Microsoft Phones to Get More Marketing Dollars

By Dina Bass - Oct 10, 2011 11:01 AM GMT+0700

Microsoft Corp. (MSFT), trying to reverse disappointing sales for its Windows Phone, is counting on Samsung Electronics Co. and other manufacturing partners to step up retailer incentives and boost in-store promotions.

Both Samsung and HTC Corp. have committed to increasing marketing budgets for the phones, said Andy Lees, president of Microsoft’s mobile unit, in an interview. While the manufacturers will determine how the money is spent, some of it will probably go toward spurring retail staff to tout Windows Phone models, he said. New handsets with the new Windows Phone 7.5 will go on sale in the coming weeks, Lees said.

Since the release of the previous version last October, the Windows Phone has missed the company’s sales expectations, and Microsoft has continued to lose ground to Apple Inc. (AAPL)’s iPhone and devices based on Google Inc. (GOOG)’s Android. Microsoft needs to do a better job of marketing the new software, which is much improved, said Michael Gartenberg, an analyst at Gartner Inc.

“From a technical perspective, it really does put them on par with the other competitors, but a lot of times Microsoft gets it right with the technology and then fumbles the marketing message,” he said. Mobile-phone retailers haven’t cooperated in the past, Gartenberg said. “If you went to store they showed you anything other than a Windows Phone. If you asked for a Windows Phone, they tried to talk you out of it.”

Retail Rules

Microsoft is especially reliant on the carriers’ retail salespeople in the U.S., where more than 80 percent of phones are sold by stores owned by mobile operators, Lees said. In other countries, a larger percentage of handsets are sold by the phone makers themselves. He didn’t specify what form the incentives might take.

Windows Phone 7.5, also known as Mango, was released last month to existing Windows handset customers. In addition to more aggressive marketing, Microsoft’s partnership with Nokia Oyj (NOK1V) will help sales, Lees said. Nokia announced earlier this year that it would base its handsets on Windows Phone software, a bid to reinvigorate its smartphone strategy. Nokia directly or indirectly controls more than 6,000 stores, Lees said.

Gartner forecasts that Microsoft will become the No. 2 smartphone operating system in 2015, with market share of 20 percent. That would vault it past Apple’s iOS, with Android remaining in the top spot. Achim Berg, head of Windows Phone marketing, said at a September conference in Berlin that the 20 percent share may be a conservative estimate.

First Quarter

Next year, Microsoft will account for 11 percent of the market, up from 5.6 percent this year, Gartner said in an April report. Lees declined to forecast numbers himself, except to say he expects market share to rise starting in the first quarter of 2012.

Manufacturers plan to produce a Windows phone that uses the high-speed wireless technology known as long-term evolution, or LTE, in the “not-too-distant future,” Lees said. That will make mobile carriers more eager to promote the Windows Phone.

Cheaper models also will be produced, giving a boost to the operating system, Lees said. While handset makers and the carriers determine prices and subsidies, consumers should see Windows Phone devices for less than $100 in the U.S., he said.

“The stars are really starting to align for us,” Lees said.

To contact the reporter on this story: Dina Bass in Seattle at dbass2@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net