If you were to look at signs of Microkia’s success in the U.S., it wouldn’t take you look very long—there isn’t much. Windows Phone devices have a 3.5 percent market share in Microsoft’s native land. Cast your gaze southward, though, and a different picture emerges: Windows Phone is the third-biggest OS in Brazil, Argentina, and Chile, and its the second-biggest in Mexico, Colombia, and Peru. Much of this success is due to the Lumia 520, Nokia’s entry-level phone sold in Latin American markets for less than $150. That’s not $150 with a two-year contract—that’s $150 contract-free, which is how most phones are sold outside the U.S. As a point of comparison, Apple’s (AAPL) iPhone 5 costs about $800 in Mexico.
Capturing the low end of the market is something Nokia can do because it’s been selling in developing markets since before phones were smart. And going cheap may also be the intelligent move: By this point, high-end smartphone users have pretty much bought the smartphone they want. It’s incredibly hard to pry existing users away from their ecosystems. New users? That’s a different story. There are millions upon millions of them in Latin America and Africa, where—unlike in China and India—there’s no homegrown mobile industry Nokia has to compete with.
And if Microsoft-Nokia can capture those new customers in developing markets, then it stands a chance of holding on to them as they move up the device food chain. Nokia’s strategy is like Hyundai’s (005380:KS) in this way: Identify new customers who have little brand loyalty, offer them a good product at a good price, and hope they stick with you and want nicer and more expensive things.