Seeking Alpha
Long only, growth at reasonable price, contrarian, long-term horizon
Profile| Send Message|
( followers)  

Any heavy smartphone user that has gone to one of the many providers in the US or the UK (AT&T (NYSE:T), T-Mobile, Vodafone (NASDAQ:VOD), etc.) has experienced the cost-benefit dilemma of setting up a new contract with a new phone. Three options usually emerge:

  1. Get an iPhone
  2. Get a Blackberry
  3. Get an Android phone

I am about to explain to you why the rising option 4, get a Windows Phone, is going to become one hell of an option in 2012. In this post we will first look at the problems with options 1, 2, and 3. Then we will look at why option 4 will soon become very viable.

So for the problems with the first 3:

  1. The iPhone. I can sum up this phone in three phrases: great software, great hardware, terrible cost. The price of the phone itself is already, well, let’s just say, high. To me that’s not the main problem. The cost of an iPhone contract that matches a heavy user’s needs is catastrophically high. Obviously a lot of individual users have gotten over this cost, as iPhones are selling like hotcakes, but for business users it’s a different story. Welcome to the worst rates for roaming data on the market, partnered with a phone that eats up data as soon as you turn on the “data roaming” slider to check a quick email or use iMessages. No phone has as many roaming costs horror stories as the iPhone does. No provider offers competitive roaming bundles. In comes the Blackberry.
  2. The Blackberry. It’s too bad that Research in Motion (RIMM) can no longer make good mobile software or hardware, because their networking solutions are excellent. First you have BBM, a service that saw exceptional success for a long time. Then there are Blackberry’s servers and networks that allow carriers to allow unlimited data roaming plans for business users without too many costs. To a business user, being able to read emails, calendars, messages, and browse at all times anywhere completely trumps anything that an iPhone can do. It really is a huge, huge feature. To me this and their excellent security give Rimm the only perks that have allowed it to hold on to so many business users even though it is in decline.
  3. The Android Phone. Some great phones, decent contracts, and good software. I know that there are cheap Android phones, but through what I’ve seen they’re not good phones. Because of the sheer amount of devices that run Android, pretty much any carrier can be used, and monthly costs are pretty good for contracts (see T-Mobile). However, for business users, there is no way of getting unlimited data roaming, so Android will not be stealing all of Rimm’s customers anytime soon. Add to that the fact that many people view the OS and ecosystem as lacking in security (since they are so open) and you have an OS that doesn’t suit everyone, especially not business users. Speaking of ecosystems, Android doesn’t really have one, it’s really just the phones. Google (NASDAQ:GOOG) OSs are not popular for computers or tablets. An Android phone will never work as well with a Mac as iPhones do.

What we have then is a problem. There is no device right now that does it all: great cost, good contracts, great software, great security, a large ecosystem, and great hardware. In comes Microsoft (NASDAQ:MSFT) with Windows Phone.

  1. The ecosystem. Windows obviously has a HUGE ecosystem, and to its advantage, it pretty much has a monopoly on business users for a lot of computer software. With the release of Windows 8, I think that it will have a great OS for tablets, and it could expand that part of its ecosystem. From the Windows OS to Microsoft Office, this behemoth has it all. Syncing with business programs like Outlook and Office will be easier than on any other device.
  2. The contracts. In this field I would consider Windows Phone to be in a similar place as Android: better than Apple’s (NASDAQ:AAPL) iPhone, but worse than the Blackberry.
  3. Software. Windows Phone 7 Mango has already gotten great reviews, and Windows 8 is supposed to be a large step forward when it comes out, so Windows definitely has the software. Add to that its productivity software, especially Microsoft Office, and you really have something great. Another thing that’s impressive is how different the Windows Phone OS is from the others. While Android and iOS are almost identical now, Windows has made an OS that truly simplifies tasks. Everything is reachable from the main UI, instead of having to be accessed through specific apps. One touch sends messages and updates everywhere, another searches for something everywhere, etc.
  4. Security. Because it runs the most heavily virus targeted OS, Windows knows how to deal with malware. It has done it for years. Add in the fact that it runs a more closed ecosystem, more similarly to Apple’s than Google’s, and you have a platform that will be secure.
  5. Hardware. So far this has been a big problem, as most manufacturers have been making sub-par devices for Windows. However, with Nokia’s (NYSE:NOK) switch to Windows Phone 7, we are starting to see some beautiful, quality devices. See Nokia Lumia 900. That phone covers the high-end.
  6. Low cost. What is truly special about Nokia is how well it delivers cheaper, low-end devices, which will be exclusive to Windows. The Nokia Lumia 710 is leaps better than any Android alternative at its price level (see a neutral review here). It really is a quality phone. No one makes inexpensive devices better than Nokia, and with a cheap Nokia Windows Phone, you are getting premium, unaltered software (many cheap android phones have awful custom and old versions of Android).

So Microsoft really has all of the things that it needs in order to become one of the top 3 players in smartphones. With the “cool factor” that surrounds iPhones and some Android phones fading, if it executes well, Microsoft has a real chance of disrupting the market and taking a large slice of it in the process. Its close ties with Nokia mean that if Microsoft succeeds with Windows Phone 7, so will Nokia, and vice-versa.

So there you have it. I see a “critical point,” or a turnaround, in 2012 for both Nokia and Microsoft, both riding on the success of Windows Phone 7 (although Microsoft’s stock price depends on many other factors). By the end of 2012 Windows Phone’s potential for success will be clear, especially after Windows 8 comes out, but by then it may be too late to grab either of those stocks at a low price. Right now I believe that with Nokia the risk is higher but the reward will be massive if a turnaround occurs, while with Microsoft there is fairly little risk but the reward will be smaller if Windows Phone succeeds, so it all depends on how much risk you’re willing to take.

Source: Microsoft, Nokia Have A Real Chance Of Disrupting The Smartphone Market