Will Windows Phone 8 be the saviour of Microsoft?

Earlier this week, while hurricane Sandy harassed the east coast of America and forced Google to release Android 4.2 and its new Nexus devices via an unceremonious blog post, Microsoft held an event in San Francisco that finally filled in the remaining Windows Phone 8 blanks. Following the release of Windows 8, the Surface, and updates to the Xbox, we now have a very solid idea of the direction that Microsoft is heading in – a plotted course that will bring the good ship Microsoft barging into your mobile life, whether you like it or not.

For the last couple of years, Windows Phone has been the lame horse of Microsoft’s software stable. While Windows 7 has enjoyed massive success, and Xbox continues to go from strength to strength, Windows Phone 7 and 7.5 have puttered along in the wake of iOS and Android, threatening to go under whenever Apple or Google make a sudden move. Through sheer force of will (and brute-force marketing dollars), Microsoft has mustered just 3.5 per cent of the worldwide smartphone market.

If you’ve ever used Windows Phone 7.5, its diminutive share of the market will probably come as a surprise. You see, one of the best kept secrets of the mobile device domain is that Windows Phone 7.5 is actually rather cool. While it doesn’t have the flexibility of Android, or the wealth of apps iOS boasts, Windows Phone is both slicker and easier to use. In much the same way that iOS “just works,” so does Windows Phone 7.5. While Android certainly has more home screen real estate, WP7.5′s Start screen is much more lively and personal. Really, unless you’re a power user (and most smartphone users aren’t), Windows Phone is a fantastic mobile OS.

Why has Windows Phone failed to attract users, then? No one knows for sure. The network effect certainly plays a role – when WP7 arrived it had to start from scratch, while there were already millions of iOS and Android users recommending their respective operating systems to friends and family.

Ecosystem lock-in also plays a role; once you’ve got your phone set up, and spent some money on apps, it seems foolhardy to switch to another platform. In most market research, most consumers have reported that they’re just not interested in Windows Phone. Ultimately, WP7′s failing adoption is probably best explained with the help of a particular bear-defecating-in-the-woods phrase: Windows Phone might be an excellent smartphone OS, but if no one is there to see it, who cares?

Introducing Windows Phone 8, the saviour

Windows Phone 8, then, is all about actually getting people to use it, so that they can fall in love with it and thus tell their friends and family to buy a WP8 device. To pull this off, Microsoft seems to be taking a three-pronged approach, by providing killer features, killer hardware, and killer marketing.

In terms of unique, user-facing features, there is Kid’s Corner (a sandbox full of kids games available from the lock screen), Data Sense (a suite of tools, including data compression, that cuts down on data usage), and Rooms (a concept similar to Google+’s circles, but on a larger, more inclusive scale).

Perhaps most importantly, though, it finally sounds like WP8 will be able to compete with the app ecosystems of other mobile platforms. WP7 is now up to 120,000 apps, most of which are compatible with WP8. With WP8, Microsoft says it now has 46 out of the top 50 iOS/Android apps. Windows Phone 8 also debuts Live Apps; apps which can interact with your lock screen – such as Facebook, which can update your lock screen with personalised photo mosaics.

On the hardware front, Windows Phone 8 is launching with strong offerings from HTC, Nokia, and Samsung, all of which have a dual-core Snapdragon S4 SoC, a good rear-facing camera, and a large, high resolution display. As before, Microsoft is keeping a fairly tight leash on Windows Phone hardware specs, so it will be quite hard to find a “bad” WP8 device (though next year, with Exynos 5 and quad-core Snapdragons on the market, Microsoft will hopefully update the minimum spec). Windows Phone 8 also dictates a hardware camera button, which should appeal to avid picture takers. In the Nokia Lumia 920′s case, there’s a best-in-class, optically stabilised camera, too.

And then there’s the marketing – oh boy is Microsoft ploughing a lot into marketing. As you may already know, Microsoft’s marketing budget for Windows 8, Surface, and Windows Phone 8 is somewhere in the region of $1.5 to $2 billion (around £1 billion to £1.25 billion). Most of this will be consumed by blanket advertising on TV, websites, and in magazines – but, in a first for the mobile OS wars, Microsoft is also forking out on celebrity endorsements.

