Nokia's New Phones Will Put Microsoft Ahead of Apple

Nokia's New Phones Will Put Microsoft Ahead of Apple

Despite recent, rapid growth, Microsoft's Windows Phone platform remains solidly behind Apple's iPhone and Google's Android in global market share. Microsoft understands it has a hard road ahead, and doesn't believe it can emerge as the dominant mobile operating system provider anytime soon. Still, when the company announced its intention to acquire Nokia's handset business, it argued that it could overtake Apple in terms of global popularity by 2018.

While that may have once seemed unlikely, Apple's slow market-share slide, combined with Nokia's low-cost handsets and new phablets, are exactly what Microsoft needs to take second place.

Overwhelming demand halts Lumia 1520 sales
The Windows Phone platform is seeing some positive signs in more developed economies. Nokia's recently launched Lumia 1520 was temporarily delayed after demand outstripped supply. Customers who had preordered the yellow version of the phone were told they would have to wait longer than expected due to "overwhelming demand." Nokia's 6-inch phablet isn't likely to come close to Apple's iPhone in sales, but a solid U.S. reception should be seen as encouraging.

In the third quarter, Microsoft's Windows Phone saw year-over-year shipment growth of 156%, according to IDC. That's an impressive figure. Most of that growth has come in Europe, where Windows Phone is finally starting to take a sizable chunk of the market. Microsoft's mobile platform still has just 3.6% of the world market, but in Europe's five biggest economies (Britain, Spain, Italy, France, and Germany), its share is more than 10%. If that growth continues to accelerate, it could begin to attract more developer support.

The next billion consumers
But the real opportunity for Windows Phone is in emerging markets, where billions of customers remain unserved. Worldwide, more than 75% of consumers still haven't made the jump to a smartphone, giving Microsoft a great opportunity.

Microsoft could surge past Apple in global market share by staking out a claim on the next billion smartphone adopters. Apple has steadfastly refused to release a true low-cost iPhone, preferring instead to continue production on older models. But Microsoft and Nokia have begun to aggressively target the low end of the market. Two of Nokia's Lumias, in addition to its Asha lineup, will be key.

Nokia's Lumia 520 has become the top-selling Windows phone since being released in April, now accounting for about one-third of all Windows Phone 8 devices. While it doesn't have the stunning camera capabilities of the flagship 1020, it's cheap -- costing just about $150 for an unlocked model. It has sold particularly well in emerging markets such as India, where consumers on limited budgets often don't have the benefit of carrier subsidies. Nokia has already announced the phone's follow-up, the Lumia 525, which offers slightly improved specs.

Then there's Nokia's 1320. Like the 1520, it's a 6-inch tablet running Microsoft's Windows Phone, but the 1320 lacks the horsepower of the more expensive 1520. Still, at just $339 for an unlocked model, it should do well in emerging markets. While the phablet category has remained somewhat niche in developed economies, it's become an overnight phenomenon in emerging markets, with phablets now outselling both tablets and PCs combined in many Asian countries.

If those phones are still too expensive, Nokia has its Asha phone lineup as well. Asha devices do not run Microsoft's Windows Phone, but Microsoft has been said to be considering bringing over some of its Windows Phone services (like Microsoft Office, Skype, and SkyDrive) to the line. When Asha buyers decide to step up to a more powerful smartphone, a Windows Phone might be the easiest choice.

Ceding secondplace
The smartphone market has been characterized as a two-horse race, and to a large extent, it is. Combined, Android and Apple's iOS account for more than 93% of the total market, with Microsoft's Windows Phone remaining solidly in third place.

But with Windows Phone's rapid growth, and Microsoft and Nokia's willingness to aggressively target emerging market consumers with budget handsets, I expect Microsoft's platform to eventually overtake Apple's iOS when it comes to global market share.

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