By June 30, when the fiscal year ended, Microsoft had managed to sell more than 18 million licenses, less than its 20 million goal.
While the iPhone 3G didn't hit stores until July 11, after Microsoft's fiscal year ended, it could have had an effect on Microsoft. "The iPhone 3G is causing people to hesitate," said Bill Hughes, an analyst at In-Stat. "That doesn't mean those 2 million all went to the iPhone." But some people likely decided to wait and see if the newest version of Apple's phone could be more attractive to them than a Windows Mobile phone, he said.
More so than the iPhone effect, delays with Sony Ericsson's first Windows Mobile phone, the Xperia, likely impacted Microsoft's sales, said Chris Hazelton, an analyst with The 451 Group. While Sony Ericsson has always maintained that the new phone will launch in the second half of the year, Microsoft may have expected the phones to start shipping in the second quarter in preparation for an early third quarter launch, he said. But delays in Xperia's shipment may have meant that Microsoft couldn't tally its sales to Sony Ericsson in fiscal 2008, he said. Microsoft didn't immediately reply to a request for comment about this issue.
ABI Research analyst Kevin Burden suspects that Microsoft did ship the software to Sony Ericsson, but that the shortcoming in sales was due to a failure to make more headway among consumer users. While Microsoft has typically targeted Windows Mobile at enterprise users, it has recently begun talking more about the consumer-oriented features to the software. Microsoft may have inflated its potential Windows Mobile sales for the year based on hopes that it would gain customers attracted to the consumer-oriented message, he said.
Microsoft follows competitor BlackBerry and even struggling Palm in looking toward consumers to boost sales. BlackBerry found significant success marketing the Pearl to the consumer market, Burden noted. While Palm sales overall have flagged in recent years, it too found surprising success in marketing to consumers with its recently introduced Centro phone.
Microsoft continues to face tough competition overall from BlackBerry devices. During its fiscal year ending March 1, Research In Motion, the BlackBerry maker, shipped 14 million devices. "Competition in enterprise smartphones is going to be between BlackBerry and Windows Mobile," said Hughes. "Who wins could go either way."
While Microsoft has been in the smartphone market for many years, the mobile-phone operating system market is growing increasingly crowded. In addition to the new iPhone, Microsoft will soon also face competition from rival Google, which plans to release its Android mobile-phone software later this year.
Android phones, like the iPhone, are likely to appeal to the consumer market more so than enterprise users, which has traditionally been Windows Mobile's target. However, that could pose a problem for Microsoft. Hughes recently noticed an increase in the number of companies that don't dictate which phones employees should use, instead allowing them to make their own buying decisions. That shift could be good news for the iPhone, which now allows users to receive Outlook mail on the phones, and potentially for Android phones. Still, Hughes cautioned that in his experience, companies change their policies on phone-buying year to year, and so next year might find more companies dictating which phones employees can use.