Microsoft's Windows Phone revenue drops 49 percent, can a Surface phone be the savior of this sector?

The biggest fans of Windows phones may be the readers of ZDNet, but it appears even the fans aren't supporting Microsoft's latest smartphone hardware.
Written by Matthew Miller, Contributing Writer

General George S. Patton stated, "Success is how high you bounce when you hit bottom." It appears that Microsoft's smartphone efforts are about as close to the bottom as you can get, according to its latest earnings report.

As a long time supporter of the underdog and Microsoft smartphone user, I knew things were going to be bad this year. However, I was a bit shocked by the latest earnings report that showed a revenue decline of 49 percent for its phones. Recent analyst data also shows market share may have fallen as low as just 1.6 percent.

Current Windows 10 Mobile lineup

The Lumia 950, see my full review, was released as the first Windows Phone flagship over the past 18 months with an intent to satisfy the fans. It turns out the software is riddled with issues, the hardware design is uninspiring, and the fans don't appear to be buying it.

The most successful Microsoft phones are the low end models that sell well in developing countries. However, there is not enough profit from these phones to sustain a phone sector for Microsoft.

What makes a Surface phone special?

We've seen lots of talk and rumors of a possible Surface phone, but it seems more and more likely that this idea is the last hope for the diehard fans that refuse to give up on Microsoft's smartphone strategy. There has been no announcement that a Surface phone is under development, although there are sources who state it is being worked on and may be released at the end of 2016.

Besides the Intel x86 architecture and likely deeper integration of Continuum, what else is there that this lauded Surface phone could offer that we haven't already seen from Microsoft or Nokia? Is the x86 support enough to differentiate it from the rest of the smartphone market?

Renderings from fans show a metal phone with design elements similar to Surface tablets. We've seen similar phones, such as the Lumia 830, so I'm not convinced there is a revolutionary hardware design that is going to bring in the masses here. We've seen Windows phones with excellent cameras, solid design, and unique features, such as Windows Hello. None of that has led to success for Microsoft.

Microsoft success with iOS and Android software

One area where Microsoft is excelling in phones is with iOS and Android software. Outlook on iOS and Apple Watch is better than the native Apple email and calendar clients, Office on other platforms is excellent, and Microsoft is even bringing its amazing Word Flow keyboard to iOS.

ZDNet's Mary-Jo Foley analyzed these recent financials and states that Microsoft's future is hinging on cloud and subscription services. Given my experiences with Outlook on iOS, I would pay Microsoft a subscription fee to use this service and wouldn't mind seeing the mobile resources at Microsoft focus on software and service while finally giving up on hardware.

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