Now that the Nokia X is real, should Microsoft kill it or keep it? (I vote for keep)

When Microsoft(s msft) closes its deal to purchase Nokia’s(s nok) handset business, it will get a final asset in the form of the Nokia X handset line. New Android(s goog) phones from Nokia likely weren’t on this couple’s gift registry though, making for an interesting situation. Will Microsoft keep the Nokia X phone on the market, or will it do a quick about-face and squash the product in favor of low-cost Windows Phone devices?

What exactly is going on here?

Nokia X home screen
At the Mobile World Congress event on Monday, Nokia launched a trio of new Android phones: the Nokia X, X+ and XL. My colleague Alex Colon already spent some time with the Nokia X, which is the least expensive of the bunch. The X+ adds more internal memory and includes a microSD card for storage, while the XL is a larger model with a pair of improved camera sensors.
Being Android phones, they run Android apps — Nokia says about 75 percent of all currently available Android apps are already compatible — but no Google services. Instead, they tie in to apps and services from both Nokia and Microsoft. With starting off-contract prices of €89 (USD $122), €99 and €109 respectively, these are less expensive than most Microsoft Windows Phones.
Essentially, Nokia has created a device that can appeal to budget buyers while expanding the reach of its own services and those of its soon-to-be parent. It does this by blending some of the best features of the Nokia Asha line — phones that are even less expensive but have limited apps — and the Windows Phone–powered Nokia Lumia handsets. Take a look and you’ll see this in action:

Let’s start with the cons

The most obvious issue Microsoft may have with the Nokia X line is that it doesn’t run Microsoft’s Windows Phone operating system. Microsoft is trying hard to boost its market share in handsets, and selling boatloads of the Nokia X doesn’t help with that goal. Why does Microsoft care about market share? The answer leads directly into the second argument against the Nokia X: Developers.

windows phone screens

While it’s not the only consideration for a mobile app developer, market share of a platform is part of the decision whether to make an app for a particular operating system or not. Why bother creating your software for phones that have a relatively limited audience? Microsoft may be concerned that the Android-powered Nokia devices could cause developers not to bother making their apps for Windows Phone.
The Nokia X also raises questions about Microsoft’s strategies and platforms. Does Microsoft have focus if it’s going to support multiple operating systems on mobile devices? Is Windows Phone not good enough for all segments of the market?

There are more pros, though

It’s not all bad news for Microsoft here. The Nokia X line of phones could open up new markets for the company in regions where smartphones haven’t yet taken off yet and incomes are relatively low. With a few rare exceptions — I picked up a Lumia 520 for $40 recently — the Nokia X handsets are priced far lower than Windows Phones. There just aren’t many “budget” handsets running Microsoft’s software these days, although that could change in the future.
While Microsoft is also getting Nokia’s Asha handset line with its purchase, these super-inexpensive phones — think €29 and up — don’t run any Microsoft apps. So while the phones will gain Microsoft some sales in new areas of the world, they do nothing for the company’s Windows apps and services. The Nokia X is more helpful in that regard.
I noted this in December when the Nokia X was rumored; although I was incorrect that this phone would replace the Asha line, I said then that it would give Microsoft a potentially larger user base for its software and services while at the same time keeping Google from getting important user data and ad revenue:

“Since the phones wouldn’t use any Google services by default, Google gains nothing: No revenue and no user data, which is where it makes its money. Such a move, if successful, could blunt Google’s momentum. Android would still be a dominant OS, but it wouldn’t matter for these phones: Microsoft would reap all of the ad and service revenues while keeping information from mobile device users out of Google’s hands.”

A situation like that is a huge win for Microsoft, both in the current day and in the future. Why?
The immediate benefit is that every Nokia X sale gains more potential users of Skype, Office and OneDrive. Or it means fewer new users of Google Hangouts, Google Docs and Google Drive, depending on your perspective.
Skype on Android
In the long-term, the benefits to Microsoft get even better. When Nokia X owners are ready to “step up” to a better smartphone experience, Microsoft is ready to welcome them with a Lumia or other Windows Phone. The same apps and services are there and Microsoft would then gain the market share benefit as well.

So what’s the verdict?

I think Microsoft can actually benefit from keeping the Nokia X. Trying to compete with Android and iOS in the mid- to high-end range of smartphones is proving to be a long-term slog that may never work out. And there’s more growth potential in the lower-priced phone segment. Why not use the Nokia X to get people in that market using Microsoft’s services and reap the benefits of those users now and later as they transition to Windows Phone?
It’s a risk and it’s debatable, indeed. And because Nokia has (and must) operate independently from Microsoft until the acquisition formally closes, Microsoft hasn’t had a say in the Nokia X strategy. That changes once the deal is final. At that point, I hope Microsoft doesn’t look this gift horse in the mouth.