Microsoft Offers Windows Phone 'For Free' To Lower Manufacturer's Costs and Increase Market Share

Windows Phone is free.

Let’s start with that phrase, because it’s about to get sliced and diced, it’s about to have a bundle of caveats,and  it’s not going to mean the bill of materials lie that says software will actually read $0.00. But that statement, coming out of Microsoft’s Build 2014 conference, is not only a clear in its intention, but it is also being repeated loudly around the tech reporting circles.

Of course the details count. While the licence will be free, that’s not the only software cost involved in a smartphone. There are patent fees to consider, there are the deals put in place with third party apps and services to have them bundled in the firmware, and there are countless ‘testing and certification’ systems that could easily add to the cost of a Windows Phone licence (and note this deal is any Windows Device with a screen under nine inches, so while Windows Phone is the big winner, smaller Windows 8 powered tablets will also benefitting).

Microsoft Build 2014 (image: Microsoft.com)

Manufacturers will be looking at the small print in the contract, but the message is clear. Microsoft is moving towards a cloud-first approach, and their chief concern is to get people into the ecosystem and start using the cloud. That could be through MS Office for iPad, it could be through a new smartphone, or it could be through a cheap Windows 8 tablet.

Will this skew the marketplace for smartphones? Up until now, the choices were either a full licensing deal and the associated costs with Microsoft, or use the open choice of Android and deal with Google Play and the Open Handset Alliance. That choice has shifted now, and I suspect Microsoft will reap the benefit of this over the next year, and beyond.

Some will say it is too little, and too late, to compete with the rush of Android. That remains to be seen. While some territories are now at saturation levels with smartphones, and the easy profit and market-share of North America and Europe already divvyed up, there are huge tract of land and legions of users who have still to get their first smartphone.

That’s where Microsoft’s focus with Windows Phone should lie. Territories where a a $700 flagship handset is simply far too expensive , and the battle is all about the budget smartphones on sale in the $100-$200 range. That means a focus on lowering the bill of materials, and removing the cost of the operating system licence is going to have a significant impact on manufacturers.

As for Microsoft, they should finish up the purchase of Nokia’s Devices and Services division in the near future, and at that point the will be selling the vast majority of Windows Phone devices (over 92% at the end of 2013, reports AdDuplex). The licence would be part of the internal market, but not affect the bottom line coming out of Redmond.

By removing the licence fee, Microsoft level the playing field for manufacturers, they trade a relatively small short-term profit for a more attractive long-term position, and they create some good news and momentum around the Windows Phone platform.

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