The Bull Case For Microsoft In The Post-PC World

The conventional wisdom in the technology industry is that when it comes to the post-PC world, Microsoft is doomed. Its mobile OS is nowhere, and its tablet-ready OS, Windows 8, while well-regarded, is a long time away and will be too late to the market. 

We disagree. 

First of all, it is still very early in smartphones. It’s easy to look at smartphone market share, but it obscures the bigger picture, which is the total phone market. Right now, Android and iOS are only indirectly competing, since they mostly replace non-smart phones. As you can see in the chart below, the market left to capture is huge.

mobile market share by OS

Photo: BI Intelligence

 

It’s also early in tablets, and Microsoft isn’t worse-off than Google. The tablet is the ultimate post-PC device, and right now the market is dominated by Apple. Android is nowhere, and the only company to have made a dent is Amazon. But it’s still very early, as our tablet market forecast argues (see chart below). What’s more, instead of having to take on two entrenched players like in smartphones (Apple and Google), Microsoft only has to take one on, because Google isn’t much further ahead.

Tablets Unit Sales Forecast

Photo: Business Insider Intelligence

 

Emerging markets are huge, and distribution matters. The future of mobile and computing is a global story, not just an American or Western one. Most of the growth will come from emerging markets as these markets leapfrog the PC-centric model and go straight to post-PC (see chart below). This matters to Microsoft because it has teamed up with Nokia, which is very strong in emerging markets, and which in particular is renowned for its distribution network. Nokia’s distribution network combined with Microsoft’s cash means the Microkia alliance can “buy” market share soon.

 

Mobile isn’t a winner-take-all market. We do not believe that mobile will turn-out to be a winner-take-all market, as we argued in a recent note. We think that while there is a developer (not user) network effect, the market resembles most the console market, where there are typically two or three major players. So again, it’s not at all obvious that there’s room for only one or two companies. There may be room for a strong number 3.

THE BOTTOM LINE:

  • It is very early in the mobile and tablet market, and the Microsoft/Nokia alliance has the tools and assets to eke out a profitable number three position in the market. It’s not an implausible scenario.

MORE:

  • The Future Of Mobile (Slide Deck) →
  • Understanding The Network Effect In The Platform War →

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