Nokia’s X Android Series Fails to Address These 3 Big Problems

In a humbling move, Nokia (NYSE: NOK  ) recently announced its first ever lineup of Google (NASDAQ: GOOGL  ) Android phones, known as the X series.

It's also a surprising move, considering that Nokia has intentionally avoided Android every step of the way -- former CEO Olli-Pekka Kallasvuo stubbornly stuck with Symbian, and his successor Stephen Elop struck a deal with Microsoft (NASDAQ: MSFT  ) to produce Windows Phones instead of Android ones.

Nokia X, the company's first Android phone. (Source: Nokia)

The global market share for Windows Phones rose from 0.9% in 2012 to 3.6% in 2013, but that tiny sliver is still dwarfed by Android's and Apple (NASDAQ: AAPL  ) iOS' respective 81% and 12.9% shares of the market, according to IDC.

Last September, Microsoft acquired Nokia's handset unit -- which produces more than 90% of the Windows Phones in the world -- for $7.2 billion. At the time, many industry watchers believed that the acquisition was aimed at blocking Nokia's production of an Android phone, which makes Nokia's recent decision to produce one even more puzzling.

However, the X series is only a half-step toward Android, since it runs a forked version of Android, which blocks the Google Play Store. In addition, Nokia believes that this forked version of Android, which cosmetically resembles Windows Phone, will boost sales of its Windows Phone devices.

The X series will be positioned between its entry-level Asha, which is popular in developing nations like India, and its higher-end Lumia series -- a strategy that Nokia hopes will defend its lower-end market against Android devices.

In my opinion, Nokia's X experiment is built on some very shaky assumptions about the market. Here are the three huge problems that I feel Nokia overlooked.

1. Forking Android only works when there's exclusive content
The most well-known example of "forked" Android can be found on Amazon's (NASDAQ: AMZN  ) Kindle Fire tablets. This means that although the Kindle Fire runs on Android, Amazon replaced the Google Play Store with its own digital storefront and removed all Google-related apps.

Google Play apps (which have an .apk extension) can still be downloaded from the Internet or another Android device, then subsequently loaded into the Kindle's internal memory and installed in a process known as "side loading." However, sideloading apps into a forked Android system is cumbersome compared to the single-touch installation that can be performed on regular Android devices with unrestricted Google Play access.

Amazon's Kindle Fire HD. (Source: Amazon)

Amazon, however, already had a built-in user base of customers who purchased previous black-and-white Kindles as a e-readers. With its first-generation Kindle Fire, released in November 2011, Amazon added streaming video content as well. Amazon's massive library of e-books and video content offset its initial lack of forked Android apps.

Today, Kindle Fire tablets still control a 7.6% market share in tablets globally with 5.8 million units shipped last quarter, according to IDC. While 7.6% doesn't seem significant compared to Apple's 33.8% market share, it's big enough to convince developers to release apps for Amazon's App Store. It's also easy to port Android apps over to Kindle Fire devices, since they run on the same OS.

In other words, customers forgave Amazon for forking Android on the Kindle Fire for three main reasons -- Amazon offered plenty of exclusive digital content, black-and-white Kindle users didn't care too much about missing apps on the Fire, and it was cheap, with an average price of $130 to $160 (7" versions).

By comparison, Microsoft has a robust library of over 190,000 Windows Phone apps, compared to the 120,000-140,000 for the Kindle, but those apps won't carry over to Nokia X's forked Android store. Microsoft and Nokia also don't have any exclusive media content that justifies forking the system as Amazon did.

Nokia X customers aren't going to be as understanding as Kindle users -- all they'll get is a crippled version of Android, access to far fewer apps than one with Google Play access, dressed up in package that cosmetically resembles a Windows Phone.

2. You're not fooling anyone, Nokia...
That leads us to the second problem -- Nokia and Microsoft's misguided belief that dressing up an Android phone to look like a Windows Phone will boost sales of its Windows Phone devices.

Today, customers who tend to switch smartphones annually tend to read about their purchases, and are well-informed regarding the differences between iOS, Android, and Windows Phone devices. They know that Android devices made by Samsung, HTC, and Sony (NYSE: SNE  ) offer enhanced GUIs (graphical user interfaces), but they are connected to the same shared Google Play universe of over 1 million apps. Apple users know that they can access the same App Store from their iPhones and iPads, although certain apps are specifically designed for tablets.

