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Can Microsoft build on mobile gains to be a bigger force?

Microsoft showed some grit in the third quarter of 2013, greatly increasing its market share, while the Windows Phone platform finally got a long awaited Instagram app.

Now analysts are watching to see if Microsoft can maintain its pace as the year ends and it moves to close its acquisition of Nokia in early 2014. The software giant needs to reinvigorate and reinvent itself if it wants to keep growing mobile market share.

"[Microsoft needs to] leverage its enterprise strength, but also become more sexy to consumers," said Bob Egan, CEO and founder of the Sepharim Group, Falmouth, MA. "The focus needs to be on capturing the changing behaviors of consumers, not just features like a bazillion megapixel cameras.

"Building out an entire ecosystem of services, solutions and experiences for consumers and business is key," he said.

Mr. Egan is affiliated with neither Microsoft nor Nokia. He commented based on his expertise.

Spokespeople from Microsoft and Nokia declined to comment.

Building on its strength
Microsoft finally dipped its big toe in mobile during 2013 in that it delivered a reasonably uniform interface across mobile phones, tablets and the desktop, according to Mr. Egan.

Microsoft also released its InTune MDM management product and promises a significant enterprise upgrade to Windows Phone in 2014.

Microsoft's Office 365 is a big success for 2013 and equally suited for both small and mid-sized businesses as well as large enterprises, Mr. Egan said.

Windows Phone smartphone shipment penetration in the third quarter grew by 165 percent year-on-year, putting it at third place with 4 percent market share.

This compares to Android with 81 percent, iOS with 14 percent and BlackBerry with 2 percent market share, according to ABI Research.
?Apple and Android smartphones hold the lead in sales approaching the holidays," said Josh Flood, senior analyst in the mobile device division at ABI Research, London. ?Windows are continuing to make good progress with its smartphones and OS ecosystem, particularly with its low-cost devices.

?BlackBerry is further behind and have some challenging obstacles to overcome," he said. ?Presently, the market dynamics look unlikely to change in the short-term.?

Microsoft's rapid third quarter growth could be deceptive, according to some analysts.

"Rapid growth percentages such as this one are often deceiving, particularly if you start with a small base, which is the case of Microsoft," said Carl Howe, vice president of research at Yankee Group, Boston, MA. "What really matters in these battles around market share is how many units were actually sold and made their ways into consumer hands and how much they sold for.

?We don't have much in the way of factual data on those topics, so we really can't judge if Microsoft is making big gains or not,? he said.

Nokia Lumia 920 Windows Phone

Expanding its reach
With its acquisition of Nokia, Microsoft may gain hold in developing countries. Nokia has long targeted the third world with its cheap, basic phones.

Nokia Foundation further broadens the smartphones' reach by partnering with UNESCO to teach math and science instructors to use mobile phones in schools.

"Mobile can be used to deliver content, get feedback or communicate with these groups, increasing their educational access," said Steve Voosloo, senior project officer of mobile learning at UNESCO in Paris.

Mr. Voosloo is affiliated with neither Nokia nor Microsoft.

Apple has succeeded at what Microsoft still seeks to do: Convince consumers they cannot live without its products.

No matter how much revenue Microsoft makes from its Xbox and ancillary ventures and enterprise efforts, if it cannot keep pace with where consumers are conducting their work, play and home lives, it will flounder (see story).

Banking on its accomplishments
In September, Microsoft Corp. announced it would acquire Nokia Corp.'s mobile business, a major manufacturer of Windows Phone, for $7.1 billion (see story).

At the beginning of December, the United States Department of Justice approved the proposed acquisition.

In November, Microsoft smothered critics' noise when the Windows Phone platform finally got an Instagram app. Microsoft had been criticized for not having a native application.

Mr. Egan said he does not expect Nokia to help Microsoft much in 2014.

"Both companies need to resolve conflicts / rationalize existing hardware and software product development pipelines," Mr. Egan said. "Rationalizing organizational overlap, product marketing and cultural issues are also very serious and important undertakings that may well distract from Microsoft's ability to execute and drive significant gains in mobile market share in 2014."

Office 2013 RT with Outlook

Keeping pace
With its Nokia Windows Phone, Microsoft may be able to stave off its competitors. Microsoft may be able to attract consumers to trade up from their base model Nokia phones to a higher-end Windows Phone.

Microsoft expects to close its deal with Nokia in early 2014. In the meantime, the rumor mill is turning out various reports.

Mr. Egan said of recent news that Nokia is developing an Android phone that it is a "science experiment long in the labs that I don't believe will ever see the light of day."

Last week, Microsoft Corp. introduced the Cloud OS Network, which includes more than 25 cloud service providers worldwide, which delivers services built on the Microsoft Cloud Platform.

Microsoft's upcoming purchase of Nokia endorsed vertical integration, such as Apple's end-to-end offering (see story).

"In 2014 Microsoft really needs to dive in and start swimming like it's in the Ironman by resolving the Win8 versus RT versus Windows Phone debacle, improve its Lync offering and decide what it's going to do with Skype," Sepharim Group's Mr. Egan said. "All this while trying to integrate Nokia."

Other analysts agreed.

"The big open question is whether Microsoft has established a large enough base of satisfied owners who will buy apps to draw app developers to their ecosystem," said Yankee Group's Mr. Howe. "It's easy for an app developer to argue to their investors that they should support Apple, where they are most likely to make money, and Android, which has the largest installed base.

"However, the Microsoft argument is more challenging; few developers feel that they should invest tens of thousands of dollars in an app that only has a total available market of somewhere around 10 million devices," he said. "And without a large selection of apps, consumers are less likely to choose Microsoft's platform, thereby limiting its growth."

Final Take
Kari Jensen is staff writer on Mobile Marketer, New York