Nokia’s new Windows Phone strategy is guaranteed to confuse everyone

Nokia Windows Phone Android Strategy

How is Nokia going to explain the differences between its Asha feature phone application system, the Windows Phone 8 app system and the new Asha/Windows/Android app system to consumers in emerging markets? How many people comprehend the jungle of software choices that Nokia has now created for models aimed at entry-level buyers — people who in many cases have never owned a smartphone?

It would be hard to construct a series of events and decisions that is more certain to doom a mobile operating system to irrelevance than what Windows Phone’s biggest champion has delivered. The decision to introduce Android apps into Nokia’s budget smartphones is only the latest incomprehensible move. The key problem here is that Microsoft and its only devoted handset ally, Nokia, have all along made decisions that have seemingly guaranteed that the app ecosystem could never flourish.

Windows Phone 7 was released in the fall of 2010, nearly simultaneously with the start of Stephen Elop’s reign as the CEO of Nokia. Because Nokia had no substantial experience with Windows, it took the company until 2012 to start launching competitive models equipped with Windows Phone 7. Of course, by the summer of 2012, consumers had started anticipating the Windows Phone 8, so the sales of the high-end models using the aging OS started stalling before sales ever really took off.

The entire Windows Phone 7 era was so short it never gave the Microsoft camp the chance to create scale. Despite this, however, it also saddled Nokia with production commitments for cheap models of the Windows Phone 7 product generation. This meant that in 2013, Nokia’s smartphone sales splintered between pricier Windows Phone 8 models and deeply discounted Windows Phone 7 models, which had strong sales in Mediterranean markets and Eastern Europe.

This demand was created by selling below cost. But there was an extra twist in 2013 — Nokia’s Asha range of pseudo-smartphones sold surprisingly well during the first half of the year. These are feature phones that do offer a limited range of downloadable games and utility apps. Asha sales helped stabilize Nokia’s feature phone unit but they bled away potential buyers from the Windows Phone range.

At the end of 2013, the sales of dirt-cheap Windows Phone 7 phones finally tapered off and Nokia’s smartphone volumes promptly tanked between the third and fourth quarters. The deep discounting of older models had created an illusion of demand from sales to a customer base that had zero interest in apps or mobile content. Asha sales also suddenly weakened at the end of 2013. It almost appeared as though Stephen Elop had used short-term gimmicks to craft a mirage of stability for the summer of 2103, just when Nokia’s handset unit was being sold to Microsoft.

So now that the device base fragmentation is finally over (though at the price of vanished sales growth), what does Nokia do? It introduces a new era of even deeper fragmentation. This time, the budget models like X, X+ and XL will be able to run Android apps. Or actually, 75% of Android apps. Or something like that. These models will also incorporate Microsoft services and presumably will channel some buyers into Windows phones in the future.

But this vague benefit is claimed at a horrendous cost of sacrificing budget phone customers to the altar of Android’s app ecosystem. Of course, the sub-$200 category of smartphones is the only slice of the phone market likely to show meaningful growth in coming years. And this entire pool of consumers will be downloading Android apps, fatally undermining the entire purpose of building out a separate Windows app ecosystem. Even worse, this is happening just as the cheap Lumia 520 had gained some semblance of sales momentum and at least a tiny base for Windows Phone 8 apps.

This could all be moot if Microsoft kills the entire range of Nokia X phones by next autumn. But who knows? There is no real roadmap or sense of stability to any of this. For average consumers, the parade of Windows Phone 7, Windows Phone 8, Asha mock smartphones and this new Asha/Windows/Android chimera is perfectly and utterly confusing. This whole sequence of operating system and user interface revamps is so baroque and at the same time so boring I have recently realized that even many handset industry people don’t understand it.

But I think Elop did. The sly Canadian probably understood perfectly well that heavily discounting Windows Phone 7 models in the first half of 2013 combined with cramming Asha feature phones into sales channels in Latin America and Asia would help mask the true weakness of Nokia’s handset sales and of the Windows Phone market. These short-term moves may have damaged the Windows Phone ecosystem deeply and perhaps permanently. But they did help Nokia to unload its money-losing phone unit, a move that in turn made Elop the head of Microsoft’s Xbox division.

In that sense, all this confusion has served a purpose, albeit a rather specific one.

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