Windows Phone 7 launches Monday in crowded smartphone market

Success of new mobile OS considered vital to Microsoft

Microsoft will unveil devices running its new Windows Phone 7 operating system for the first time Monday at an event in New York that some experts predict will be a make-or-break product launch.

They aren't exaggerating.

Analysts say Microsoft's success with Windows Phone 7 (WP7) is important to its mobile initiatives as well as to the overall future prowess of the software giant, which is best known for its desktop operating systems and office productivity software. Analysts regard the WP7 announcement as important to the entire company.

"On a scale of 1 to 10, this announcement is an 11" to both Microsoft in mobile and Microsoft overall, said Ramon Llamas, an IDC analyst. "This is where the rubber meets the road. It's huge."

Microsoft must prove it has overcome its dismal performance with the current Windows Mobile OS and the failure of a youth-focused Kin phone line that launched in the spring but was killed two months later.

More daunting is how well WP7 can distinguish itself with consumers against Apple's iPhone and an array of Android devices, as well as the persistence of Research in Motion's BlackBerry smartphones with the corporate crowd.

"With WP7, Microsoft is trying to catch up to everyone else in mobile," said Zeus Kerravala, an analyst at Yankee Group. "In many ways, I think they've missed the mobile window, not to play with words. Windows Mobile has left a bad taste in people's mouths and, now, trying to get customers to try Microsoft and WP7 again will be difficult, especially with the popularity of Android and Apple."

Microsoft needs to replace those failed products with a "cool and sleek" set of WP7 devices "that will draw people in," Llamas said.

Microsoft is being quiet about the final lineup of devices that will be shown Monday, although a spokeswoman said there will be devices -- plural -- shown by Microsoft with AT&T, after a press conference with Microsoft CEO Steve Ballmer and AT&T Mobility President Ralph de la Vega. And Microsoft has not restricted itself to smartphones; some observers expect more news on Microsoft's plans for tablet computers.

Device makers HTC, LG and Samsung are expected to show off their new products at the launch event. Plenty of YouTube videos have been generated showing the distinctive "hubs" and "tiles" motif that will be used to distinguish WP7 from other interfaces. One video shows the incorporation of five popular apps: Netflix, Twitter, Flixster, OpenTable and Travelocity. Another video, that shows HTC's 3D customization of WP7, has received more than 400,000 hits on YouTube.

Also Monday, Microsoft will offer some hands-on experience with its consumer lineup, including WP7, Kinect, Bing, Xbox and "others," a spokeswoman said. A "global portfolio" of WP7 devices from various manufacturers will be shown in a separate location. On Tuesday, third-party developers will meet with Microsoft to learn more about WP7 on its final lineup of devices.

Aside from Microsoft's problems with Kin and its previous Windows Mobile OS, there are other questions over WP7.

How will developers react?

Developers, so far, have downloaded more than 300,000 copies of tools to help them build applications. Experts noted that the applications already written for the existing Windows Mobile OS must be heavily rewritten for WP7, and some developers are unhappy about that. While some large third-party development houses, such as Travelocity, will build applications for WP7 phones, it's less clear whether small development shops will be able to handle the development process.

"The jury's out," said Paul Reddick, CEO of Handmark, a mobile application developer who commented this week at CTIA in San Francisco. "Coming out of this economy, developers don't randomly build stuff."

How many apps will be ready for WP7?

Microsoft is not saying how many applications will be available to WP7 on Monday through its online Windows Phone Marketplace. The question is an important one, since too few could spell disaster, Llamas said, pointing out that the Palm Pre launched in 2009 with only 32 applications.

"Microsoft deserves congratulations for 300,000 downloads of the developer tools, but I would hope they have more than the 32 apps that Palm Pre had," Llamas said. "They need a goodly number, although I don't expect 100,000."

What carriers will support WP7?

Other than saying AT&T will attend the Monday event, Microsoft hasn't specifically named the first wireless carriers of its phones, although in February it called the four major U.S. carriers its "partners" in WP7. AT&T, a GSM carrier, is expected to be joined eventually by T-Mobile, another big GSM carrier, as well as Verizon Wireless and Sprint Nextel, which both run on CDMA.

However, Verizon carried the botched Kin, which apparently has strained its relationship with Microsoft. A Verizon executive earlier this week said Verizon's business customers aren't sure what to expect from WP7. "It's fallen off the radar for enterprise customers," said Michael Tighe, Verizon's executive director of business solutions.

As with all phones, the carriers are key to a phone's success. Verizon Wireless was accused of hurting the Kin by selling the Kin phones, which did not run games, with a full smartphone monthly data subscription starting at $70, something that caused young buyers to balk. AT&T presumably will not face that problem since WP7 specifications are expected to support a range of typical smartphone apps.

Llamas said Verizon, the nation's largest carrier, could come back on board with WP7, however, possibly with a faster LTE wireless version in 2011.

How can WP7 compete with Android and Apple?

The biggest concern for WP7 has a lot to do with marketing and convincing buyers that it can be distinctly different from the iPhone or Android devices, Llamas said.

Most of the preview videos of the interface show that WP7 is cleaner than the confusing interface of the Kin, but buyers will also note that WP7 offers a touchscreen of about the same size as an iPhone, with a virtual keyboard that could well be an iPhone's.

The hubs and tiles concept could resonate well as a way to present access to pertinent information right from the home screen, analysts have noted. (The tiles are actually running with real-time information on a home screen, without the need to open a full application, for example.)

Llamas also said that Microsoft will benefit from having its installed corporate base from the Windows desktop and Windows Mobile. That will include WP7's allowing access to corporate e-mail through Exchange and a variety of security protections.

Still, there appear to be many things about WP7 that are similar to other smartphones. "How is WP7 differentiated from Apple and Android and BlackBerry?" Llamas asked. "What space is Microsoft carving out? That is the multibillion-dollar question for Microsoft."

What are WP7's chances of success?

Today, the Windows Mobile OS gives Microsoft a 6.8% share of the global market for smartphones, a share that IDC expects will rise to 9.8% by the end of 2014 with WP7 and future generations.

That will put Microsoft in fifth place in 2014, which might sound unimpressive except that smartphones sold by all vendors will double in number, exceeding more than 500 million in four years, Llamas said. Gartner has been more pessimistic about Windows Phone's success, saying it will only command 3.9% of the market by 2014.

"What will constitute success for WP7?" Llamas asked. "Would it be a million sold in three days like Apple? No. Will WP7 turn heads? Yes, I think so. But this is not going to be an overnight sensation. It will take a lot of seeding and grooming by Microsoft, so look for them to do a very convincing marketing campaign. Marketing really matters at this point."

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