Microsoft: If You Can't Beat Them, Join Them

| About: Microsoft Corporation (MSFT)
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Well, there were rumors, but I have to say I did not believe them. But now it's official, Nokia (NYSE:NOK) is rolling out 3 new phones that will run on Google's (NASDAQ:GOOG) Android OS. I have to say I am very surprised. I mean, officially Nokia is not yet part of Microsoft (NASDAQ:MSFT), but I am assuming that Nokia is managed as if it is.

First of all, let me say that I have been wrong about certain things. For starters, my initial take was that Microsoft would do away with all low-end Nokia devices and concentrate exclusively in the high-end smartphone space. That has turned out not to be the case. Microsoft, from the looks of it, is continuing Nokia's strategy of making devices for the very low-end segment of the devices space.

Second, never in my wildest imagination did it cross my mind that Microsoft would make an Android device. Yes, it is true that Google's Android is an open source platform and anyone can use it, but I never expected Microsoft to take this route, partially cannibalizing its own platform.

And if Microsoft continues down this road, does this mean anything for WP8 itself? Is this a testimony of defeat by Microsoft? Partially, yes. It seems that Microsoft thinks it is missing out in the smartphone and devices war and has a new strategy, if you can't beat them, join them.

While unexpected, I do see the logic in Microsoft's strategy. In a sense, this move says to us that Microsoft is actually interested more in capturing ecosystem market share, even if it has to resort to making Android phones. How so, you say? Well, just because Microsoft will be selling Android devices does not mean that Google will see any benefit.

These phones will act as a gateway for Microsoft and Nokia services. There will be no Google Store on these devices. The phones will use Bing as the default search engine, and offer Microsoft's OneDrive cloud storage, Outlook for email and Microsoft's Skype. Nokia's Here maps will be the preferred choice instead of Google Maps, and Nokia's streaming radio service over Google Music.

At the same time, these devices will not be sold in the U.S. and many other matured markets, so as to not cannibalize the Lumia brand. Microsoft claims that this strategy will offer a way for users to purchase non-Lumia devices (Asha devices included), and hopefully down the line, users will buy a Lumia device with WP8.

I am not sure if this strategy will work, but on the other hand, I do not think it will hurt Microsoft either. I mean, it has to do something in order to build up critical mass in the devices space, and this is probably not a bad idea overall.

Nokia X devices will go on sale in China, Indonesia, India and other emerging markets and will probably be sold in some parts of Europe also. No plans for Japan, Korea or the U.S. yet.

Bottom line

Microsoft seems to have changed strategy. Part of that strategy is "cloud first, mobile first", as the company's new CEO announced recently.

This means getting people on the Microsoft ecosystem is of foremost importance, and the hardware by which this is accomplished is less important.

Granted this strategy might work, but if it doesn't, Nokia will prove to be an acquisition that will not do much for Microsoft. And in the end, Microsoft might just end up holding the Nokia bag.

But then again, we will have to wait and see. This is a very interesting move on behalf of Microsoft, and I am very curious as to the outcome. I think that during the next two quarters, we will have more data to judge the rationale of this strategy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.