Cheap Smartphones Are Coming, and Microsoft Is Prepared

Microsoft Windows 10 event


Cheap smartphones are taking over the world, and while it’s not yet clear how smartphone makers like Apple and Samsung will respond, Microsoft has read the writing on the wall and is preparing its new strategy. Writing for The New York Times, Molly Wood reports that Microsoft is establishing itself as the antiflagship phone maker,” at least until Windows 10 is released. At the Mobile World Congress in Barcelona, Microsoft showed off Windows 10 for phones and unveiled the latest in its lineup of low-cost Lumia devices that are attractive to emerging markets and to the growing market for prepaid phones in the United States.

The Lumia 640 and Lumia 640 XL are offered in bright colors, can be upgraded to Windows 10 when the operating system becomes available, and start at about $156 for a 3G model. The phones will be cheap or free with a contract or a prepaid plan, or affordable enough to be purchased without either. The Lumia 640 features a 5-inch display, while the Lumia 640 XL features a 5.7-inch display. The Lumia 640 will be available beginning in April, and the Lumia 640 XL will be available starting in March.

Wood notes that manufacturers like Microsoft and Motorola have recently been eschewing high-end phones aimed at “status-conscious” buyers in the United States in favor of devices designed to be affordable for buyers around the world. One billion people are expected to upgrade to a smartphone in 2015 alone, and Stephen Elop, the executive vice president of the devices division at Microsoft, said of the new strategy, “Our Q2 results, in terms of the number of actual phones sold, was the largest quarter ever in the history of the Lumia line. And most of those sales were in the lower price tiers, those people who are buying not only in an AT&T or Verizon store but Walmart or Target.”

Making inexpensive smartphones requires fewer compromises than ever. The Lumia 640 features a Qualcomm Snapdragon processor that runs at 1.2 gigahertz, a high-definition display, and a 9-megapixel camera. It comes with a year-long subscription to the personal edition of Office 365 and includes a terabyte of OneDrive storage and credit for free Skype calls. In an industry dominated by the releases of high-end, high-priced flagship phones from makers like Apple and Samsung, companies are increasingly choosing to chase success with more accessible models. And Wood notes that as it becomes more common for shoppers to choose phones based on the services and apps that run on them, releasing phones with acceptable power and a wide array of included software could prove a smart strategy.

Elop says that Microsoft won’t snub the flagship phone forever, and the company instead plans to launch high-end Lumia devices when Windows 10 is released this year.  Microsoft demonstrated some features of Windows 10 at the Mobile World Congress, focusing on how it keeps information like your search history and reminders synced across devices. “We also recognize that, particularly in developed markets, that flagship moment is really important. We’re committed to the flagship, and you’ll see some beautiful devices later in the year.”

Re/code’s Ina Fried reported recently that devices like the Motorola Moto E and Sony’s Xperia E line — which each costs about $150, just a quarter of the cost of the high-end HTC One, Samsung Galaxy S, or iPhone — demonstrate that high-powered technology can now be packed into low-cost phones. Fried notes that many in the industry expect a full-featured smartphone to cost just $75 in the coming years, and the global trend toward cheap, powerful smartphones has both tipped the balance of power in markets like China and is beginning to take hold in the United States as well.

Fried notes that while cheap smartphones have been available for several years, they often came with cheap processors, small screens, and outdated software. Companies like Samsung offered them, and were able to convince consumers to trade up to more expensive models with better cameras and bigger screens. But that “marketing trick” will become harder to pull off, and Kirt McMaster, chief executive of open Android software maker Cyanogen, tells Re/code, “People don’t give a shit about their bullshit specs any more. The disruption now is the price point, end of story.” Cyanogen provides an operating system alternative to the Google version of Android, and powers the OnePlus One handset, which helped to kick off the movement toward lower-priced phones.

Xiaomi is one of the smartphone makers that are pushing prices down globally, and focuses on direct sales to avoid the costs associated with traditional retail channels. Xiaomi President Bin Lin told Re/code, “The other companies are going to follow.” He says that Xiaomi expects to sell devices for roughly the cost of materials — without money allocated to marketing and distribution — and Xiaomi hopes to make a profit by selling software and services.

Re/code reports that the rise of cheap, powerful smartphones will hit companies like Samsung hard. Android phone makers at the low end, and those who use Microsoft’s Windows Phone and Mozilla’s Firefox operating system, are also expected to suffer. But the trend is being accelerated by competition among phone chipmakers as they make it easier for hardware makers to get up and running.

Fried thinks that the United States will likely be the last to be impacted by the global trend toward cheap smartphones. Most American phone customers buy heavily subsidized phones with two-year contracts, which obscure the price that customers are paying. Carriers’ more-recently introduced phone leasing plans reduce reliance on subsidies, and could help to make cheaper smartphones more attractive — potentially making it more difficult for Apple and Samsung to sell consumers on their high-end phones as lower-priced models gain power and features.

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