According to the latest market study by ABI Research, smartphone users will download nearly 36 billion apps in 2012 and Google Android and Apple iOS will account for 83 percent of the app downloads. Unfortunately, only 2 percent can be attributed to the Microsoft Windows Phone platform.
In fact, the lack of interest in Microsoft's mobile ecosystem is so dire that the company has had no choice but to pay application developers to embrace their niche smartphone Operating System (OS) -- apparently they will pay as much as $600,000 to a popular app developer.
Clearly, it's an unsustainable business model. It's an approach that's devoid of any real upside profit potential and an apparent act of desperation.
ABI Research associate Lim Shiyang says, "Although Windows Phone lags behind RIM’s BlackBerry and even Nokia’s Symbian, we shouldn’t ignore the fact that the two percent that we forecast for 2012 would be twice the share the platform achieved last year."
Meaning, given the competitive nature of the mobile marketplace, Microsoft may have to accept that its mobile OS is doomed to perpetual mediocrity -- forced to pick-up the leftovers from other failed ventures.
Microsoft starting point is frustratingly low. Contrary to popular belief, this isn’t really a chicken-and-egg problem of low device sales holding back the app business and the slow app business holding back the device sales. It's more complicated than that.
There are four factors undermining Windows Phone’s app growth. First, the small device market share is the most obvious drag. Second, Windows Marketplace’s global roll-out has taken a long time, further limiting the number of potential customers.
Third, Microsoft has also been slow to enable in-app purchasing, meaning that most of the quality apps remain behind an upfront paywall. And fourth, there have been no media tablets built on the platform.
Fundamental Flaws in Their Business Strategy
Given their track record, it's also likely that Microsoft would have to pay dearly for tablet manufacturers to assume the risk of a predictably low ROI from adopting its mobile platform.
Advancement on any of these fronts could have a positive impact. That being said, the odds of a successful outcome are not in Microsoft's favor. It may already be too late in the game.
According to ABI Research senior analyst Aapo Markkanen, "One message we hear from many developers is that, purely technically speaking, Windows Phone is actually a rather appealing platform. And, if it turns out to be a platform for relatively high-end devices, avoiding the fragmentation pitfalls of Android, it won’t even need to achieve a remarkably large market share to attract a vibrant app scene."
However, that's not what Wall Street wants to hear -- that the company is paying a premium to maintain a minority niche position in an otherwise booming mobile communication industry. Besides, technology is not the key issue, a flawed business strategy is at the root of Microsoft's problems.