Why Microsoft is celebrating about Apple's new iPhones

The folks at Microsoft are likely smiling today at Apple's announcement about its new iPhones. The new iPhone lineup will go a long way towards helping Windows Phone gain worldwide market share.

There was little in the new phones that would do anything to endanger Windows Phone. The iPhone 5S's 64-bit processor and motion processor are nice-to-haves, but not much more than that.

The bigger news -- and the good news for Microsoft -- was about the lower-end iPhone 5C. The 5C is Apple's attempt to go somewhat downmarket and attract budget-conscious consumers. However, it didn't go very far. With a two-year contract, a 16GB iPhone 5C will sell for $99, and the 32GB version will sell for $199. Those are not exactly budget prices, and was higher than some analysts had expected.

The problem is that those numbers are only for those who agree to two-year contracts. In the developing world, where the greatest growth and market opportunities are, people typically don't buy two-year contracts. Instead, they pay full freight for phones, without contracts. Without contracts, the lower-end iPhone 5C will sell for about $550, and the higher-priced 32GB version will cost $650. At those prices, don't expect the iPhone to pick up significant market share in those growing markets.

And that's why Microsoft is likely celebrating. Microsoft's sweet spot for Windows Phone is budget-conscious buyers who are upgrading from feature phones to smartphones. In a report this spring, Kantar Worldpanel ComTech analyst Mary-Ann Parlato noted:

"Windows strength appears to be the ability to attract first time smartphone buyers, upgrading from a featurephone. Of those who changed their phone over the last year to a Windows smartphone, 52% had previously owned a featurephone."

One estimate says that in the developing world, smartphone penetration is less than 10%, with mobile phone penetration at under 50%. Apple is essentially ignoring that market. Budget-conscious buyers in developing markets aren't likely to shell out $550 to $650 for a smartphone. They will be far more likely to buy a much less expensive Windows Phone.

The Nokia deal with Microsoft will help in these markets. Mobile World Live reports that in emerging markets:

Nokia is a relatively well known and established brand, with Microsoft seeking to leverage this by positioning Nokia's featurephones as an 'on ramp' to the higher-end Windows Phone.

Nothing that Apple announced yesterday will change that. Microsoft still has an opportunity to gain significant market share in the fastest-growing markets for smartphones. Apple doesn't.

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