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Even most of the Microsoft's web sites use path segment for localization and I would expect it to be one of the built-in providers. It is also easier to provide links to specific localizations in that case.
On the other side I don't think the host names - especially the TLD - are good idea, as you would basically need a lookup table for most of them (.at) and there are tricky cases too (.in) ...
@hishamco No these are not parent cultures. .it is, but you have en-IN, ta-IN, sa-IN where parent cultures are en, ta resp. sa. The same with China (parent is zh) and Arabic cultures (parent is ar) and pretty much all others where the culture neutral name differs from the culture specifier (.at .nz .cz ...). And don't forget there are cultures that differ by script (like sr-Cyrl-RS vs sr-Latn-RS).