Microsoft (NASDAQ:MSFT) has had a lot of trouble in the mobile market. Its Windows Phone platform has a market share in the low single digits, even though the latest version, Windows Phone 8.1, has generally enjoyed positive reviews. A major problem is that Windows Phone doesn't have nearly as vast an ecosystem compared with either Android or iOS, and getting people to try Windows Phone, instead of choosing a more popular alternative by default, has been a struggle.
In terms of price, Windows Phones cost roughly the same as comparable Android devices. But there's little driving consumers to the platform, and that's left Windows Phone languishing in a distant third place in the smartphone market. Windows 10, with its refinement of universal apps that can run on both PCs and Windows Phones, should help the cause later this year, but Microsoft has a trick up its sleeve right now that could boost its market share.
The Lumia 640, with an added bonus
Microsoft's strategy has been to release low-end and mid-range phones at competitive prices, eschewing flagship phones for the time being. The latest devices Microsoft has announced, the Lumia 640 and the larger Lumia 640 XL, continue to follow this plan, offering mid-range specs for between $150 and $250 off-contract, depending on the model. They both run Windows Phone 8.1 and will receive a free upgrade to Windows 10 when they're released.
This approach puts these phones in competition with devices such as the Moto G from Motorola, an Android phone with similar specs and about the same price range. But that's the problem Windows Phone faces: Android phones with the same internals and price points have the advantage of a far superior ecosystem. All other things being equal, it makes little sense to choose a Windows Phone.
Microsoft is changing the equation with the Lumia 640. Those who buy the phone will receive one free year of Office 365 Personal, which goes for $70 on its own. For those interested in Office, this is a fantastic deal, bringing the effective price of the phone well below those of Android competitors.
A path to more apps
Giving away a free year of Office 365 benefits the company in a couple of ways. First, it compels those who like Office to give Windows Phone a try. The best-case scenario is that Microsoft picks up a Windows Phone user who sticks with the platform, as well as an Office 365 subscriber.
More importantly, an influx of new Windows Phone users could compel developers to pay more attention to the platform. Universal apps in Windows 10 will attack the problem of developer support from a different angle, but Microsoft still needs to get its phones into consumers' hands. Giving away Office should help the cause.
Of course, free Office won't persuade anyone who doesn't care about Office to buy a Windows Phone. To get those people on board, the platform needs to offer the same level of app support as Android and iOS. Windows Phone has closed the gap, but it's still well behind.
A great move ahead of Windows 10
Using Office to sell devices has worked for Microsoft before. Some Windows tablets and 2-in-1 devices come with a free year of Office 365, and this approach has helped Windows gain a small share of the tablet market. IDC expects Windows to grow its tablet share from 5.1% in 2014 to 14.1% by 2019, far faster growth than is expected from Android or iOS tablets.
The Lumia 640 has the potential to be a best-seller for Microsoft once it's released, thanks to the bundling of Office. There's a clear value proposition for consumers interested in Microsoft's productivity suite, helping the company's phones stand out from the similarly priced Android competition. This move, along with the release of Windows 10 later this year, should help Windows Phone win some desperately needed market share.