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.
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.