Microsoft would do well to take a look out of the Windows

Over the last few months I have, with increased frequency, received emails from a gentleman who in lieu of the traditional “Kind Regards” or “Many Thanks” signs off on his correspondence with “Hugs, Kisses, Unicorn Giggles.” Rather than mistake these communiqués as having made it through my spam filter to offer me the Harry Potter box-set, cut price Viagra or appendage enlargements, I know them to pertain to the publication schedule for African Scene.


It is to this aim that I sit down to pen something supposedly intelligent but most likely rather more opinionated for inclusion in this week’s schedule of posts. I would like to share some of my thoughts on recent developments from the Microsoft Windows stable. And no, this is not an indication that I will be getting into the decidedly tiresome debate on which blows my skirt up most – Window, Linux or Mac. Rather I am interested in continuing a conversation started earlier with a few colleagues on the subject of the Windows Phone. This product Microsoft hopes will have healing powers for its share of the smart-phone market. My conversational position specifically centres on where the US$400 million Microsoft is reportedly spending on the launch is going.

Catching the subway earlier this evening I waded through the ‘first-world’s’ obligatory flow of subterranean bodies wired into one or another mobile device. At the same time I passed a variety of media propagating the Windows Phone as Redmond’s gift to mobile telephony. While evident, the marketing is not persistent. Comparatively Kellogg’s bi-seasonal ad campaign to claim your breakfast bowl has been more prevalent, the budget for which is relatively negligible. Microsoft tells us their newest edition of operating system (OS) for mobile phone handsets will stem the flow of asocial behaviour that results from our permanent attachment to our phones. Cut the wires that bind so to speak. Microsoft, liberator of phone users everywhere? I think not! Not while we are debating where that US$400 million is ending up.

What perplexes me is that the raft of greenbacks has not yet made a trans-Atlantic crossing to African shores.

In South Africa one will currently not see evidence of handsets powered by Microsoft’s 7th generation mobile OS. The Windows Phone only became generally available internationally from vendors on the 22nd of October 2010 and on devices from the likes of Dell, HTC, LG and Samsung. It has yet to launch in South Africa or the continent. That in itself is not surprising; Africa typically does not appear on the roll-out slate within the very first phase of product launches for international technology firms. What perplexes me is that the raft of greenbacks has not yet made a trans-Atlantic crossing to African shores. Back home we have not been primed for launch, a launch that is expected in the next calendar week. I do find that surprising. With a budget of this magnitude Microsoft could very really liberate us all from our existing phones. If it were spent wisely, Steve Ballmer would be the Che Guevara of the mobile phone. Picture that for a moment (how you might use a loose 400 million in forex to launch a product, not Steve Ballmer with dark locks and a beret)!

Instead, the Windows Phone is not nearly getting under my feet. The ad spend has not taken me out to lunch or bought me a drink. It was not on Facebook telling me to buy the Windows Phone or with me in the cinema convincing me I will instantly be more attractive to woman when I become a proud owner. It has not been here on the sidewalk handing me free gimmicks or doing a tap dance in the square. Furthermore, unlike Windows 95 it has not paid for the rights to use a Rolling Stones hit song in the associated television commercial. So where exactly is that 400 XXX-Large?

One of my colleagues thinks with that amount of money in the budget he would expect to find one of Microsoft’s billboards on his garage door. I suspect he ‘borrowed’ that sound-bite mind you. He is the type of individual that tends to have rather well-formed insights into extremely current events and the biographies of celebrities and ballplayers alike. His insights share an uncanny resemblance to the commentary of regular television shows on cable. No matter though. Right his assertion is. The Windows Phone could and should be everywhere.

In Africa the launch of Windows 7 for the PC had considerably better millage. Africa is not a bad technology market contrary to what many may believe, especially when it comes to mobile telecommunications technology. Granted we are not the U.S, E.U. or Canada but long before computers running Windows 7 made it onto the shelves of local stores most people knew to expect something new from Microsoft. Just like Windows 7 for the PC, the Windows Phone is meant to banish the demons of versions past and make Windows hot and hip again. As well as save a bit of design face against the sexy antics of the Apple shaped competition.

