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A Privacy and Nokia Strategy Could Help Boost Microsoft Windows Phone 7

Microsoft (MSFT) says that its Windows Phone 7 hardware partners have sold 1.5 million units. On the surface, it sounds as though the product has done well in its first six weeks. However, there is something inherently slippery in the way the company has phrased the information.

And still, with sales that are likely lower than desired and all the problems that Windows Phone has had, Microsoft has a possibility of capturing market share -- and Apple (AAPL) and Google (GOOG) have created the opportunity. All Microsoft has to do is smartly play the issue of privacy partner with Nokia (NOK).

First, consider Microsoft's 1.5 million unit number. Notice that it specifically refers to units sold by hardware vendors to carriers and stores. If it represented actual sales to consumers, it would mean 250,000 units selling a week. That's small time compared to Android handset and iPhone sales, both of which sell more than that a day.

Not only is the number small in comparison, but it isn't even an accurate representation of how many units people bought. Any time a vendor talks of units sold into a distribution channel and not sold through to users, you're experiencing misdirection. That's what Research in Motion (RIMM) did in its recent earnings call. RIM's channel inventory -- product at distributors and retailers -- significantly increased. Those units still counted as 1.9 million extra sales for RIM, even though real people haven't purchased them.

Microsoft could certainly have asked its hardware partners for sell-through numbers. Chances are that it actually did. If executives only speaks of sales into the channel, then it is because they consider the real number low enough to be embarrassing.

And yet, even with the hardware glitches by partners and marketing mistakes, Microsoft still has a chance. Apple and Google have experienced significant criticism over security and privacy. Just recently, a Wall Street Journal article showed that many apps on both systems transmit uniquely identifying information about their users without permission. It's something that CEO Steve Jobs promised wouldn't happen, although apparently Apple is now unwilling to discuss the issue. What good is having a walled gate when there are open doorways every 20 feet and you don't toss out trespassers?

Google's Android marketplace is no better. The company's more open approach to third-party software means that it can't guarantee anything about the privacy of users. (Given its troubled privacy past, it isn't clear that consumers would trust the company's word, anyway.)

Microsoft could use a certified app program to gain the best of both approaches. The company would have to examine any app before certifying it, ensuing that there was no unauthorized transmission of data and that there were reasonable precautions to safeguard security and privacy. Consumers could buy apps where they wished, knowing that they had the choice between certified and not. Of course, Microsoft would have to actually enforce the rules. However, it would find itself in a strong position compared to either Apple and Google.

The last step would be to close a deal with Nokia. The handset giant has denied any rumors of talks in the past, but the move would suit both well. Nokia would get a competitive operating system now, rather than waiting to see what the MeeGo OS eventually does. Microsoft could get at least a portion, if not a large piece, of Nokia's smartphone sales -- still the largest globally in the industry. Given that Nokia's CEO used to work at Microsoft, there is plenty of common ground for discussions between the companies.

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Image: Flickr user Michael Francis McCarthy, CC 2.0.
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