Why Microsoft should welcome Nokia's new Android phones

If you think Nokia's decision to introduce a line of Android-powered phones is a threat to Microsoft, think again. With Microsoft's new "devices and services" emphasis, these phones are a logical fit, even after the acquisition closes.
Written by Ed Bott, Senior Contributing Editor

According to the conventional wisdom, Nokia’s decision to launch the new Nokia X line is a slap in the face to Microsoft. An insult, an embarrassment, a major headache that Microsoft management will have to confront soon, when the acquisition of Nokia closes.

That conventional wisdom, frankly, makes no sense to me. When Microsoft announced the deal to acquire Nokia's Devices and Services business last fall, it acquired the rights to use the Nokia brand name for existing mobile devices, and it also embraced the Asha line and its distinctly non-Microsoft operating system as "an on-ramp to Windows Phone." These new Android-based devices are just another piece of that puzzle.

Microsoft’s archrival in the mobile market is Google, not Android. Microsoft’s services – Office 365 and Outlook.com, OneDrive cloud storage for consumers and businesses, communications via Lync and Skype, among many others – work on multiple platforms. They compete on most of those platforms with Google services, like Gmail and Google Apps and Google Drive and Google+ Hangouts. Bing competes with Google Search. Nokia’s powerful mapping services compete directly with Google Maps.

If you’re looking only at the OS and apps, you’re missing the point. Microsoft’s reinvention for the cloud era, begun under CEO Steve Ballmer and certain to continue under his successor Satya Nadella, is transforming it into a “devices and services” company. Devices, not operating systems. Services, not apps.

If you think Microsoft cares most about the royalty it charges a device maker for the OS license, you’re several years behind. Of course the company would be happy to collect that one-time OS royalty from a device maker, but they’re equally eager, if not more so, to have the buyer of that device paying for international Skype calls, for an Office 365 subscription, and maybe even for an Xbox Live Gold account. Over the life of a phone, the revenue from those services can easily be an order of magnitude greater than that OS royalty.

Microsoft wants its services, along with those of its partner and soon-to-be-subsidiary Nokia, to be front and center on a mobile device. It’s easy to do that with Windows Phone and Windows 8.1 mobile devices, where Microsoft controls the platform. It’s much more difficult to replace Google services on new Google-certified Android phones, where those services are set as defaults, as a condition of acceptance into the Google Play ecosystem.

The new Nokia X, targeted at “growth economies,” is built on top of the Android Open Source Project codebase, which doesn’t come with those Google gotchas. Nokia’s custom interface looks remarkably like a Windows Phone. CNET’s report from the Nokia launch event at Mobile World Congress describes a home screen that includes an assortment of Nokia and Microsoft services, with Google’s alternatives nowhere to be found. Facebook and Twitter are included, of course, but so are Skype, OneDrive, Outlook.com, Nokia Here Maps, and Nokia Mix Radio.

Nokia's Android powered X and XL smartphones

Image credit: Sarah Tew/CNET

Microsoft’s Bing is the default search engine on the Nokia X line, and everything is connected to a Nokia Store, which will presumably be run by Microsoft after the acquisition closes.

Ironically, Nokia’s Android-free Asha line, which is targeted at emerging markets, looks remarkably Android-like, at least on devices that adopt the smartphone form factor.

Nokia's low-cost Asha phones

And it’s not exactly waving the flag for any Microsoft or Nokia services – about the only recognizable brand on that home screen is Facebook.

Building on the AOSP base with a Windows Phone look-alike interface on top is obviously a winner for Microsoft services, which are front and center on the Nokia X devices. As a bonus, that architectural decision allows the company to preserve Windows Phone as a premium brand, even on relatively low-cost devices in developed economies, like the sub-$99 Lumia 520 and 521 in the United States.

It’s possible that a Microsoft-owned Nokia could someday make a premium handset based on that same Android code base, using high-quality hardware similar to today’s Lumia-branded devices but running a successor to the software introduced today on the Nokia X. Those devices could conceivably compete with top-of-the-line Android phones for those who prefer the Android UI (and its selection of apps) but want Microsoft services (especially Office apps) in place of Google’s.

If Microsoft can get smartphone buyers to use its services, it should be perfectly happy to see those services running on a multitude of platforms, including iPhones and iPads, Android devices of all types, and Windows-powered phones and tablets. The experience should be identical, regardless of the code it's running on top of. Microsoft’s paid services bring in steady revenue streams. Its free services bring in advertising dollars and keep customers out of Google’s hands.

Anyone who thinks that Microsoft has to choose between Windows Phone and Android is missing the point. In a market that comprises more than a billion new devices a year, a platform that’s a distant third can still be a serious and profitable business. Even if Windows Phone stalls out at a seemingly puny 10 percent of the market, that represents 100 million devices a year. And if Nokia-branded devices running Microsoft and Nokia services on top of AOSP can snag another 10 percent of the market in Asia, India, the Middle East, Africa, and Latin American, why turn those customers down?

That fundamental desire to run its services on as many devices as possible – its own as well as those made by other companies – is a defining characteristic of Microsoft’s new business model. It's already building apps for Android, and Skype customized its Android app specifically to run on the Nokia X line. That's not exactly the action of a company that feels insulted.

In the not-so-distant past, Microsoft’s ambition was easily stated: “A PC on every desktop, running Microsoft software.”

The more modern version of that vision is subtly different: “Multiple computing devices of all shapes and sizes, in every home and business, running Microsoft services.”

Update: It's clear that Microsoft thought about this issue while it was negotiating the acquisition of Nokia's Devices and Services business. From the September 2013 press release announcing the deal:

Microsoft will acquire the Asha brand and will license the Nokia brand for use with current Nokia mobile phone products.... This element provides Microsoft with the opportunity to extend its service offerings to a far wider group around the world while allowing Nokia’s mobile phones to serve as an on-ramp to Windows Phone.

Asha and Android at the low end as an on-ramp to Windows Phone at the high end? Makes perfect sense to me...

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