Nokia’s Game-Changing X, X+ and XL Android Phones Feature Microsoft Services

These are fascinating developments that we industry watchers will follow closely, and ones that should be of interest to consumers everywhere.

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This week at the Mobile World Congress show in Barcelona, Nokia introduced a new series of low-cost smartphones for emerging markets that are very important. Nokia, a soon-to-be Microsoft Company, uses Android on these new phones, but instead of using Google services, it offers Microsoft services instead. This is a huge deal. It’s quite important to the marketplace.

Most people think that if a vendor uses Android as a mobile or tablet operating system that it has to bundle Google’s services such as Gmail, Google Maps, and Google Docs and provide direct links back to Google services so Google can get the ad revenue that comes from these phones or tablets. While we often see Google services on Android devices in the West, the reality is that Android is actually an open mobile operating system and companies like Amazon — and a lot of other smartphone makers in emerging markets — have “forked” Android to meet their individual needs.

This is especially true in China and parts of Asia, as well as in India and Africa. In these cases, they take the base Android code and add their own services to it. What makes the Nokia X, X+ and XL series so important and interesting is that these will be the first Android phones to offer Microsoft services in these emerging markets. This move gives Microsoft a powerful foothold in the fastest growing segment for smartphones.

The best way to understand Android is to think of it as a platform for which others can create platforms. Google has taken the basic AOSP (Android Open System Platform) code base and integrated its services on top of it, and offered this version of Android to be used by anyone Google approves as passing its device certification requirements. Amazon and Xiaomi are top-tier examples of companies who have taken AOSP Android and used it for their own benefits by differentiating the platform in unique ways that fit their core business models.

A commenter on a recent Ars Technica article, who says she has “been actively involved in designing and implementing Android since early on,” eloquently explains what Android actually is and why it exists.

AOSP is far more than the basic bones of a smartphone operating system. It is a complete smartphone operating system. The examples you provide for what it includes are very misleading — what about the launcher, contacts app, dialer and phone app, calendar app, camera and gallery and on? The fact is, if you build AOSP today and put it on a phone, you will have a pretty fully functioning platform.

The thing you don’t have is stuff related to cloud services, and this is not an evil secret plan of Google, but a simple fact we have been clear about from the initial design of the platform: Android as an open-source platform simply can’t provide any cloud services, because those don’t run on the device where the platform code runs. This is a key point that seems to be completely missed. If you want to understand what Android is, how it is designed, and how the pieces fit together, you must understand this point.

However, Google’s services do not run on vanilla AOSP. Google takes AOSP and creates a new code base for which its services run. What becomes critical in this perspective is the word “services.” Software platforms are at their very basic core a mechanism to drive services. Windows was/is a mechanism to drive Microsoft’s services. Android is a mechanism for Google and others to drive Google’s services. iOS and OS X are mechanisms for Apple to drive its services.

What this means is that using the AOSP smartphone operating system is itself a fully functioning mobile operating system that others can use in this open platform format, and then customize the services for their own markets. This is why Nokia can take this AOSP and put Microsoft services on top of it for use in these markets. But think of what this means: While the deal to acquire Nokia has not been finalized, the fact is that Microsoft is embracing Android and then using it to its own advantage.

On the surface, this move competes with the Windows Phone operating system and sounds contradictory to the “One” Microsoft vision that former Microsoft CEO Steve Ballmer rallied the troops around just last summer. Yet at a strategic level, it makes great sense since Windows Phone isn’t gaining a lot of ground in these emerging markets — and in the end, services are at the core of Microsoft’s future.

The big trend here is that we are adding the vast majority of new smartphone owners in the mid-range and low-end of the smartphone market. More than half of the next billion new smartphone users will come from devices costing less than $200 at retail. The low end and mid range is the fastest growing segment in these markets, while the high end of smartphones has plateaued.

While some consumers who are in replacement cycles end up going upstream, the issue is that there is still a limit to the price band that most in the emerging markets can afford. Emerging markets are highly price conscience and Microsoft/Nokia really needed a smartphone that would allow them to be competitive in these markets. At the same time, they need to extend the reach of Microsoft’s services to these regions where Microsoft’s presence in mobile is low.

Most of us industry watchers are really interested in the ramifications this has for Microsoft and Google. Goggle clearly created Android as an open platform, but in the process Google has actually limited its own revenue potential in a large part of the world where smartphone and tablet vendors are using Android but customizing their services on it, cutting Google out of the picture completely. Now Nokia, with Microsoft’s clear approval, is jumping on the Android bandwagon and providing Microsoft services on these new phones, cutting Google out of the picture altogether.

Also, if the largest growth in smartphones is moving to phones retailing for under $200, is Apple going to be part of this growing market? Or will it instead stay with its upscale smartphone strategy, maximizing the profits that come from high-end phones even if the demand for high-end smartphones is no longer growing?

These are fascinating developments that we industry watchers will be following closely, and ones that should be of interest to consumers in the West. How these companies deal with these challenges and opportunities will someday impact consumers in all markets.

Bajarin is the president of Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to Big Picture, an opinion column that appears every week on TIME Tech.