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MS Smartphone to hit 28m units in 2005 – oh, really?

Just click your ruby slippers, sweeties...

Microsoft may only have shifted tens of thousands of its smartphones so far, but a total of 1.6 million will sell this year, and by 2005 the platform will be selling 28 million units, representing 5.8 per cent of the total handset market. Or at least, so says a new report, Microsoft Smartphone Dissected, from Edge Consult. Well how does that work then? says the Reg.

The units so far are accounted for almost entirely by the SPV, for which Orange claims 60,000, and although Smart Communications in the Philippines has also rolled out a device this seems not to have yet had sufficient impact for anybody to be boasting about numbers. The 1.6 million for this year is achievable, but this is a very small number by handset standards, and it's telling that it becomes necessary to figure how it might (emphasis, might) be achievable.

Orange's second take on the SPV will surely sell more units, but the SPV really can't be seen as a primary sales focus for the company. It has enough subsidiaries to be able to roll out enough smartphones to satisfy its production commitments to HTC, and if it does better than that, well and good, but it has other fish to fry. Dogs bark, the caravan moves on. In addition, this year AT&T and T-Mobile will be selling smartphones - how many?

At this juncture it's probably simpler to stick your finger in the wind and figure out what would be rational initial unit commitments to the manufacturer from the current small number of players. If the other big boys went for a similar or larger number to Orange's 250,000, then yes, you could maybe get total manufactured units up in that territory, but that doesn't equal units sold. And Orange still has quite a way to go in this department.

In any event, even achieving 1.6 million this year still leaves Microsoft starting 2004 with an installed base of almost complete insignificance by mobile phone standards, so how do you get from there (or indeed from zero, because it doesn't matter much) to 28 million in 2005? Edge Consult has an answer, which also by the way can be used to justify why a small number like 1.6 million might be important after all, but the size of the 24 month mountain is such that one wonders if even the outfit's analysts are wondering what they've been smoking.

"Microsoft?s position is not impossible. Samsung and Motorola have demonstrated that they are not opposed, in principle, to producing Microsoft Smartphone handsets, and the platform's ability to drive data revenues will be compelling for network operators," says senior analyst Matt Lewis. Passing by the morale-sapping effect of the insertion of that "in principle" (regarding two Symbian shareholders' intentions), we spot a familiar Microsoft pitch. But one based mainly on gut feel, together with usage data from that desperately small installed base of Orange SPV owners.

Microsoft pitched these numbers to The Register at its Mobile Developers Conference in Paris last month, one memorable stat wheeled out being that SPV owners accessed the Internet far more frequently than Nokia 7650 owners. Well erm, yes, we said, but as the 7650 doesn't come with a browser, why is that big news? It does come with the ability to access POP accounts, and here again the Orange stats show greater usage for the SPV, but people tend to buy products depending on what it says on the packet, so whereas email can be seen as an extra thrown in on the 7650, email and Internet are key to the SPV pitch. Plus, the small number of users are developers, geeks and techies, so you'd kind of expect a techier access profile from them. In any event, Opera did ship a browser for the 7650 this week, and the writer will be checking it out in a couple of days, just as soon as he escapes from his current location, the France Telecom node slightly beyond the edge of the universe.

Other SPV-derived stats are really more of the same. Owners have three times more Internet or WAP sessions than the average "non-SPV pay monthly Orange customer" (an interesting qualification, given how important pay as you go data revenues will have to be for the networks), 78 per cent use portal and Internet access, and 75 per cent watch video clips or play games. Oh, and the vast majority download updates, but it may be charitable to draw a veil over why that might be.

Any data so far that indicates that Microsoft smartphones drive data revenue is therefore highly dodgy; it's based on a very small, and very skewed, sample, and we'll have to wait for it to get into the hands of more 'proper' consumers, and for it to be possible to do more than compare apples and pears when it comes to rivals, before any kind of judgment can be made.

Microsoft however believes it will drive data, and Edge Consult believes too. It describes the smartphone as "a key component of Microsoft?s broader .NET strategy," the objective here in Edge Consult's view being to multiply "the addressable market of .NET devices and [generate] revenues across Microsoft's operational divisions." So success is not licence revenue, but units, with the bucks coming in across Microsoft's divisions by virtue of the installed base driving the use of paid-for data services.

"While the handset vendors focus on stagnating annual shipment figures, Redmond will be watching the growth of an accumulated installed user base," says Edge Consult, and we think we see some more apples and pears, plus the odd leap of faith, here. Historically handset vendors have focused on shipment numbers, which are indeed (in the developed world at least) just a tad stagnant. But historically there has not been much market for paid for data services, because these have in large part not existed (for many obvious reasons). The conditions for them now do exist, and the services, with greater or lesser success, are currently being invented.

So the logic is dependent on handset manufacturers not having noticed this (which is not true), on .NET applications being so unspeakably compelling and the access device so wonderfully rich that they can't compete (not proven yet, to say the least), or the networks pretty much in unison suddenly adopting the Redmond road to mobile data.

In the absence of any of these, it seems to us to boil down to the old question over whether the old monopoly leverage is driven by rich client hardware or by the network end of the deal. Does .NET sell smartphones, or do smartphones sell .NET? Bit of both, no doubt, if either even begins to happen, but in the meantime it has to be a faith-driven thing. As Lee Reiswig of IBM immortally mispoke to The Register, many years ago: "I'll see it when I believe it." And as The Register's handy retread of Peter Pan goes, "Every time you say you don't believe in Windows taking over the world, a Microsoft marketing executive dies." ®

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