Microsoft's struggle to make Windows Phone a viable smartphone operating system is about to face what may be its most serious competition -- Firefox. The new operating system could eat into one of Windows Phone's hidden weapons, the desire of carriers to find a partner to fight against the domination of iOS and Android.
Given the way that carriers push iPhone, for example, you might imagine that iPhones are big money makers for them, as a way to lock in customers. In fact, though, the iPhone is turning into a catastrophe for carriers, and seriously eating into profits and margins. CNNMoney estimates that carriers subsidize iPhones to the tune of $450 on average. It reports:
Those subsidies almost single-handedly devastate profit margins for Verizon, AT&T and Sprint.
Verizon, for example, has seen its "EBITDA service margin," essentially a way that carriers measure their profits, drop from 46.4% per quarter before the release of the iPhone on Verizon to 42.2% after as of 2012, reports CNNMoney.
Mike McCormack, an analyst at Nomura Securities told CNNMoney:
"A logical conclusion is that the iPhone is not good for wireless carriers. When we look at the direct and indirect economics that Apple has managed to extract from the carriers, the carrier-level value destruction is quite evident."
The carriers are also being hit by subsidies they pay for Android phones. As a result, they're looking for a third OS platform that can compete against iOS and Android. If there was serious competition, carriers would have to pay less in subsidies, and gain more profit.
Until recently, many carriers have been looking towards Windows Phone to be that third platform. But now, they may turn to Firefox instead. European carriers interviewed at the Mobile World Congress by The Guardian have made it clear that they're betting on Firefox. Telefónica chief executive and chairman, César Alierta told the newspaper:
"This internet is dominated by a small number of players that restrict customers' choice. We support open ecosystems to break monopolies and give greater choice and flexibility to consumers. Firefox represents a way to bring balance back to the sector."
A Computerworld article notes that even Microsoft has taken note of Firefox's appeal. Greg Sullivan, a senior product manager for Windows Phone, told the magazine, "Firefox's arrival indicates the smartphone industry is so competitive and dynamic." Sullivan added, however, that he believed that Firefox is aimed at low-end hardware, while Windows Phone will run across a wider range of devices.
Despite what Sullivan says, carriers seem more interested in Firefox than in Windows Phone as a way to gain leverage against Apple and the biggest Android phone maker, Samsung. Jack Gold, an analyst at J. Gold Associates, told Computerworld:
"Consumers may not really care what the operating system is, but carriers do. They want choice, because then they can go back to negotiate with Samsung, with Apple. [Firefox OS] would give them leverage. That's why they want a third OS."
Microsoft has been betting that carriers would turn to Windows Phone as that third OS. But they may well turn to Firefox, instead.