establishing the fact there’s actually demand for a third major smartphone platform.

Meanwhile, there’s no evidence to suggest that consumer demand for Android-based phones is abating any time soon. Again, according to Gartner, Android’s share of the smartphone market swelled to 79 percent in the second quarter, up from 64 percent in the same period last year. While there have been a few fluctuations, the general trend in Android’s market share has been up, up, up.

Even setting aside current trends, though, that view seems optimistic. One of the chief market rationales for Windows Phone was that it was an alternative to Android. Phone makers who were worried about being the target of patent suits could protect themselves by embracing the software. They could also hedge their bets against Android or differentiate themselves from Android vendors by selling Windows Phone devices.

For consumers, Windows Phone promised an operating system that was designed to be as easy to use as Apple’s iOS but that, unlike that software, would be available on phones of numerous shapes and sizes from different manufacturers.

But Microsoft’s proposed acquisition of Nokia has thrown that market rationale out the window. Nokia dominated the market, however small it might have been, for Windows Phone devices. Although Microsoft says it plans to continue to license Windows Phone to other phone makers, it almost certainly is going to find few takers. Who’s going to want to compete with the company that owns not only the operating system but the primary maker of devices that use it?

Assuming the collection of Windows Phone makers dries up, Microsoft will be little different from Apple or BlackBerry in the smartphone market. It will effectively be peddling a proprietary product. The history of the technology industry suggests that there just isn’t room for more than one of those proprietary products to succeed in a market dominated by an “open” platform. This suggests that any market share gains for Microsoft are going to have to come from Apple — not from Android.

Apple’s share of the market has been sagging lately. It was down to 14 percent last quarter from nearly 19 percent in the second quarter last year. So, it’s possible that Apple is vulnerable.

But Apple — like just about everyone else — has been losing out to Android, not Windows Phone. And I wouldn’t bet on it losing future share to Microsoft.

Outside of the Xbox, Microsoft’s efforts to play in the devices market have largely failed, often thanks to Apple. Apple successful fended off Microsoft’s efforts in music, both it’s attempt at an open platform (Remember PlaysForSure? Probably not.) and its proprietary effort (remember the Zune?). In tablets, Microsoft’s Surface tablets are struggling — the company just had to take a $900 million charge for unsold units of its Windows RT tablets, which most closely compete with Apple’s iPad. And Microsoft’s previous effort to compete in phones — the Kin phone — was such an unmitigated disaster that the company shut down the line within months.

Regardless, that’s not the case that IDC is making. In fact, it predicts that iOS’s share of the market will actually increase by 2017. So, IDC’s thesis is that Windows Phone’s gains will come out of Android’s share.

I’m dubious. But even that assessment looks sober compared with Microsoft’s own forecast. In making the case for its acquisition of Nokia, the company assumes that by 2018, the combined companies will control 15 percent of the smartphone market.

If IDC’s assessment is extraordinarily optimistic, Microsoft’s must be — what? — insane? Because here’s the thing: Nokia shipped just 7.4 million smartphones in the second quarter. That was down from 10.2 million in the same period a year earlier. And its share amounted to about 3.3 percent of the market.

To reach Microsoft’s forecast, Nokia’s share of the market would have to quadruple over the next five years. And given that the market is still growing rapidly, its actual phones sales would have to grow much faster than that.

Now, Android has shown that such rapid growth is possible. But I would say it’s highly unlikely.

Photo, of Nokia’s Lumia 1020 Windows Phone smartphone, courtesy of Nokia.


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