Google's (NASDAQ:GOOGL) update to Android, KitKat, includes a number of new features and improvements. The most noteworthy is its performance on low-end handsets: Smartphones with just 512MB of RAM can easily handle Google's updated operating system. This was a necessary step for Google as it wards off competition from Microsoft (NASDAQ:MSFT) and Nokia (NYSE:NOK).
Android's emerging market problem
When it comes to emerging markets, Google's Android is dominant. In India, Android has over 90% market share, and in China, over 70%. As consumers in these markets are significantly budget constrained, sub-$100 Android handsets are popular.
The problem for Google is that many of these handsets, even new ones, are powered by older versions of Google's operating system. Gingerbread, Google's version of Android originally released in 2010, was installed on over one-third of Android handsets back in July, according to Open Signal.
Older versions of Android, lacking recent improvements, are inferior. Moreover, that sort of widespread fragmentation makes developing for the platform more difficult. Thus, despite Android's dominance of emerging markets, Google's competitors see an opportunity.
Microsoft plans to target emerging markets
Microsoft in particular thinks it can grow in emerging markets. For now, Microsoft's Windows Phone remains in distant third place behind Google's Android and Apple's iOS, but Microsoft plans to change that. Soon it will absorb Nokia's hardware business, and then Microsoft's management will spend the next 12-months targeting emerging markets.
Nokia's new budget phablet, the Lumia 1320, could be immensely popular in Asia. Cheap phablets running Google's Android have exploded in popularity in markets like Vietnam and Indonesia; Nokia's Lumia 1320 could appeal to that same group of buyers.
Meanwhile, Nokia also remains committed to its Asha line, expanding it with three new handsets announced last week. Nokia's Asha phones don't run Microsoft's Windows Phone, but they do offer some limited app functionality. They're also incredibly cheap -- they start at just $69, making them attractive alternatives to cheap Android handsets.
However, it isn't clear if Microsoft will keep the Asha lineup around long-term. Though they might weaken Google's operating system in emerging markets, they exist wholly separate from Microsoft's burgeoning Windows Phone ecosystem, and therefore could be competition. Microsoft has reportedly considered bringing some of its services (SkyDrive, Office 365) to Nokia's Asha lineup, which might make consumers more likely to migrate from Asha to Windows Phone. Nevertheless, it's an interesting predicament for Microsoft.
Google cares deeply about emerging markets
By focusing on low-end handsets with Android 4.4, Google remains committed to emerging markets. This might have a limited effect on Google's business in the near-term, particularly because, in the largest emerging market (China), forked versions of Android dominate. Still, it should support Google's international operations, which last quarter accounted for 55% of its business.
Longer-term, it should support Google's attempts to open up more markets. More than 61% of people worldwide still don't use the Internet. Cheap, quality Android phones paired with Google's radical Internet balloons could bring billions more people online.
But perhaps the most notable effect will be to ward off Nokia, and stymie Microsoft's plans to grow Windows Phone.