Microsoft's release of the next version of Windows Phone 8 (Update 3) should arrive in the next few months. The company seems most interested in touting the updated operating system's ability to handle bigger screens (up to 7 inches). And indeed, that ability, plus support for quad-core SnapDragon processors and other assorted improvements, is sorely needed to continue Windows Phone's recent momentum (which nonetheless still places Windows Phone well behind its competitors iOS and Android). But what's critical for Microsoft is to separate out the cosmetic improvements from the groundbreaking enhancements that give it strategic leverage in the marketplace. And that seems to be where it is headed in this release.
Supporting bigger screens is important, and not only for phablets, which are gaining some traction even in mature markets (not just in Asia, where they seem to be wildly popular). But what's really important is that this support helps eliminate one of the stumbling blocks for Microsoft in the low end of the tablet market (where it has virtually no share). This is especially important now that Chromebooks are making advances and competing with Android devices in the below-$300 market.
Full Windows on a low-end tablet is a non-starter. But Windows Phone on a 7-inch tablet would be much lighter on resources and could be implemented at lower overall cost (requiring a less costly BOM, or bill of materials). It's been rumored that Nokia will do this (and I expect it will), but if it doesn't, then some other OEM (Dell, HP, Lenovo, Samsung) will. Update 3, with its support for larger screens and heftier processors, is the opening the OEMs need to make that happen, even if it takes until the next version (Windows Phone 8.1) to fully get there. Such low-end tablets, with a price of $150-$250, could allow Microsoft and/or its OEMs to become major players in this high-volume consumer market.
There are advantages for Microsoft beyond the low end, though. Larger screens and increased processing power also assure a better user experience, especially for business users.
And hardware is not the only component being addressed. This Windows Phone update moves Microsoft a step closer to being able to tell developers that the complete line of Windows devices can be handled in one code base. For now, Windows Phone will retain its own infrastructure, but Microsoft can point to its continuing progress toward code-base unification, which should stimulate developers' interest. Meanwhile, Microsoft can make the case to developers of existing Windows apps that it doesn't require too much effort to get those apps onto Windows Phone. If more developers port their apps as a result, the app count for Windows Phone will rise. And one thing Microsoft must improve on is the number of apps ported to Windows Phone.
I don't think this next release of Windows Phone will magically move Microsoft up in market share in a brief period of time. Microsoft will have to go at this market for a significant period and with its significant resources if it wants to seriously challenge Android and iOS, including a substantial investment in new devices from its recent Nokia acquisition. But this next version of Windows Phone may give Microsoft and its OEMs some additional leverage and make it more competitive. We should know in the next six to 12 months whether these enhancements helped. But I expect to see some interesting new devices emerge as a result of this release that go after markets Microsoft could only dream about previously.
Jack Gold is the founder and principal analyst at J.Gold Associates, an information technology analyst firm based in Northborough, Mass.