In Oct 2009 Windows 7 for the PC had a meagre launch budget of US$200 million and inflation in the year since does not tremendously distort what one will get for US$400 million comparatively in today’s market. When it comes to mobile telecommunications, in terms of growth rate and potential, Africa currently is at the top of the global list. Bear in mind that this big budget is reserved for the launch. It does not account for the millions more Microsoft will spend further down the line. US$400 million for a launch should be a game changer. Microsoft would do well to take a look out of the Windows in Redmond and over to Africa for an instructive example on how this can be so.

Since about 2000 when mobile phones began to take popular hold in South Africa, citizens have been receiving a ‘free cell phone’ when signing a mobile network contract. In case anyone had not guessed, those phones have never been free. Someone has always been picking up the tab. What you might be surprised to know however is that the tab is not actually being covered entirely by the user as an amortisation of the handset cost over the period of their contract. In generic terms, South African mobile networks created a model by which they would provide an indirect cash subsidy to the Service Providers (SPs) who resell access to the network. The subsidy is known as a Cash Incentive Bonus (CIB) and is a commission amount paid in an upfront lump-sum to the Service Provider for having sold a long term contract; thus securing the customer’s revenue for an all important extended period. It also helps to incentivise SPs to sell more valuable long-term contracts more often. It is implicit that users require a phone to make calls, make use of the contract and enrich network operators.

During the first years in which mobile operators were establishing networks in South Africa, SPs were taking the network provided CIB and passing it on to the customer in the form of a subsidy on the cost of the handset. This was done with the aim of stimulating growth by reducing the handset cost to the customer. The cost stood as a barrier to entry. By lowering this barrier, penetration increased as did the size and value of the customer base. The model caught on and operators and SPs continued offering ‘free phones’ such that South African customers have become rather spoilt. Hong-Kong and Germany prohibit these types of subsidies by law. In most other markets the cost of the handset is typically financed over the contract period by the SP rather than being subsidised. The South African model has been extremely affective in ensuring that subscribers take considerably higher priced handsets at least every 18 months. This has raised the average cost of handsets in circulation above internationally comparative examples. As a ratio to per capita GDP South Africans own rather expensive handsets. The case study for Microsoft comes into its own when one considers which handset manufacturer has been devouring market share lately in South Africa.

RIM’s Blackberry Curve 8520 has become Omnipresent. The substantially increased market penetration is evident in my Facebook news feed. Amongst a variety of self congratulatory, unfortunately comic and pseudo intellectual status updates there has been an increasing prevalence of numeric statements preceded by “BBM:” This as a growing share of my South African friends convert to being “Berries in the Bush”. We can thank someone’s status update for that gem. On last count (and yes, the product manager in me does actually keep a tally of these sorts of things) that totals up to 42% of the South African contingent having status updates which carry a “…Facebook for Blackberry” embellishment.

Consider that 42% in relation to international figures from developed nations. RIM holds a 19.4% market share of mobile phone OS in that bracket. While my 42% sample is slightly misrepresentative it is still indicative of how South Africa is one of RIM shining stars in the developing world. Blackberry has neither improved penetration through an increase in corporate types who require email nor as a result of users deciding a Blackberry to be the sexiest looking mobile handset on the planet. The offer of unlimited browsing has also not been the swing vote. Sure, it has helped bring users over to the fold, especially those who need to check Facebook every 20 minutes or tweet daily about their breakfast content. Instead the lynch pin is the price point at which the 8520 has been available. Taken with a network CIB, SPs have been making the 8520 available ‘Free’ with a 24 month subscription on the most basic contract for individuals. This has made it a comparatively cheap phone and it has certainly reduced the header price on the entry level smart phone market. As a result one can find a Samsung Scala or Nokia E71 for ZAR99.00 per month over 24 months. Prior to the Blackberry craze an E71 was unattainable for anything shy of ZAR370.00 x 24 months.

