The Windows Phone operating system might not be the biggest earner in Microsoft’s portfolio but don’t write it off just yet, says’s Jo Best.

Psst – wanna know how much Windows Phone has earned Microsoft? The good folk over at online Seattle newspaper Seattle PI have been doing some digging through Microsoft’s latest filing with the Securities and Exchange Commission, and found that Microsoft’s mobile efforts earned the company around $613m in the last financial year.

Well, not even that. The $613m figure includes Windows Phone, Windows Mobile, touchscreen table product Surface, IPTV offering Mediaroom and the Zune media player. Subtract all those products’ contributions from the $613m earnings figure and Windows Phone doesn’t look like it’s putting an awful into Microsoft’s coffers.

Windows Phone 7 homescreen

Windows Phone 7: Is a resurgence possible?Photo: Bonnie Cha/CNET

It’s a fact Microsoft CEO Steve Ballmer himself acknowledged at Microsoft’s Worldwide Partner Conference in July when he described Windows Phone as “going from very small… to very small” since its launch last year.

While it’s easy to snigger behind your hand at Microsoft’s apparent failure, writing off Windows Phone as a lost cause would be unwise.

Let me take you back a decade or so to another time when Microsoft was soundly derided for its attempts to enter a new, slightly cool market. Yes, we’re talking Xbox.

At the time Microsoft was readying its entry into the games console market, the industry wasn’t short of 800lb gorillas – PlayStation, Nintendo and, perhaps more a 400lb gorilla, Sega.

Nevertheless, it sold Xboxes by the truckload and became an 800lb gorilla in its own right in the gaming market, selling some 24 million consoles.

What Microsoft did with the Xbox has parallels with its mobile efforts – not just because it shows that it’s possible for Redmond to come from a standing start to taking a significant slice of a market, but because it shows Microsoft learned a valuable lesson about ecosystems that could serve it equally well in mobile.

Why did people buy the Xbox? It wasn’t for the specs or the brand name – it was for what the console brought with it. In short, they bought the Xbox because of Halo, the science-fiction first-person shooter. In short, the Xbox succeeded because of the ecosystem around it.

That lesson also came into play with the Xbox 360 – while it wasn’t the first console to do online gaming, it was considered the best at it. XBox Live mandated broadband, making sure games had the speed they needed. It also featured clever additions such as making sure friends lists went across any number of games, rather than being linked to particular titles, and offered users extra content such as demo games. In short, the ecosystem was right.

The ecosystem made the difference for the Xbox and it will make the difference, for good or ill, for Windows Phone. Today, the golden rule in mobile is…


…ecosystems sell phones, not the other way around – as Apple and its App Store have amply demonstrated.

To get any significant uptake, Microsoft must get the developers onside, as it acknowledges in its recent SEC filing:

Steve Jobs at iPhone 4 launch

With the App Store, Steve Jobs and Apple wrote the book on using an ecosystem to sell a devicePhoto: James Martin/CNET

“We will also provide Nokia [the company announced earlier this year it is to make Windows Phone its primary smartphone OS] with developer tools to accelerate developer support for Windows and Windows-related platforms. Microsoft and Nokia will collaborate on joint-developer outreach and application sourcing. Microsoft’s Windows Marketplace infrastructure will support a new Nokia-branded application store. Participants in the Windows Phone ecosystem will be able to take advantage of Nokia’s billing agreements with operators in markets worldwide.”

If Windows Phone is to make a showing, it needs to be working on an all-encompassing, sticky ecosystem for the next generation of Windows Phone, just as it did with Xbox 360.

Of course, getting developers to work on a self-confessed “very small” platform will be no easy task but it’s what Windows Phone needs. If Microsoft can’t woo them, it can always buy them – after all, it’s what it did with the team behind Halo, who came on board when Microsoft acquired Bungie. Granted, it’s not a strategy that always worked well. The Microsoft acquisition of mobile software developer Danger for $500m was supposed to give it a kick-start in mobile but only resulted in the miserable and short-lived Kin and the departure of most of the original Danger staff.

Nevertheless, getting the ecosystem in place is the only way Windows Phone can be a serious contender – even if it means spending big and headhunting some big names to keep the acquired staff happy and stop innovation being stifled by Microsoft bureaucracy.

Nokia is the object lesson on what happens when you get it wrong, as it did with Ovi. There was no ecosystem to sell its phone, no must-have apps, and it ended up as the mobile industry’s Cinderella in reverse. It finished with no options other than to get into bed with Microsoft, and tie its software future to Redmond’s.

Should Microsoft fail to get its ecosystem right, it could end up in a worse position. Get it wrong, and for Ballmer and co, there won’t be another Microsoft around to bail them out.