Microsoft and the quest for the low-cost smartphone

The Register picked up an article from DigiTimes reporting that Microsoft's seeking bids to create a sub-$300 Windows Mobile smartphone.

At first the article made no sense to me because it's easy today to create a Windows Mobile or Palm Powered smartphone for less than $300. You use a chipset from TI, which combines the radio circuitry and processor in the same part. You can't doll up the device with a keyboard like the Treo, so you end up with a basic flip phone or candybar like the ones sold by the good people at GSPDA and Qool Labs.*

This works only with GSM phones (Cingular and TMobile in the US); if you want CDMA (Sprint or Verizon) your hardware costs more. And the costs for 3G phones are a lot higher.

I have a feeling it's lower-cost 3G smartphones that Microsoft is actually after. Most of the operators don't want to take on smartphones with anything less than 3G even today, and if Microsoft's looking ahead to future devices there's no reason to plan for anything other than 3G.

A 3G smartphone at $300 would sell for about $99-$150 after the operator subsidy, so Microsoft's trying to get its future smartphones down closer to mainstream phone price points.

What no one seems to be asking is why it's so important to do this. The assumption most people make is that by reaching "mainstream" price points you'll automatically get much higher sales. That's what the Register seems to believe:

"Symbian remains the world's most successful mobile operating system, almost entirely because Nokia has used it not only for high-end smart-phones but to drive mid-range feature-phones too."

Okay. But that happens only because Nokia's willing (at least for the moment) to eat several dollars per unit to put Symbian into phones bought by feature phone buyers: people who won't pay extra for an OS, and in fact don't even know Symbian is in their phones. Symbian is basically a big Nokia charity at the moment. Most other vendors are unwilling to subsidize Symbian like this, which is why Symbian sales outside Japan are almost totally dominated by Nokia.

Will Microsoft be able to get vendors to push its products the way Nokia does Symbian? Maybe with enough financial incentives. But I think the underlying problem is that the OS isn't adding enough value to drive large numbers of people to buy it, at any price. When we researched mobile device customers at PalmSource, we found lots of people who were willing to pay extra for devices that met their particular needs. Fix the product and the price problem will take care of itself.

Michael Gartenberg says he was very impressed by the preview he just got of the next version of Windows Mobile. I tend to trust Michael's judgment, so maybe there's hope.

*If only some US operator had the wisdom to carry their products. Sigh.