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Tuesday, September 3, 2013

Microsoft-Nokia Could Woo Buyers Trading Up to Smartphones

It’s clear that converting people from one brand of smartphone to another is a costly and difficult transaction. Apple iPhone owners swear by their iPhones. Google Android owners love the openness of the Android ecosystem.

But few people feel so attached to their less-smart handsets, the lower-end feature phones.

While the sale of Nokia to Microsoft for $7.1 billion will help standardize the two companies’ software and hardware for smartphones, it could also give Microsoft an edge in recruiting customers who still buy the more basic feature phones from companies like Nokia.

That group of customers still makes up hundreds of millions of people.

According to Gartner Research, a market research company, 435 million mobile phones were sold worldwide during the second quarter of this year. Of those cellphones, 225 million units were smartphones, an increase of 46.5 percent from the same period a year earlier. The remaining 210 million were feature phones, which decreased 21 percent from the same period last year.

This means that although people are converting from feature phones to smartphones â€" and quickly â€" there are still millions of customers left to make the switch. This is where Nokia comes in.

Although sales of Nokia smartphones that run the Windows operating system have grown slowly, Nokia still sells 55 million feature phones a quarter, according to the company’s latest earnings reports.

For years, feature phone owners have been trading up, from Nokia’s phones to Android and iPhone smartphones. Now Microsoft could have better leverage to try to persuade those customers to stay within the Nokia family and buy a Windows phone rather than a competitor.

Although the sale of smartphones overtook feature phones in the United States almost two years ago, it wasn’t until this year that this trend started to happening globally. A study by Nielsen suggested that the feature phone is still selling well in India, Brazil and Russia, for example.

If Microsoft hopes to entice Nokia feature phone owners, the company might want to hurry.

As Topeka Capital Markets analyst Brian White said in a research note earlier this year, Apple is expected to announce a less expensive iPhone later this month that will help it compete with Android in markets where people have not fully switched to a smartphone. Facebook is also trying to entice customers in developing countries.