RIM knew what they were doing. The Canadian phone giant saw the appeal and potential market demand for producing a handset at a much lower price break than their conventional offerings and one that would compete on price against manufacturers in the pseudo-smart phone segment. In South Africa, MTN were first to snap up the phone at a resultant wholesale base cost of an estimated US$170.00, shortly followed by the nation’s two other mobile carriers. South Africans have converted in large numbers to Blackberry in a self-fuelling cycle. The more people that have a blackberry, the more people who do not, feel they need to.

Consider that the average cost of a Windows Phone on the international market looks to be coming in at around US$165.00 hardware cost when built in into a 24 month contract. Those models are packed with features that blow the 8520’s flash-less camera, EDGE capped browsing speed and near archaic screen resolution out of the water. Give some thought to how attractive a high-end handset like the Windows Phone becomes if it were available for around ZAR99.00 or less per month. This is easily achieved if Microsoft took some of the colossal launch budget and put it into phone subsidies to bring down the equivalent dollar based built-in cost for a 24 month contract to below the USD$110.00 mark. The one thing that cannot be denied about the Windows Phone is that it does look attractive and the software’s look and feel is nothing like the design-deficient Windows Mobile versions or the straight jacketed Blackberry OS.

As much as the boys in Redmond believe their handset to have fresh performance and attractive looks, the ‘fresh start’ narrative alone will not move handsets in the volumes they want or Microsoft requires. Consumers simply do not hold the Microsoft Corporation in the same design esteem as they do Apple and the Jobs personality. The Windows Phone and Microsoft do not have the intrinsic street-cred or market expectation to that effect; nor for potential users to willingly believe that something from the Windows stable is going to look or perform as great behind closed doors as they are promised. The ‘fresh start’ of Windows does not carry the same value as Apple or the curiosity and nerd cool of Google’s Android. The Windows Phone is truly the underdog and that is not a position Microsoft enjoys or is used to.

It is a widely accepted rule that technology Product Managers need to differentiate their product in at least two, clearly identifiable ways. Looking at the Windows Phone roll out so far, that launch budget has not told me why the product is better than the competition. The claim that “it’s time for a phone to save us from our phones” does not do much more than make the ad-executive responsible for that line look chuffed. Without a clearly differentiated draw card most consumers are unlikely to ever find out just how great Microsoft’s fresh start is.

Instead of burning 50% of the US$400 million on ad-executives’ egos and feel good antics that are likely to fade into the haze of the recession clouded economic climate, Microsoft would do well to consider just what a lower price point and a properly subsidised offering did for Blackberry’s market share in South Africa. In addition to that RIM came in shooting. The Blackberry 8520 did not waste time making small talk with its foes and paying lip service to consumers. It rolled up its sleeves and got down to the business of cleaning up the competition. If Microsoft took US$200 million and subsidised the handset to below the US$110.00 mark it would conceivably move over 3 million handsets with that money alone. From this Microsoft would likely take a gross +/- US$150 million theoretical margin of which a compounding percentage could be reinvested to maintain the sub US$110.00 price point. Microsoft needs a good price point and consumers want cheap, feature rich handsets.

Microsoft by looking beyond their current surroundings could make that US$400 million launch budget count and the Windows Phone a fixture in our lives in the same fashion Windows 7 is for the PC. Moreover Microsoft could in fact save us from our mediocre phones in the current sub US$200.00 segment. Steve Ballmer could print a whole stack of t-shirts with his face on them and give them young capitalists everywhere. Subsidise! Microsoft needs to do this now, not later. Maybe that way the Windows Phone will receive “Hugs, Kisses [and] Unicorn Giggles” in its inbox.

Notes:

> Update: Since the first release of this article on 27 October 2010, the Windows Phone was released in South Africa on 03 November 2010.

> Many thanks to Richard G. Davis for stimulating the content of this article.