This is the market that Nokia's X, with its Windows Phone GUI covering up a forked Android machine, is diving head first into. It's a silly, half-hearted effort that will likely remind Android users of various homebrew ROMs such as CyanogenMod, which already allow users to dress up their Android phones to look like Windows Phones or iPhones:

Look familiar? Android phones can already be modified to look like an iPhone (L) and a Windows Phone (R). (Source: Technorms.com)

3. Handing market share to Google on a silver platter
In my opinion, Nokia's strategy will accomplish the opposite of what it intended and actually help boost Android's market share instead. When a customer buys a Nokia X phone, two things will likely happen:

  • The customer loves the GUI, and decides to "upgrade" to a Lumia phone -- only to discover that a lot of their favorite Android apps aren't available on Windows Phone devices.

  • The customer hates the GUI, but likes Android and frequently sideloads apps onto the device. After a while, this becomes cumbersome, so the user decides to "upgrade" to a full Android device instead.

Both outcomes boost Google's market share at the expense of Windows Phone devices.

Nokia can possibly avoid this fate by growing its app store to match Google and Apple's offerings, but it will still be tough to consider the Nokia X as much more than free advertising for Android devices.

The bottom line
In conclusion, Microsoft's lack of exclusive content and the clumsy forked Android approach could doom the Nokia X series. On the other hand, it could experience success in markets like India, where the Asha's streamlined new GUI for Symbian helped Nokia claim 14.7% of the country's mobile phone market.

What do you think, dear readers? Is Nokia X a revolutionary step forward for the company, or will it ultimately embarrass the company? Let me know your thoughts in the comments section below!

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Read/Post Comments (5) | Recommend This Article (1)

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 26, 2014, at 2:19 PM, selboury2013 wrote:

    You forget that these phones are not for you, they're designed for the other 4 billion people not owning smartphones at the moment. A $50 phone is still a 2 Month Salary for most of them.

    From a strategic standpoint, Nokia's move is genius. Just watch and learn.

  • Report this Comment On February 26, 2014, at 2:24 PM, TMFSunLion wrote:

    Thanks for reading -- I agree, they are not for American customers... yet. However, I think it's an experiment to see if the "Android dressed up as Windows Phone" GUI will work. It might work well in India after all, we'll have to see.

  • Report this Comment On February 26, 2014, at 3:20 PM, rchaudhary wrote:

    Hello Leo,

    Your well intentioned article has few points missing.

    1. Amazon app store is not available in India, Russia and some of the south-Asian markets. You could go to Amazon’s US site and buy through local credit card, but those who can do that are outside the $50 phone market.

    2. According to IDC, 35% of Android phones world-wide are NOT using Google’s Android, instead they use forked ASOP similar to Nokia. The challenge with those 35% of the manufactures is that they don’t have one-to-one services available for everything offered by Google services. This is potentially a huge opportunity for Nokia to collaborate with Microsoft and offer a viable alternative. Remember, even Amazon had to engage Nokia to find full replacement of Google.

    3. Microsoft is not about Windows Phone, it’s also about Microsoft services. If this experiment succeeds, then Microsoft can offer their Android based services to every other ASOP manufacturer. The biggest potential is Samsung who is trying to break loose from Google’s hold. Another good example is Apple, who uses MS Azure for its iCloud and Bing for Siri.

    So yes, while I might sound like a bad idea from Windows Phone OS perspective, it is great for MS services division.

  • Report this Comment On February 26, 2014, at 5:25 PM, Nikonfanatik wrote:

    Great input people! I'm interested to see how this will pan out.

  • Report this Comment On February 26, 2014, at 10:35 PM, TMFSunLion wrote:

    @rchaudhary -- Thanks for making those points. In response:

    1. Yes, I realize that Amazon isn't that widespread in many emerging markets. I was just citing the Kindle's success as an example of how forked Android can be successful when supported by underlying content.

    2. True as well, but without full Google Play access it can be difficult to convince consumers that forked Nokia Android is that much better than Windows Phone to begin with.

    3. Yes, it represents a good way for Microsoft to grow its ecosystem. Samsung has expressed support for Microsoft in the past. So indeed it could be a good way to spread MS services to other platforms.

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