Microsoft won't release its own Windows Phone device this year, sources have told The Verge. Multiple insiders have confirmed there are no plans to introduce a Microsoft-branded Windows Phone device before the end of 2012, but that the company is likely considering it as a "Plan B." Microsoft officials continue issuing non-denials about a potential Surface phone. "We are big believers in our hardware partners and together we’re focused on bringing Windows Phone 8 to market with them," a spokesperson tells us.
Microsoft's initial introduction of its Surface tablets hinted at the start of Microsoft-made hardware. Although speculation has persisted about a Microsoft Surface phone, we understand recent rumors about Microsoft's own phone are the result of the company considering its options for Windows Phone in 2013. If such a plan for a device exists, which we're told is likely, then it would not debut until the beginning of 2013 at the earliest.
Surface is a big test for Microsoft
Microsoft's Surface tablet, which will launch at midnight on October 25th, is a test bed for a number of different approaches from Microsoft this holiday season. Microsoft has been evaluating ways to sell the tablet alongside subscription services or bundled-in packages at its Microsoft Stores. The approach could mean we'll see a low-priced Surface tablet with a subscription model that mirrors a similar one for the company's $99 Xbox 360. Microsoft's Xbox subscription is a pilot program to test whether such an offering is popular with consumers ahead of its Surface release and next-generation Xbox.
This approach could also work its way over to the Windows Phone side. Microsoft has been working closely with US operators to offer Windows 8 tablets this holiday season alongside Windows Phone deals. The combination is designed to generate additional interest in Windows 8 and Windows Phone, but if the deals fail to generate momentum behind Windows Phone 8 sales then a Surface phone appears to be the next logical step.
Remember the Kin?
Microsoft is no stranger to branding its own phone hardware. In early 2010 the company released two Kin devices on Verizon. Manufactured by Sharp, the Kin phones were billed as social devices aimed at teenagers and younger adults. Ultimately, they failed to gain any traction due to poor pricing and a lack of features. The Kin handsets were branded as Windows Phone ones, running a modified core of the Windows Phone 7 operating system. Microsoft announced a $240 million write-off due to the cost of manufacturing, distributing, and supporting Kin.
A Surface phone would presumably bypass carriers and receive software update directly from Microsoft, just as Nexus devices do from Google. Windows Phone 7 owners battled against carriers to receive regular updates that were held back in some cases. Whereas Google's acquisition of Motorola Mobility isn't necessarily a sign of the search giant entering into its own hardware business at the expense of its Nexus partners, Microsoft's Surface move signals a new future for a company synonymous with software. A Microsoft-made phone would pit it directly against its ally — Nokia.
Nokia has bet the company on Windows Phone. Although the Finnish firm looks set to pocket $1 billion in annual income from Microsoft, thanks to quarterly platform support payments of $250 million for using Windows Phone, a potential Surface phone could upset that strategic alliance. Nokia's Windows Phone sales are increasing each quarter, but not by as much as hoped. Microsoft appears to be increasing its Windows Phone efforts with HTC too, rekindling an old romance. The tricky balance of a Surface phone may undo this work.
Microsoft is changing
Microsoft is changing rapidly, with CEO Steve Ballmer saying the future lies in a "devices-and-services company." While Google continues to offer software and services at low-cost to OEMs, undermining Windows and Windows Phone license fees, Microsoft is battling to ensure the Windows ecosystem remains attractive to consumers and businesses who are continuing to focus on mobile devices. Unless Windows Phone manages to secure some improved momentum with version 8, then don't be surprised to see a Surface phone next year. Nokia CEO Stephen Elop says he has "no indications they are planning to do their own phone," but in a separate interview he also admits he didn't know about the Surface tablet either. "We were no different than anybody else." If Microsoft is preparing to launch a Surface phone, then, like its tablet, it will surprise everyone.