Microsoft Needs Carriers More Than The Carriers Need Microsoft

ZDNet writers James Kendrick and Ed Bott had a bit of a back and forth today regarding who is to blame for the Windows Phone update fiasco. If you aren’t aware, Windows Phone 7 users have been expecting to receive an update beginning in early February, and to date few, if any have received the updates. The main feature the update provides is copy and paste, which many people can probably live without, so the problem isn’t with not getting a feature users just must have, but instead the problem is with expectations Microsoft set that they are not meeting.

Ed Bott wrote that the real Windows Phone problem is with AT&T and not Microsoft. Bott is reacting to Microsoft’s table that shows all of the AT&T phones in a testing status, which means that the ball is in AT&T’s court to complete their work so that Microsoft can schedule the deployment of the update. In his blog response to Bott’s blog post Kendrick says the blame lies with Microsoft for allowing AT&T to adversely affect the update process. James goes on to contrast what Microsoft has done to Apple’s deal with AT&T where Apple retained control over the entire update process.

I agree with James that the fault lies with Microsoft, but I think that there is little Microsoft can do to fix the problem beyond directly selling a mobile phone in a manner similar to how Google sells the Nexus S. The simple fact of the matter is in a U.S. market where people buy the majority of mobile phones on contract from carriers, Microsoft needs the carriers more than the carriers need Microsoft.

Given Apple’s dominance of the smartphone market, and the rise of Android, I doubt any of the carriers were pounding down Microsoft’s door to start selling Windows Phone 7. In fact, I expect the reality was very much the opposite. Microsoft simply does not have any leverage to negotiate with the carriers to compel them to follow Microsoft’s wishes. This reality of how mobile phones are bought in the U.S., and the power the carriers have, is the reason why I think Microsoft has a very low chance of having success in the U.S. smartphone market.

If Microsoft were asking for my opinion when they were planning the Windows Phone launch, I would have recommended a much more scaled back approach. Pick one CDMA carrier, probably Verizon, to launch one very good handset. Pick one other GSM handset and directly sell it, unlocked, either for T-Mobile or AT&T’s network at a price below $500. Maybe by scaling back the launch to focus on providing the best phones with the best service, they might have a chance to gain some market share. Instead, Microsoft is doing what it has always done, and is expecting a different result from when they did it before.