2 Reasons Microsoft Should Keep the Nokia X

Nokia's new Android-powered X smartphone has two immediate upsides for Microsoft, but its long-term benefits are less clear.

Feb 26, 2014 at 9:00PM

This week, Nokia (NYSE:NOK) debuted its new X smartphone, which runs a forked version of Android. The new phone is the first in a line of X smartphones to enter emerging markets this year, and they come just as Microsoft (NASDAQ:MSFT) is closing its acquisition of Nokia's devices and services this quarter.

While there are clearly some major reasons why the Nokia X doesn't fit into Microsoft's plans, here are two reasons why the company should keep the Android device around.


Source: Nokia.

Stepping stones
Nokia has been a committed partner to Microsoft over the past few years, launching Lumia with the Windows Phone OS. But in many emerging markets, where Nokia still has a strong presence, the company focuses on its Asha line of phones, running the Asha platform. Right now, there's a chasm between the high-end Lumia smartphones and the very low-end Asha devices.

And the Nokia X fits nicely into that gap.

The X starts at about $120 and offers a 1 GHz dual-core processor, three megapixel camera, 800x480 resolution screen, and Android Jelly Bean (4.1.2). Those clearly aren't high-end specs some markets demand, but are still respectable for a phone just above $100.

That price tag is what's important for both Nokia and Microsoft. With the Lumia out of reach for many people in emerging markets, the X could be the bridge between the starter-smartphone Asha line and high-end Windows devices. Not only does the X fill in a much-needed price gap between the two existing lines, but its goal is also to get users hooked on Microsoft and Nokia services.

The forked version of Android on the X doesn't have a Google Play store and doesn't utilize Google's cloud services. Instead, the device will tap into Microsoft's OneDrive cloud storage, Outlook for email, Skype for video calls, and Nokia's HERE maps service and MixRadio Internet radio. So though the X, X+, and XL devices run Android, their ultimate aim is to get users onboard with services that aren't made by Google. Pretty sneaky.

In addition to pushing Microsoft and Nokia services, one of the X's home screen displays looks a lot like Windows Phone tiles -- an obvious introduction to the OS Microsoft ultimately wants users to buy into. Nokia's former CEO and current executive vice president of devices and services, Stephen Elop, said in a Nokia press conference this week that the X will be a "feeder system into our Windows Phone strategy." Not a bad goal, even if it takes using Android to get there.

A sale is a sale
Nokia will sell the X line in emerging markets, China and Indonesia first and then Western Europe. But it's specifically not selling the phone in the U.S., Korea, or Japan in order to keep it from competing with the Lumia line.

Though keeping an Android-powered phone may seem counterproductive for Microsoft, in the end it could certainly boost the company's bottom line without stealing away Lumia sales. Nokia's strong brand in some emerging markets could make the X a valuable asset to Microsoft, and the low price and availability of popular Android apps could make the X an easy sell. Nokia X sales will eventually trickle into Microsoft's bottom line, once the acquisition closes. It's up to Microsoft to decide whether it's comfortable selling an Android-powered phone in order to bring in additional device revenues and bolster its own services.

Foolish thoughts
While I can clearly see why keeping the X around could help Microsoft, I ultimately think it would be a long-term mistake. I made my case in a recent article as to why Microsoft should kill the Nokia X.

The new device could be a huge diversion to Microsoft at a time when the company desperately needs to zero in on its mobile strategy. Sure, it could add some short-term revenue to the bottom line and help introduce users to its services, but without smartphone users hooking directly into the Windows Phone OS and ecosystem, I think it would eventually hurt Microsoft's mobile ambitions. Investors are likely split on what Microsoft should do, but 10 years down the road Microsoft is either going to have a successful Window Phone OS or it's not -- and I don't see how Android will help bring about the former.

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Fool contributor Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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