Microsoft (NASDAQ:MSFT) has dumped the Nokia brand and has unveiled the first Windows Phone carrying its own name.
The technical makeup of the new phone also tips the company's hand a bit as to its strategy for gaining market share for its struggling Windows Phone platform. Instead of being a high-end smartphone designed to compete with Apple's (NASDAQ:AAPL) iPhone 6 or Samsung's (NASDAQOTH:SSNLF) Galaxy S5, the Microsoft Lumia 535 is designed for value.
The new Microsoft-branded phone offers decent specs including a reasonably spacious 5-inch screen and two 5-megapixel cameras. Its most attractive feature may well be its price, which TechCrunch reported would be just under $140 (full retail with no subsidies).
"Innovation should be available to everyone, and we are doing this through the very best integrated Microsoft services included and out of the box, a 5MP wide-angle front-facing camera, and a spacious 5-inch qHD screen -- all at an affordable price," Jo Harlow, corporate vice president for phones at Microsoft, said in a press release.
The Lumia 535 might not be Microsoft's answer to the iPhone 6 or Galaxy S5, but it's a robust phone for the price, which might making it attractive to customers who want a low-cost option for a bring-your-own-device service plan.
Why is MIcrosoft doing this?
Windows Phone has struggled to gain global market share, and research firm IDC showed in August that Microsoft's piece of the pie had shrunk. In the second quarter of 2014, Windows Phone market share fell to 2.5% from 3.4% during the same period in the previous year. The number of Windows Phone devices shipped fell from 8.2 million to 7.4 million year over year, despite the overall volume of phone sales reaching record numbers.
Microsoft did have success in one area, though. About 60% of the phones sold running Windows Phone were priced below $200 -- a similar ratio on a percentage basis to the number of lower-end Android phones sold.
Apple does not play in the low-cost market, as even its older phones are sold at midrange prices, but it seems possible Microsoft could carve out a niche here. If the company can deliver low-priced phones that don't feel like a sacrifice for users, then consumers might opt for cheaper Windows Phones over top-of-the-line Apple and Android offerings.
It's worth noting that the 535's predecessor, the Nokia Lumia 530, was reasonably well reviewed. "Since specs are decidedly basic, its low price is the major reason to seek out the Nokia Lumia 530," said CNET's editors in a review of the 530, which cited the camera and 4-inch screen as the major weaknesses. The 535 improves on both of those, and Microsoft might have reached the point where it's offering a good-enough product with a price that lures customers away from higher-end phones.
Why do people want cheaper phones?
Three of the four major U.S. wireless carriers -- AT&T (NYSE:T), Verizon (NYSE:VZ), and Sprint (NYSE:S) -- offer lower monthly line charges if customers buy a phone outright, finance it, or bring their own device. This makes lower-priced devices attractive to customers unwilling or unable to shell out the $600-plus a top-tier phone costs.
Currently T-Mobile, which does not offer subsidized phones, AT&T, and Verizon all carry what was formerly the Nokia line of phones (though not all carriers offer all models). Sprint only carries HTC and Samsung Windows phones, but the company could conceivably add the Lumia 535 in the future.
As the major carriers continue to push customers away from subsidized phones, Microsoft could be hitting the market with a good-enough, right-priced alternative at exactly the right time.
Trying to take on Apple and Samsung at the top of the smartphone market seems like a losing strategy. Trying to win customers over with a low-cost device that functions like a higher-priced smartphone could win Microsoft some customers.
Daniel Kline owns shares of Apple and Microsoft. He currently uses an iPhone 6 on Sprint but has used Windows Phone in the past. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.