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Understanding Microsoft's Global, Low-End Windows Phone Strategy

It's no secret that Microsoft has not done particularly well in the smartphone space, where market share is controlled by the entrenched and popular iOS and a massive number of Android phones.

There really isn't even a new flagship Windows Phone device out right now; at MWC 2015, the difference between the phone launches of the high-end HTC One M9, Samsung Galaxy S 6 and Galaxy S 6 Edge, and LG G Flex 2 stood in stark contrast to Microsoft's unveiling of the midrange Lumia 640 and 640 XL.

On the surface, Microsoft appears to be doing all the wrong things here, but the company has a master plan for tackling the mobile market, and it has little to do with high-end flagship devices.

Going Global

"We look at the global smartphone market, and a lot of where we see the market growing faster is aligned very well with where Windows want to play," said Peter Han, Microsoft's VP of Worldwide OEM Marketing at a meeting with us in Barcelona. "We look at emerging markets, breadth players, open channel, local kings -- these OEMs that may not have global brands but have apps and services that are very well tailored to populations in specific countries or areas."

"That's the kind of custom experience we're well-equipped to deliver on the Windows platform," he added.

At the show, 30 phones made by 25 OEMs launched with Windows Phone; there was Acer's Liquid M220, sure, but most of those SKUs are from those aforementioned smaller, local players.

That demographic suits Han's mindset just fine, though. "Windows is an upstart ecosystem," he said. "We're coming from a challenger position with that startup mindset."

Han said that these smaller players are interested in the Windows Phone platform for multiple reasons. He pointed to the trust those OEMs may have in the Windows brand, as well as "the standardization, the security, [and] the trust of Windows."

Han also noted that Microsoft can offer a great deal of value with apps such as Office. It is, of course, available on multiple platforms, but Han pointed out that Office's integration with the Windows OS is much deeper than, say, Android.

Indeed, Microsoft's press conference announcing the new Lumia 640 and 640 XL phones bore that part of things out. Among the several mini demos Microsoft showed, one that stuck out to me was when we saw how, with the upcoming spate of Universal Apps for Office in Windows 10, you can edit, notate and add comments to an email message with traditional Office features such as Track Changes.

Han also said that some of those local OEMs see Windows as a way to stand out in a market saturated by Android devices.

Free As In Beer?

The whole proposition is made much easier to swallow, however, because of the price of admission. "In line with our current 'underdog' status, we're offering an incredible amount of flexiblity: zero-royalty Windows," said Han. "We're giving them an OS that historically has commanded significant royalties for free." Microsoft sees that freedom as an opportunity for vendors to innovate.

If the OS is free, in contrast to the old method of charging royalties, the value for Microsoft here is in the long game. Instead of shaking a lot of pennies out of the piggy bank, as Han called it, Microsoft needs to gobble up some market share in the short term, and fast. "We're certainly thinking different," Han deadpanned (but we still caught the pun).

Really, this is vertical integration, and that is most definitely part of Microsoft's master plan; it wants users engaged with its OS on their mobile device, tablet, PC, and so on. And there will be a new flagship Windows Phone device coming from Microsoft at some point in the not-too-distant future.

However, Microsoft is also eyeing a more horizontal market with its applications and services loaded onto other devices, such as the iPhone.

Further, the market share situation outside of the U.S. isn't nearly as thin. Han revealed that Windows Phone has double-digit market share in several large countries, including the UK, Italy, France, Germany, Mexico and India.

"Outside of those markets, we absolutely realize that we're an underdog," Han admitted. Further, Microsoft has not given up on North America, although it sounds as if it will pound away at those lower-priced devices, with smaller OEMs that sell in the U.S., such as Blu.

Microsoft needs to continue to gain traction in the smartphone market, but it seems to be finding it outside of the U.S. at these lower price points, and with an unlikely cast of OEMs.

Follow Seth Colaner @SethColaner. Follow us @tomshardware, on Facebook and on Google+.