1 Reason Microsoft Should Kill the Nokia X

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Nokia (NYSE: NOK  )  just debuted its first Android phone, the Nokia X, at the Mobile World Congress in Barcelona this week. Amid all of the excitement that Nokia would break from its tradition of pushing the Windows Phone platform comes the reality that Microsoft (NASDAQ: MSFT  ) is closing on its acquisition of Nokia's devices and services division this quarter. In short, the Nokia X will soon become Microsoft's property.

While there are certainly some plausible scenarios why Microsoft would want to keep the Nokia X line, the fact that the company desperately needs to grow the Windows Phone platform overshadows them all.

One Microsoft, plus one
The most obvious problem with selling an Android device through a company owned by Microsoft would be that it goes against everything Redmond is trying to accomplish right now. Former CEO Steve Ballmer launched the One Microsoft campaign just seven months ago, with the intent of creating cohesive devices on integrated mobile and desktop platforms.

Here's what Ballmer had to say back in July:

  • "We are rallying behind a single strategy as one company -- not a collection of divisional strategies." 
  • "We will see our product line holistically, not as a set of islands."
  • "One strategy, united together, with great communication, decisiveness and positive energy is the only way to fly." (bold added)

Of course Ballmer's no longer leading the company, but new CEO Satya Nadella continued the One Microsoft theme in his first official letter to Microsoft employees earlier this month: "We have picked a set of high-value activities as part of our One Microsoft strategy. And with every service and device launch going forward we need to bring more innovation to bear around these scenarios."

So if One Microsoft looks like two mobile platforms, how exactly does this scenario shake out for the company?

Come for the Android, stay for the Windows
A recent New York Times article said that Microsoft should keep the Nokia X line around to introduce emerging market consumers to Microsoft and Nokia services. Then, presumably, move them over to Windows Phone once they're hooked. While that idea is theoretically possible, Microsoft would have a hard time pulling it off.

Look no further than the company's current operating systems for its Surface tablet line. Microsoft runs Windows RT, which doesn't support legacy programs, on the Surface 2 and a complete legacy-capable Windows OS for the Surface Pro 2. That small distinction in nearly identical operating systems helped force Microsoft to write down nearly $900 million in unsold Surface RT tablets (the precursor to Surface 2) this past summer. Microsoft later admitted that RT branding confused consumers.

While the Nokia X is slated for sale in emerging markets, and not in the U.S., it still looks like Microsoft would be taking a two-pronged approach in mobile if it keeps Android after the Nokia acquisition. If it did that, Nokia X users might eventually experience similar confusion that Surface users have.

But let's say they didn't. Let's assume for a moment Microsoft kept the Nokia X lineup running Android and using Android apps, but the look and feel of the OS were similar to Windows Phone. Is that still a win for Microsoft? Not at all. It would simply mean Android is beating Windows Phone so badly that Microsoft is forced to use it and skin it with its own look and feel in order to survive in emerging markets. That's clearly a loss. Any short-term gain in revenue would be offset by a long-term loss in branding, Windows Phone OS market share, and overall Microsoft mobile strategy.

Foolish thoughts
It's still unclear whether Microsoft is considering keeping the Android-based Nokia X lineup around, or if it will scrap it once the acquisition closes. I think a better long-term approach would be to make a Windows Phone platform that can successfully run on more inexpensive smartphones, similar to the pricing of the Nokia X.

Microsoft's mobile OS is continually gaining market share, but it could benefit from a cheaper device created specifically for emerging markets. Tapping Android for this type of low to midrange device would sidetrack the company just as it's gaining some momentum. Then again, maybe Microsoft is satisfied to sell Android devices in emerging markets while it markets Windows Phone in the U.S. If that's the case, then Microsoft investors may want to reconsider the company's long-term One Microsoft ambitions, and realize the company will simply sell devices any way it can.

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Read/Post Comments (5) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 25, 2014, at 9:43 PM, lee654 wrote:

    They made the right discretion!

  • Report this Comment On February 25, 2014, at 11:25 PM, ajaykc wrote:

    Writing a blog is lot more easier than to run a business. All these US/Western centric bloggers have no clue about emerging markets and their life style. Do you have any thoughts for Asha platform and features phones that Microsoft is going to acquire? Nokia sold more than 200 million feature/Asha phones which range between $20-150. Nokia is facing a big challenge on high end Asha phones against cheap android.

    All the US bloggers said, why the hell Nokia is making Lumia 520 (without ffc, flash, and 64GB memory)? Guess what, that's the only phone saved the WP's face in 2013 and that also happened after it was hugely subsidized. It was launched at $220 but didn't sell in US/Europe until it hit $100 price point and accelerated sales when it reached $50. They must have lost tons or money on it to gain market share. WP can't touch sub $100 price range so far. What do you want Nokia to do? Sit around and watch Asha sales decelerate while Microsoft is taking over?

    When writing a blog about Nokia X, please think about Asha phones first. Nokia/Microsoft needs to defend Asha sales.

    Microsoft is ONE MICROSOFT with bunch of incoherent things and one of those things is FEATURE/ASHA phones, I don't see them integrating with WP8/Win RT/Win 8.

  • Report this Comment On February 26, 2014, at 12:27 AM, djtetsu wrote:

    I say go the Android route, WIndows phones don't have a future anyway with their apps topped at 200 thousand. What benefit does it have anyway? If there are any unique advantages, I, as an average consumer are not aware of any. That leaves you out of the premium phone bracket where Samsung and Iphone are battling in, where.. an Windows phone has no chance.

    The only win route here is to do the Amazon and fork the android (and they did), so that developers can simply reapply through an MS android store (as with Amazon). Sony should also, and some how tie-in an unique gaming capability.

    Basically offer the consumer an Android phone AND something of that company.

  • Report this Comment On February 26, 2014, at 10:56 AM, techy46 wrote:

    Why not build devices that run both Android and Windows? All smart phones, like all PC's, are basically the same devices with the OS being the only differentiator. Acer, Asus, Dell, HP, Lenovo and Samsung run support both OS's so why shouldn't Microsoft. Hiwever, what Microsoft really needs to offer is a privacy and security dashboard for Internet Explorer that allows the user to set ad blocking, cookie settings by site, history and location tracking and all other privacy and security settings in an easily understood manner.

  • Report this Comment On February 26, 2014, at 12:34 PM, Pimust wrote:

    It's totally irrelevant in the future what OS the handset you're holding uses. It's all about the services that you can access with your handset and if MS can sell millions of dirt cheap Nokia X smartphones in China, India and another emerging markets those users can easily move up to more expensive WP phones and continue using those exactly same services they're used to. What's even more ingenious is that Google will pay for developing the base OS letting MS cut costs even further.

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Chris Neiger

Chris has covered Tech and Telecom companies for The Motley Fool since 2012. Follow him on Twitter for the latest tech stock coverage.

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