Microsoft Goes Google: Windows Phone OS Offered Free To Two Manufacturers (MSFT)

Microsoft is taking a page from Google’s playbook and offering its mobile operating system for free to a pair of Indian manufacturers.

A report in the Times of India says that Microsoft (NASDAQ:MSFT) has decided to license low-cost devices from Lava and Karbonn licenses to Windows Phone completely free of charge. The report says that the agreement is an “experiment” for Microsoft as well as the manufacturers, who currently sell devices running Google’s Android OS.

The free license represents a major shift in Microsoft mobile strategy as the company struggles to gain traction in a world dominated by Android and Apple’s iOS for iPhone. Microsoft has traditionally made the bulk of its profits from software-licensing fees for Windows, as well as subscriptions to Office and Xbox sales. Licenses for Windows Phone are reportedly upwards of $30 per device.

As sales of traditional PCs slow down due to the expanding growth of smartphones and tablets, Microsoft has been slow to catch up. Only 3.2 percent of smartphones sold worldwide last year ran Microsoft’s OS; however, those devices are expected to experience the most growth as BlackBerry (NASDAQ:BBRY) falls to fourth place.

The Indian phone executive quoted in the report said Microsoft “must have realized that the older model where it licensed the OS did not work out well, even with Nokia's support." Microsoft reportedly declined an offer in 2011 where Nokia offered to exclusively manufacture Windows Phone devices if the firm would eliminate its licensing fee. Microsoft offered to purchase Nokia last September for $7.4 billion (USD), although the acquisition is awaiting regulatory approval.

Whereas Google (NASDAQ:GOOG) offers the Android OS for free to phone manufacturers, it only provides access to services like the Google Play Store, the largest Android app marketplace, if OEMs agree to include all Google services. Google has been offering free services that support its search advertising revenue for years, with Android and Gmail before it. Microsoft is shifting to a similar strategy and is rumored to be considering a free upgrade for customers hesitant to leave Windows 7 for Windows 8, where it can offer profit from the use of services like Xbox Music, OneDrive and Bing search.

Microsoft plans to release Windows Phone 8.1 in the coming months, which will include dual-SIM support as well as on-screen buttons, to make a switch easier for OEMs coming from Android. Huawei will introduce smartphones that can be dual-booted to either Android or Windows Phone in the spring.

Follow reporter Thomas Halleck on Twitter @tommylikey