Why Microsoft Should Not Create a Zune Phone

I previously discussed one reason why I think Microsoft should create the rumored Zune phone. Unfortunately, I think there are many reasons why they should not.  They already have a product in the mobile handset market, they have a large group of developers producing apps for that product, and releasing a product during a recession when you already have a player in the market is not a good idea.

Microsoft plays in the mobile handset market by licensing their Windows Mobile OS to handset manufacturers.  This is a very solid business plan as it allows them to reach consumers through a variety of handset models.  Also, Microsoft gets $8 to $15 per phone, according to Strategy Analytics, and as you may know licensing fees are mostly profit.  With a handset of their own Microsoft would not have near the kind of profit margin they enjoy with Windows Mobile.

The availability and quality of third party applications can make or break a platform.  If Microsoft were to create a Zune-based phone, developers are not going to continue to create Windows Mobile apps and also move to the new platform.  Either the Windows Mobile platform will suffer as developers jump onboard with the new Zune phone or the new platform will never get off the ground because developers are reluctant to make the switch.

Lastly, I have to bring up the economy.  Releasing a new product during a recession, especially one that will likely do little more than cannibalize sales of your existing product in a very mature market and cause a split in your third party development base, is not the best idea.  All businesses should strengthen their existing products or services during a recession, not launch new ones.