The Lumia 900 and the Trouble With Competing With Free

Microsoft and Nokia have teamed up to produce the Lumia 900, and AT&T has embraced it as the new “hero phone” to save the company from the languor it’s fallen into since losing iPhone exclusivity. In my latest column I report on the phone’s botched U.S. rollout and the underlying doom facing Microsoft in the mobile space as a company trying to sell licenses for an operating system when Android’s already all over the place with a free operating system.

Something I considered exploring in the article but ultimately didn’t get into is that if Microsoft really and truly believes in the strength and superiority of the Windows Phone platform they could get out of the jam they’re in by becoming a hardware manufacturer. Apple manages to earn giant profits in the mobile phone industry despite smaller market share than Android in part because it’s competing in an asymmetrical manner. Google doesn’t earn much off Android since Android is free. But it’s hard for OEMs to earn much off Android since Android is available on equal terms to all of them, making competition too intense. Everything ends up going either to consumer surplus or else into the pockets of the wireless carriers since they possess an actual scarce resource. Apple as a monopoly vendor of iOS devices escapes this trap. Microsoft, trying to sell an operating system that competes with Google’s free one, is never going to escape from the black hole. But if they want to take a crazy gamble, they have plenty of cash on hand to purchase Nokia and become a mobile hardware maker. That would obviously be a break with the Windows tradition, but there’s precedent in the form of XBox so it’s not totally unthinkable.