At an event on Monday, Microsoft wheeled out Jessica Alba to tell the world about how much she loves Windows Phone 8. (In addition, though I’m sure they weren’t paid as much as Alba, Windows Phone manager Joe Belfiore also brought his kids on stage to demo the new Kid’s Corner feature. Has Microsoft jumped the shark?).

The fall of Windows/Office

While Windows Phone 7′s failure has been buoyed up by Windows 7′s success over the last few years, it’s now time for the mantle to be passed to Windows 8 and Windows Phone 8. With desktop PC sales stagnant, and tablets and smartphones on a meteoric rise, Microsoft really needs Windows 8 and WP8 to succeed. If Microsoft can’t break into the smartphone and tablet markets with this generation of software, it may not get another chance.

For Microsoft, this must be rather scary. For decades, Windows and Office have been the driving forces behind the company – and now, in just a single generation, this partnership has forced apart by an unproven trifecta; a triumvirate of Windows 8, Windows Phone 8, and Xbox.

To date, almost all of Microsoft’s business decisions have revolved around the monopolisation of maximisation of Windows and Office – resulting in oodles of profit, but a severe lack of innovation. Such navel-gazing was fine when PCs were exciting and expensive and enjoying massive sales growth, but in the last 10 years such complacence has mostly resulted in Microsoft attempting to strut about with its pants tangled around its ankles.

Microsoft rather famously dropped the ball with the worldwide web, and it certainly wasn’t ready for Apple’s creation of both the smartphone and tablet markets. So the rumour goes, Microsoft had a tablet in development – called the Courier – but it was kyboshed by Steven Sinofsky, the head of Windows, just before Apple released the iPad.

The irony is, Microsoft has one of the largest and best-funded R&D departments in the world, working on everything from depth-sensing cameras to muscle-computer interfaces. With the dissipation of the Windows and Office oppression, though, we have started to see a lot of cool tech from Microsoft Research finally hitting the market (Kinect, Surface/PixelSense, Gadgeteer, and so on). This is a good thing, and it shows that there’s life in the old dog yet.

Windows Phone 8 cannot fail

Microsoft is in a precarious position: On the one hand, Windows and Office account for the vast majority of its profits – but on the other, these profits won’t last forever.

For the time being, the PC market is only being nibbled at by tablets and smartphones, but in a few years, as performance and wireless connectivity improves, the evisceration will begin in earnest. Microsoft knows this, and Windows Phone 8 and Windows 8 are the result.

Producing two operating systems that completely downplay Office, its largest profit maker, is a monumental risk for Microsoft that must not fail.

Last quarter, Microsoft’s Business division brought in $7 billion (£4.3 billion), mostly on the back of Office. It will be a long and very arduous path until the Windows Store, Marketplace, and Xbox Music/Video apps are making anywhere near that kind of money – if ever.

The question, then, is whether Windows 8 and Windows Phone 8 can win Microsoft a spot at the mobile device table. Not a pesky 3 per cent share – a real, 20 to 30 per cent share that will equate to hundreds of millions of new users in the next few years.

The problem with this approach is that it implies that adopters of one operating system will also adopt the other. In Apple’s case, there is very little evidence that iOS has driven massive numbers of Mac sales; best case, we’re talking a few million Mac laptops – not the hundreds of millions that Microsoft needs.

On the flip side, maybe the other direction – from PC to smartphone – is more fruitful. Microsoft is virtually guaranteed that hundreds of millions of PCs will run Windows 8 by this time next year. Maybe touch-enabled Windows 8 PCs will fly off the shelves this winter and fuel some kind of Windows Phone 8 renaissance in the spring. It’s definitely possible – but given the importance of Windows and Windows Phone 8, it’s an incredible gamble. But who knows: After 20 years of waking up, squeezing the udders of the Windows/Office cash cow, and then dozing off again, maybe a big gamble is exactly what Microsoft needs.