Microsoft's Master Plan for Winning Back Market Share

While Microsoft is busy pushing a "mobile first, cloud first" strategy that will see its mobile apps and services appear on popular rival computing platforms, the firm is still pushing ahead with Windows on PCs, tablets and phones. And while technology enthusiasts are frothing at the bit thanks to an event this week dedicated to the next Windows version, we don't need to look to the future to see how Microsoft plans to compete. Indeed, its Windows strategy has almost nothing to do with Windows at all.

So yes, Windows 9—codenamed "Threshold"—will further the fine-tuning of Windows 8 that Microsoft started with Windows 8.1 and the Windows 8.1 Update. It will make the experience better for all users, whether they're using traditional PCs, touch-based PCs, or devices such as tablets or 2-in-1s. It will almost certainly include a merging of the Windows RT and Windows Phone code bases.

But forget all that.

Microsoft's real strategy to promote Windows going forward starts where it must, with the hardware makers. The companies that abandoned Windows in the smart phone market to focus on the cheaply-licensable (but not really free) Android OS from Google. And the companies that raced to embrace the lower-cost Chrome OS, also from Google, to use in laptop-like Chromebooks.

In both cases, companies that would have traditionally partnered with Microsoft partnered instead with Google. (Or also partnered with Google, in the case of PC makers and a handful of smart phone makers.) And they did so for one reason and one reason only: Cost. They could license Android and Chrome OS for much, much less than they could license Windows/Phone. And in these markets with razor-thin margins, that price differential really mattered.

To win these hardware makers back, Microsoft made three changes that are so obvious and necessary in retrospect that it's not clear why they haven't warranted more attention.

First, Microsoft made Windows—and Windows Phone—available for free to hardware markers. It did so on devices with smallish screens—9 inches and under, diagonally—which is all phones and mini-tablets, the two most popular device types. And it made a new full-featured Windows version, called Windows 8.1 with Bing, available inexpensively on other PC and device types. In both cases, Microsoft has met or undercut the cost of licensing Android or Chrome OS. Because as it turns out, Android isn't free, especially not if you want the crucial Google Play services and Google apps that consumers expect.

The second change escaped widespread attention because it impacts only Windows Phone, which to date has commanded only a tiny portion of a smart phone market dominated by Android. That is, Microsoft removed restrictions and requirements that made it difficult for Android device makers to use their handsets with Windows Phone too. They no longer need to provide a hardware camera button, for example, or use hardware-based Back, Start and Search buttons. These changes mean that Android devices makers can simply reuse their existing hardware, and sell Windows Phone-based versions of those devices.

Third, Microsoft reworked Windows so that it could work well on low-end hardware. More specifically, PC and tablet makers can now sell Windows-based devices with 1 GB of RAM and 16 GB of storage. This matches the specifications for the typical Chromebook, not coincidentally.

The results were fairly immediate. Microsoft, which counted less than 5 Windows Phone licenses at the end of 2013, saw 15 new hardware partners sign up immediately after it made these changes. And these firms are now starting to ship an amazing array of dozens of affordable new Windows Phone handsets around the world.

PC makers, likewise, are now reusing their Chromebook designs and selling new, low-end Windows laptops. They are also selling new low-end tablets and other devices—some for as little as $100—which are also based on their existing Android tablet designs.

This holiday season, the market will be flooded with a new generation of low-cost Windows-based PCs, tablets, phones and other devices. Many of these devices will be based on existing Chromebook and Android handset and tablet designs. All of them will be just as affordable, if not more so, than their Google-based competitors. And regardless, hardware makers will earn more now when they sell Windows devices, thanks to Microsoft's more affordable licensing.

We won't know until sometime next year, probably, whether this new strategy has worked. But I can say this with certainty: These changes will have a more meaningful impact on Windows hardware sales through 2015 than will any new features or user interface improvements that Microsoft adds to Windows 9. So like you, I'll be paying attention to what Microsoft announces this week. But the real advances are already there for everyone to see. You just need to know where to look.