Windows Phone Licensing: How Low Can They Go?

A new report suggesting that Microsoft's recent signing of nine new Windows Phone OS licensees is indeed due to friendlier new licensing terms, as many had suspected. But Microsoft isn't just slashing the price of Windows Phone. It's making the OS available for free, at least in certain markets.

According to the Times of India, Microsoft is making the Windows Phone OS available for free to at least two device makers in India, Karbonn, and Lava. Both firms already make Android-based handsets, and both are among the new firms Microsoft signed up for Windows Phone last month. And as I'd suspected, these firms only signed on when Microsoft finally agreed to waive Windows Phone licensing fees. In other words, the only thing holding it back was the price.

"For our planned Windows Phone handsets, we are not paying Microsoft a license fee," an unnamed Indian phone company executive told the Times. "The company is obviously exploring new models for Windows Phone. It must have realized that the older model where it licensed the OS did not work out well, even with Nokia."

As the Times notes, this licensing is unprecedented. Even Nokia was required to pay Windows Phone OS licensing fees—an estimated $20 to $30 per handset—a fee that had to rate among the most expensive components in many of the devices it made over the past few years. But with Windows Phone languishing at about 3 to 4 percent market share fully three and a half years after its release, a change was required.

And it's not the only change. As I reported previously, Microsoft is also allowing phone makers to offer "dual boot" handsets in which Android or Windows Phone can be chosen at the time of sale. These devices are expected by June and will ship to India and other price-sensitive countries.

Both of these new options follow a year in which low-end Windows Phone handsets—including some contract-free devices that cost $99 or less—have become the overwhelming unit sales leaders for the platform. Meanwhile, high-end devices like the Nokia Lumia 1020 and Lumia 1520 haven't made a dent in the market at all.

And it's not just Windows Phone. Microsoft is starting to offer much less expensive licensing for traditional Windows on PCs and tablets too. As I exclusively reported in "Windows 8.1 with Bing Revealed," the firm will offer device makers a specially tailored version of Windows 8.1 that costs just $15—compared with as much as $50 for a typical Windows 8.1 install—significantly lowering costs. The downside? They can only get this licensing windfall on machines that cost less than $250.

In both cases, Microsoft is hoping that the high-volume/low-cost strategy that shepherded the PC market to great success will work again. But this time around, it's not only fighting expensive Apple products at the high end, it's working against free and inexpensive devices based on Google platforms like Android and Chrome OS. That's a much harder obstacle to overcome.