Windows Phone 8: Microsoft’s Smartest Move or a Huge Blunder?

by Trefis Team
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Microsoft (NASDAQ:MSFT) announced the latest version of Windows Phone 8 last week, and it has seemingly made some significant changes to the internals of the operating system. Windows Phone 8 will undoubtedly be a revolutionary release, and bring a lot of new features to Windows Phone, but here’s the best part: it will share the same core as Windows 8. [1]

Windows Phone competes primarily with Google‘s (NASDAQ:GOOG) Android and Apple‘s (NASDAQ:AAPL) iOS. It hasn’t been doing very well yet, and hardly contributes anything to Microsoft’s value.

Windows and Windows Phone converging

This will bring a host of powerful features and functionality to Windows Phone 8, and also make it potentially easier to port Windows 8 Metro apps to Windows Phone, which could lead to an increase in the number of apps as developers can easily target both platforms with a single code base.

It will also have better enterprise features — better security, device encryption, and will also support more powerful hardware, better displays, and multi core processors.

No support for older devices

However, here’s the potential deal-breaker: it will be incompatible with the current breed of Windows Phone devices. This could lead to a sudden drop in Windows Phones, as users realize that their devices cannot run the latest and greatest version of Windows Phone and stop buying new Windows Phones; the lull should last at least until Windows Phone 8 is released.

Microsoft has stated that Windows Phone 7 apps will work with Windows Phone 8, which should ensure a significant app base for Windows Phone 8 when it does come out, but breaking support for older devices is probably not the right move, considering that Windows Phone sales are already as lackluster as they can be, while the iPhone and Android are making a killing in the space.

But maybe it’s a good thing

Legacy support has been one of the reasons why Microsoft has always been a favorite of the enterprise and why innovation on Windows has relatively lagged compared to its peers.

Microsoft now realizes that it cannot win the mobile wars or disrupt the space with the same strategy that won it the PC market in the 80s. While it may not work on older devices, the newer devices it will work on will likely be much more capable and could compete in a much better way with the likes of the iPhone and newer Android devices.

Windows Phone, Xbox and other devices account for around 3% of its value. We currently have a $40 Trefis price estimate for Microsoft, which stands nearly 30% above its market price.

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Notes:
  1. Announcing Windows Phone 8, Windows Phone Blog []
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