Windows 10 Devices Impress, But It Won't Matter Because Microsoft's Mobile Ecosystem Is Crumbling

Microsoft went for broke this week when it introduced a slew of Windows 10 devices with impressive designs and specs. The Lumia 950 and 950 XL smartphones and Surface tablets and Surface Book, with their sweeping curves, artful angles and shimmering finishes, are a far cry from the uninspiring, generic offerings typical of past Windows entries. “We now begin a new chapter for Windows 10,” said CEO Satya Nadella at a launch event Tuesday in New York City.

Unfortunately for Microsoft, none of it may be enough to move the needle on its woeful share of the key mobile market, which is fast becoming the dominant form of personal computing.

The fact is, the mobile purchasing decision for most consumers is now more about buying into, and sticking with, an ecosystem than it is about a particular device -- no matter how well crafted. And Microsoft’s ecosystem can’t yet compete with what’s on offer from Apple, with its iTunes store, Beats 1 streaming radio, Apple TV and other cloud services. Phones that run Google Android, meanwhile, boast more than a million apps and seamless integration with a host of services like Docs, YouTube and Gmail.

Microsoft is building an ecosystem of its own, and has some exclusives like Xbox Live, but the overall perception of many of the company’s cloud services, such as Outlook and MSN, is that they belong to a bygone era when desktops ruled. “Microsoft’s consumer ecosystem is crumbling and needs some serious attention in this field,” said Richard Windsor, an analyst at Edison Investment Research.

Microsoft also is up against the fact that switching mobile platforms is a hassle most consumers don’t want to deal with. The thought of porting contacts, apps, email and other phone contents is enough to cause sleepless nights for many users. “There really isn’t any compelling reason for most people to switch,” said Roger Kay, president of Endpoint Technologies Associates.

And Microsoft’s problem is that most users in the U.S. already are on Android, which holds 51.4 percent of the mobile OS market, while Apple’s iOS commands 44.2 percent. Microsoft, more than a year after acquiring Nokia for $7.2 billion, holds just 2.9 percent of the market, according to the most recent numbers from comScore. If Microsoft is to make headway in mobile, it most likely will be in emerging markets, where the playing field is more wide open.

There’s also the problem of carrier support. Only one major U.S. telecom company, AT&T, has said it would offer customers the new Lumia phones. Consumers on other networks who want the Lumia or Lumia 950 XL can still order directly from the Microsoft Store, but they’ll have to pay full price -- $549 and $649, respectively.

To boot, Microsoft risks alienating longtime partners like Dell, Hewlett-Packard and Lenovo with the introduction of a competitive laptop, the Surface Book. “It’s casting a shadow over its own distribution market,” said Kay.

Still, Microsoft can never be counted out, mostly because it’s sitting on $5.6 billion in cash and equivalents. It could use that reserve to help fund an acquisition that might immediately put it back in the picture. A deal for a major streaming service offered exclusively on Windows 10 devices could lure millions of consumers to Microsoft’s ecosystem. “Content is a key block in the chain, and you need something on every block,” said Kay.

As things stand, Microsoft’s new devices are likely to keep it strong where it already is -- in laptops and convertibles -- while doing little to give it a boost in mobile, where it needs to be.

Microsoft (MSFT) shares were off .55 percent, to $46.49, in midafternoon trading Wednesday.