Microsoft Won’t Make Own-Brand Windows Phone Any Time Soon — That’s A “Last Resort Strategy”

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It’s Surfaced again: the rumour that Microsoft is developing its own smartphone hardware in a bid to drive wider adoption of its Windows Phone OS. Ever since Microsoft distressed its desktop Windows OEMs by unveiling its own-brand tablet PC, called Surface, the logical leap required to imagine an own-brand Windows Phone has apparently been shrinking. But just because you can imagine a Surface Windows Phone, doesn’t mean it’s about to be unboxed.

Microsoft itself has certainly not been encouraging this speculation. As recently as June, Windows Phone marketing manager, Greg Sullivan, poured cold water on the suggestion Redmond is planning to jump (back) into the phone hardware business. But of course that hasn’t stopped the rumour mill spinning. The latest speculation comes via the China Times. The paper reports Microsoft has been working on a WP8 smartphone for several months with various assembly partners — and is expected to launch the ‘Surface Phone’ device in the first half of 2013.

We’ve reached out to Microsoft for a response to this report and will update if we hear back.

The latest iteration of the Windows Phone OS, WP8, is due to land in a couple of weeks — and it’s backed by flagship smartphone launches from HTC, Nokia and Samsung. So you could say Microsoft has 99 problems with Windows Phone — and a selection of high end hardware isn’t one of them.

Building its own smartphone hardware, rather than working through existing partners, would be a strategy of last resort for Microsoft, IHS Screen Digest analyst Ian Fogg tells TechCrunch.

“For the Windows Phone 8 launch this autumn Microsoft is rightly relying on its strong mobile partners and their hardware and channel expertise,” he notes. “If Microsoft were to make its own Windows Phone device without working through partners, it would be a last resort strategy. That would risk driving its current partners away.”

Alienating existing Windows Phone OEMs is the last thing Microsoft needs as it moves to reboot Windows Phone with the WP8 launch. The timing simply doesn’t make sense. The rumoured Microsoft-made WP8 device would make it yet another high end smartphone — meaning it would directly compete with already announced flagships (like Nokia’s Lumia 920 and Samsung’s Ativ S), rather than helping to broaden Window Phone’s reach, something Microsoft needs to do to win significant share in the smartphone space.

Microsoft’s record as a smartphone maker is dismal to say the least — and its brand does not therefore carry cachet with mobile users. Compare that to the mobile juggernaut that is Samsung with its Galaxy range of Android-based devices, or even Nokia, the former number one mobile maker which is still a huge brand in many markets, and a Microsoft logo is definitely not the ‘sprinkling of marketing magic’ that Windows Phone is missing.

If seasoned and successful mobile makers like Nokia and Samsung are finding it tough to sell Windows Phones — with all their mobile expertise and established carrier relationships — Microsoft isn’t going to make WPs fly off the shelves by going it alone.

Of course, things might be different in a few years — if Redmond manages to make its nascent Surface tablet fly, and build a strong ecosystem around the brand and Windows 8 apps, as Gartner analyst Roberta Cozza notes. But Surface success is something Microsoft still needs to work towards.

“If Microsoft already had some success in the tablet market — e.g. with Surface — and already had gathered quite a user base then having a smartphone probably could make some sense. But I don’t see now how Microsoft could, in a business like smartphones — where already more established device players are struggling — how the Microsoft brand could really make that connection,” Cozza tells TechCrunch.

“It would be an enormous task, and I’m not sure where it would leave the OEMs that are investing in Windows Phone,” she adds. “If Microsoft alienates OEMs they could decrease focus on Windows Phone — when already we’re finding it’s the second choice [for most OEMs].”

So what then of this latest Surface Phone rumour coming out of China? It’s possible Microsoft has a back up plan to build its own Windows Phones in case its OEM partners fail to drive adoption in the coming years (or get tired of trying). Complex hardware products aren’t born in an instant — so Microsoft would need to start working on a phone now if it wanted to at least give itself the option of being able to launch something in a couple of years.

But right now Microsoft really needs to knuckle down and focus on Windows Phone software, not distract itself trying to build hardware. “One of the key reasons why Nokia has struggled [to sell its Lumia Windows Phones] is because Microsoft hasn’t improved Windows Phone over the last two years,” notes IHS Screen Digest’s Fogg — a charge he says can’t be levelled at WP’s competition, Android and iOS, now on versions 4.1 and version 6 respectively.

“I don’t think hardware partners are the reason why Windows Phone hasn’t gained adoption… The reason is because Microsoft has not been innovating fast enough with the software.”

“Microsoft has key hardware partners behind them for Windows Phone,” Fogg adds. “At the moment it has to have a successful Windows Phone 8 launch… It would be crazy for them to do anything to damage those [OEM] relationships this autumn.”