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  • Welcome to the Rounding Error

    February 17th, 2017

    A few years ago, a certain industry analyst firm suggested that Windows Phone, or whatever Microsoft intended to call it, would be the second most popular mobile platform on the planet by now. Seriously. Obviously somebody spent a little too much time reading Microsoft’s press releases of hope and change and didn’t consider the reality.

    In its various implementations of Windows Phone, Microsoft moved to making it possible to use Windows 10 on both regular PCs and mobile gear. I’m not at all sure if anyone cared, but Microsoft has long believed in this Windows-anywhere scheme. Unfortunately, the world has moved on.

    Part of the argument was that Apple must inevitably fail, just as they failed to take control of the PC market, and were reduced to a single percentage market share. That was supposed to make them irrelevant, but not to 75 million or so Mac users. Apple has continued to sell millions of Macs  and, in the December 2016 quarter, sales even climbed a bit compared to a PC sales slowdown.

    When it comes to mobile gear, there was this illusion that Android would take over completely, which is not quite true, with Microsoft knocking Apple out of runner up status.

    Only the public didn’t embrace Microsoft’s attempts to be relevant in the mobile handset space. The purchase of Nokia, coming at a time when the venerable cell phone maker wasn’t doing so well with Windows Phone, was supposed to jumpstart Microsoft’s efforts to move more product. It was one of the last acts of Steve Ballmer before he ceded the CEO spot to Satya Nadella, who has increased the company’s focus on services.

    According to smartphone numbers from Gartner for the December 2016 quarter, the predictions of Microsoft’s success have been shown to be so far off the mark that one should question the competence of the people who made those predictions.

    So in 2011, IDC, Gartner’s main competitor in industry analysis, predicted that Windows Phone would occupy the number two spot by 2015. The following year they said, in essence, no wait, it’s going to be 2016. So let’s take 2016 as IDC’s best prediction.

    Now the numbers from Gartner and IDC may be different, but not that different. So Gartner reported that Android held an 81.7% share of the market, while Apple had 17.9% in the holiday quarter. At the same time, the iPhone outsold Samsung’s smartphones — but not their entire handset lineup — by a small number. Part of that was due to the abject failure of the Galaxy Note 7 phablet due to battery problems. But don’t forget that no single Samsung smartphone comes near to the iPhone in sales. It’s the combination of many models, most cheaper than Apple’s contender, which brings the numbers so close. Samsung also still sells loads of cheap feature phones that yield little in the way of profit.

    Windows Phone? How about 0.3% of the market, which is just ahead of a rounding error. Talk about near-irrelevance. Microsoft hasn’t just been defeated, but nearly obliterated. I have to feel bad for the thousands of Nokia employees who received pink slips as a result of Microsoft’s unfortunate move.

    At this point, it’s hardly likely that Microsoft has any hope of ever returning to the mobile market with decent numbers. It’s a two-horse race, and there’s no room for any competitors. Sure, Windows still has a huge advantage in the PC market, but OEM license sales were down 5% in the last quarter, and Surface revenue was down 2% despite the arrival of the costly Surface Studio.

    Apple’s critics will suggest that they are destined to be consigned to niche status as the market moves more towards commodity gear. It is true that several China-based smartphone makers are doing well, largely in the Asian market. But Apple continues to bring in over 90% of the profits from smartphone sales. It’s clear the iPhone isn’t going away, and that Samsung has issues to consider, which is why the Galaxy S8 has been delayed.

    I won’t consider the implications of the criminal charges that Samsung CEO Jay Y. Lee is facing. While that is certainly going to harm the company going forward, Samsung has many divisions and other executives to manage the fate of the mobile division. It’s not equivalent to any situation that would cause Tim Cook to be sidelined, since Apple only builds a small number of products. Even then, there are other executives to keep things running should something happen to the CEO. Apple didn’t stop doing business when the late Steve Jobs took sick leaves.

    Now about that rounding error: The real “honor” falls to BlackBerry, which no longer makes mobile handsets. But before they stopped, they sold a little over 200,000 units in the last quarter, resulting on a 0.0% market share. BlackBerry at one time held an over 20% share of the smartphone market, and that was two years after the iPhone’s debut. What a tragic fall from grace.

    Some might expect — or hope — that Apple will meet a similar fate. But right now it’s Microsoft that’s destined to descend to rounding error status real soon now.



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