The sub-$100 smartphone market, however, is dominated by Google's Android operating system, which has lower licensing costs, is more adaptable by device makers, and runs on more, and cheaper, chip sets that run radio and other functions.
Android phones from dozens of handset makers accounted for almost four out of every five smartphones sold, or 781.2 million units, last year, according to Strategy Analytics. Microsoft was a distant third in market share terms, behind Apple, which shipped 153.4 million smartphones.
Some 5.7 million Windows Mobile units were shipped worldwide, Strategy Analytics said. While it gained a more than 10 percent share in some markets, for example Italy, other markets like the United States remained tough, Vice President Joe Belgiore said in Barcelona.
The next major update of the software in coming months would allow it to support less expensive chip sets from its existing supplier, Qualcomm.
Some of the Windows Phone standards would also be eased, Belgiore said.
Microsoft had previously kept a tight grip on hardware specifications, for example insisting on three physical buttons, to create a uniform Windows Phone user experience, regardless of handset maker. That is no longer a requirement, allowing phone makers to use cheaper soft keys and adapt designs used for Android phones.
Belgiore said Microsoft was investing in improvements that would help handset makers get Windows Phone on devices at "lower costs in terms of manufacturing, licensing and those sorts of things".
For example, in a bid to reach immigrant workers looking to cheaply call home, Microsoft is including support for dual SIM cards, allowing users to switch phone tariffs to make cheaper local or international calls.
The lion's share of Windows Phones, more than 90 percent last year according to AdDuplex, are made by Nokia. Microsoft is just about to close a deal to buy Nokia's handset business for $7.2 billion. HTC, Huawei and Samsung also make Windows Mobile devices.
"We will continue to have those iconic devices from our deep partners, but also we'll see an emergence of a lot more of what we call white label phones, maybe operators' phone themselves, retailers' phones," Parker said.
Microsoft also said on Sunday it would update its Windows 8.1 operating system, which runs on PCs and tablets, in the coming months after research found traditional keyboard users were less satisfied with the software than previous versions of Windows.
"We love touch, but we think we could improve the situation for all those keyboard users," Belgiore said.