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Microsoft Corp Needs a Big Phone More Than a Small Tablet

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The lines between smartphones, tablets and laptops are becoming ever less noticeable for consumers. Smartphones are getting larger, smaller tablets are going mainstream and a growing array of laptops are gaining touchscreen functionality and detachable or hideaway keyboards. Microsoft Corp has concentrated its efforts on two of these product types. Windows 8’s touch functionality and metro-style apps lend themselves well to convertible laptops, while Windows Phone 8 has helped the company regain some share in smartphones in some markets.

Top 10 Volume Share Gain Markets for Windows Phone, 2011/2012
Top 10 Volume Share Gain Markets for Windows Phone, 2011-2012

Source: Euromonitor International

This leaves the tablet/smartphone crossover market where Microsoft Corp has no presence, and a growing number of sources indicate that the company hopes to change that with the unveiling of the Surface 2 product line at the end of June. While there is much speculation about the spec sheets of these rumoured products, there are strong indications that the product line will include devices with 7-9” displays. Microsoft Corp’s line-up of software and services lends itself rather poorly to this form factor and market conditions; a 5-6.5” smartphone would hold far more promise for the company.

Valuable inches

The markets for two functionally similar devices, small tablets and large smartphones, are very different. 7-9” tablets comprise content distribution platforms and are low cost. Both are low-margin propositions from a hardware standpoint and Microsoft Corp does not have sufficient content distribution holdings like Apple or Amazon to make this form factor commercially viable.

5-7” smartphones have gained ground, and since the success of the Samsung Galaxy Note an increasing number of competitors are introducing a growing array of large-screen smartphones. These devices have proven to be able to sell in large volumes at prices well above US$600 for first-tier brands. 7” tablets under the Nexus, HP, Asus and Samsung brands rarely fetch over US$200. The high-volume, low-margin tablet market is no place for Microsoft Office or Xbox-branded offers. A productivity-oriented smartphone with a higher price point and expanded Office functionality would be a much better showcase of the company’s potential in mobile software and services.

The only show in town

It is imperative for Microsoft Corp that whatever hardware it releases is a reference device that showcases software without threatening to go mainstream at the expense of its hardware partners. A Microsoft smartphone would still likely irk Nokia Corp, but a 6” Microsoft phone would not be in direct competition with any devices the Finnish manufacturer currently offers, but it would offer a Windows-based alternative to devices like the Galaxy Note.

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