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January 03, 2014

Nokia is King of the Windows Phone 8 Hill - It's a Small Hill That Will Get Much Larger

It is certainly no secret that Nokia rules the Windows Phone roost. The company owns the vast percentage of the market, and its own devices dominate of course. You would think that this would make Nokia a heavy hitter in the overall smartphone space, and in a strange way it does. Nokia delivers the most sophisticated Windows 8 smartphone available (the Lumia 1020 with its 41 megapixel camera) and it also dominates the mid and low ends of the market as well.

So what does this mean exactly - for both Nokia and its soon to be new owner Microsoft? In truth, it doesn't mean a lot…yet. But it will.

Thanks to the folks at AdDuplex we now have some interesting statistics on Nokia's overall Lumia sales. At first blush they look rather discouraging. Before going on let's take a look at the following chart that AdDuplex has made available.

Let's keep in mind that Windows 8 overall owns nothing more than about 7 percent of the entire worldwide smartphone market. Compared to the Android and iOS mountains we truly are speaking here about a low level foothill. But keep in mind as well that as far back as 2010-2011, when Nokia and Microsoft first really became kissing cousins, our long standing belief has been that the real advantage Nokia brings to the smartphone game for Microsoft is to be found in the mid and low end of the mobile phone market.

Back then our position was that Microsoft needed Nokia to seed the larger marketplace with Windows Phone devices. That is, Microsoft needed to get in on the low and mid-tier markets for smartphones in order to begin gaining as wide a piece of the smartphone territory as possible. Our belief then was that it wasn't nearly as important for Microsoft to make real money on the Windows Phone OS as it was to simply get it into as many hands globally as possible. The only wau to make this happen was with lower end devices.

Since then Nokia itself has had a number of starts and stops - launching a flagship Windows 7 smartphone that would not be compatible with Windows 8 was sort of dumb. Not stepping up the Lumia 1020 R&D to deliver it a year earlier was also sort of dumb. But through it all Nokia managed to also launch a truly fine - we can even say outstanding - set of lower end versions of their Lumia flagships.

Well, take a closer look at the AdDuplex chart and what do you actually see? A great many lower end Lumia devices dominate the market for the entire population of Windows smartphones. One way to look at this is to note that both Nokia and Microsoft are earning market share at the expense of revenue, since these lower end devices do not generate the sorts of dollars the high end does.

The other way to look at it however is that Nokia is finally beginning to deliver that grassroots, low and mid-tier market that Microsoft desperately needs to land if it is to significantly move the needle forward on overall market share. This is how we believe Microsoft will push its way to 20 percent and eventually to as much as a third of the entire smartphone market. Exactly as we had anticipated back in 2010-2011.

What about revenue? It truly isn't as important yet as changing the playing field overall  Microsoft and Nokia need to leave the foothills behind and they need to begin trekking up a much larger mountain. If the numbers we are seeing in the AdDuplex chart continue to hold up we expect that market share will follow and pick up significant steam. Back in 2010-2011 we also predicted that it would be roughly 2015 before Microsoft regained any sense of real market share - that still looks to us to be exactly the trend.

We believe that Windows Phone 8 and future iterations will begin to erode Android's current huge hold on the low end market. This is critical for establishing the beach head to move forward.

And what of revenue? Well, all those lower end Lumia users will eventually begin to migrate up to better smartphones - and to better tablets. Our bet is that Windows 8 smartphone users will remain loyal and move up to Windows-based tablets as well. As these things take place revenue will finally soar.

From such humble grass roots beginnings are dynasties created. Wait for it - in 2015 we'll begin to see exactly such a shift away from Android to Windows-based mobile devices. Nokia's Lumias in every size and shape will lead the way.

Edited by Cassandra Tucker

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