Wednesday, February 16, 2011

The fallacy that WP7 is immune from the race to the bottom

People left and right are claiming that if Nokia had chosen Android, they would be one vendor amongst many competing on thinner and thinner margins, while WP7 somehow isolates them for that. As far as I can tell, that is now commonly accepted as truth. It is amusing how a fallacy turns into "common sense" when repeated enough times.

In reality, of course, people don't buy operating systems. They buy phones, and they would not buy a more expensive phone if a cheaper one offered the same capabilities given comparable manufacture quality and design. This is such a simple and fundamental truth that it is almost unbelievable that it is ignored.

Apple is always used as a counter-example, but in reality an unlocked iPhone costs about the same as any other high-end smartphone with comparable parameters. Granted, people will pay more for good design or even just a fancy logo, but the name of the OS running in the phone hardly even enters the equation.  In particular the notion that consumers will pay premium specifically for WP7 is frankly laughable.

Of course there are other factors: the brand name of the manufacturer, the quality of the app ecosystem and so on. Those are valid considerations, except that most of those currently point towards an advantage for Android, not the other way around.

So, specifically the fallacy is this: while it is commonly accepted that Android is "comparable", if not "better" than WP7, at the same time it is also claimed that WP7 will bring in higher premiums.

Nokia can manufacture some pretty good phone hardware, so they deserve high margins, but the sad reality is they are in the same race to the bottom as everybody else, including Apple, and one day the license cost of WP7 (compared to free Android and IOS) might end up being a huge problem.

That is my objective evaluation of the situation, but it doesn't mean I like it. We will end up getting crappier and crappier product as a result, just as today it is almost impossible to buy a high quality PC regardless of the price.