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Microsoft buys Nokia’s Hardware and Services Division: What this means to Android

As many have speculated for some time, Microsoft has bought Nokia’s Hardware and Services Division. The transaction is expected to close early next year, but it is pretty much a done deal. Unlike Google’s purchase of Motorola, Microsoft’s purchase of Nokia is not a bailout. Nokia has proven it can succeed. Nokia has pushed Windows Phone to an 8.2% market share in five major European markets and has pushed to second place in Mexico, behind Android.

What does this mean for the smartphone market?

Low cost offerings like the Nokia Lumia 520 are fueling Windows Phone sales

Any remaining doubts that Windows Phone will remain a player in the smartphone market have been quashed. Microsoft is determined to carve out a share in the mobile market, and will use its still substantial cash reserves to do so. Google, after acquiring Motorola kept it at arms length, so as not to alienate the Android manufacturers. This was necessary for three reasons. Motorola did not have the network of distributors, retailers and service centers to allow it to become a major global player overnight. Despite its extensive collection of patents, Motorola does not have the vertical integration of a Samsung, LG or even a Huawei which designs and manufactures a lot of the technology used in their device in-house. These two situations resulted in the third reason why Google has kept Motorola at arm’s length.  Motorola’s network and in-house technology did not make it feasible for company to become the dominant Android manufacturer.

Look at the first result of Google and Motorola’s collaboration, the Moto X, and you will really see that Google’s strengths are in software and services, and not design of hardware. In short, it is no Samsung Galaxy S4.

Microsoft will have no such issues. Nokia has an extensive network of distributors, retailers and service and support centers worldwide. Nokia already accounts for 80% of all Windows Phone devices sold, so disruption of the ecosystem of manufacturers is not an issue. HTC and Samsung already looked like they were leaving the platform, launching a very limited set of models in 2012. Huawei has also dabbled with Windows Phone, but its focus is clearly on Android. At the same time, Nokia has shown that it can still bring innovative technology to smartphones with its own camera and AMOLED display technology.

Where does this leave Android? Android is now faced with its strongest contender for the smartphone crown. While Apple’s iOS is the number two mobile operating platform in the world, it reaches a limited market. While Apple has released the iPad mini to reach a broader market, and the lower cost iPhone 5C is all but concerned, these devices are more about maintaining market share than anything else. Nokia has been trying to compete with Android at all price points, and soon to be owned by Microsoft, you can expect to see this trend continue.

Syrup for Success

Android is a fragmented platform. This has actually been a decisive factor in its success. You will still find phones powered by Android’s Gingerbread operating system, which was phased out two years ago, on store shelves. These Gingerbread-powered devices continue to exist because they allow Android phones to be sold at really low price points, since Gingerbread can run with just 256MB of RAM and half a gigabyte of internal storage.

After those entry level Androids, you will see a crop of Android 4.1 to 4.2, Jellybean, powered smartphones. But if the past is any indicator, you will see these phones left behind with an older operating system as manufacturers fail to update their lower priced and mid-range phones. Again this goes down to keeping costs down. Manufacturers operating with small margins, have little incentive to update their devices.

Low cost Android handsets combined with world beating models had resulted in Android’s overwhelming success. But it looks like the recipe has to change.

Syrup for decline?

Microsoft’s purchase of Nokia’s Devices and Services division does not guarantee success for Windows Phone. Despite the good news from Europe and Mexico, worldwide Windows Phone market share is just over 3%. Microsoft also dropped the ball on operating support for the first two generations of Windows Phone devices, leaving them stuck on Windows 7.5/7.8. But still, the Windows Phone platform cannot now be so easily discounted.

Apple really is trying to figure out how to maintain its market share in the new world order, and BlackBerry is soldiering on, hoping something happens. Nokia and Windows Phone will challenge Android at all price points and device categories in a year’s time. It should provide a more stable environment in terms of receiving updates and software compatibility. It also falls between iOS and Android in terms of capabilities and complexity. The platform is also not too Google friendly. Google’s services are extensively used on Apple iPhone and iPads. Microsoft competes more directly with Google in terms of services.

While the success of Microsoft’s Windows Phone is still in doubt, it is not going away. Nokia and Windows Phone is actually the biggest threat to Google and Android. The question now is: Will Google preemptively take tighter control over Android in response to a potential threat?

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