BARCELONA - Nokia, soon to be acquired by Microsoft Corp, is turning to software created by arch-rival Google for a new line of phones it hopes will make it a late contender in the dynamic low-cost smartphone market.
Its first model, the Nokia X, will rely upon an open version of the Android mobile software system created by Google that has become the world's most popular software used in smartphones.
The release of the phone just days before Nokia sells its handset business to Microsoft in a US$7.2 billion (S$9.1 billion) deal, is an attempt to stay relevant in emerging markets, where low-cost Android phones are being snapped up by hundreds of millions of buyers.
But the strategy shift underlines the many missteps made by the Finnish company since Apple launched its ground-breaking iPhone in 2007.
Nokia was caught between a rock and a hard place - committed to using Microsoft's Windows Phone software but needing Android software to reach more cost-sensitive customers, CCS Insight's head of research Ben Wood said.
"That a soon-to-be Microsoft-owned company, which is the owner of the original operating system, is moving to Android is almost an admission of failure," he said.
Global smartphone shipments grew 41 per cent annually to reach nearly 1 billion units in 2013, according to market research firm Strategy Analytics. Android phones from dozens of handset makers accounted for almost four out of every five smartphones sold, or 781.2 million units.
In the past year, Apple phones grew 13 per cent and shipped 153.4 million smartphones worldwide for a 15 per cent share of the market, making it the second largest smartphone platform after Android.
Microsoft was a distant third in market share terms, shipping 35.7 million units worldwide with its Windows Mobile software platform, but still struggling to gain traction in the low-tier and premium-tier smartphone categories, Strategy Analytics said. Android and Apple hold sway, respectively, in the low-tier and premium-tier segments.
Nokia's main strategy remains to rely on Microsoft Windows Phone software for its premium models while adapting Android to participate in the low end of the smartphone market.
WINDOWS SHUT OUT
In February 2011, Nokia's Chief Executive Stephen Elop famously compared Nokia's failing smartphone strategy - based on multiple software platforms of its own making - to a man on a burning platform.
He chose to jump into the arms of Microsoft, producing high-end Lumia-branded smartphones that have been well received by critics, but less popular with customers and app developers, the people who make the software that turns phones into multi-purpose tools.
The Microsoft technology also does not work on the chip sets found in cheaper smartphones, the fast-growing market crowding out Nokia's Asha feature phones, which lack the full Internet capabilities of smartphones.
The company rejected Android three years ago, when it tied its fortunes to Microsoft's Windows Phone. But Monday's announcement shows it has quietly been working on an open Android device for months.
Product Marketing Vice President Jussi Nevanlinna said the number one requirement from customers was access to Android apps.
"Our fans often times tell us 'We love your hardware, we love your products, but we also love our Android apps'," he said. "Can you make something happen so the Android apps magically run here?'"
"Asha has failed to deliver the volumes they needed to be competitive in the low-cost smartphone space, while Android remains completely rampant," CCS Insight's Wood said.
The Nokia X uses the open source version of Android, which runs most apps without the right to customise Google's basic software.
For Nokia, it was a question of making this humiliating reversal in its strategy or facing irrelevance in this category of phones, Wood said.
Rather than a complete about-face, however, Nokia's adoption of Android for the Nokia X appears to be a tactical reversal, albeit one that amounts to throwing the cat among the pigeons.
The open version of Android software means that the new Nokia phone does not have rely on Google's services and access to the Google Play app store. Instead, Nokia is bundling it with its own music and map offers, and Microsoft's email, cloud, messaging and search services.
Apps will be available in Nokia's own apps store, as well as a host of other app stores, Nevanlinna said.
The look of the device is starkly different from the usual Android phone, with nods to the interface to Lumia and Asha devices.
Nevanlinna said rather than confusing customers, Nokia X, where X indicates a cross between Nokia hardware, Android apps and Microsoft services, will be a stepping stone to Lumia, and will share the same cloud services.
"Lumia remains our primary smartphone strategy, " he said. "We innovate in the high end, and then we take that innovation and bring it to lower price points, and therefore move the Lumia family down" (to reach more customers).
Wood said Nokia and Microsoft had an advantage over other users of open Android, such as some Chinese manufacturers, in that they had a ready-made set of services that they could slot into the phone.
"It means Nokia is able to participate in that entry-level space, but our view is they will try to push Windows Phone down into that space as quickly as possible," he said.
Nonetheless, devices running an open Android operating system will not sit easily within Microsoft, whose fortune is founded on the core belief that software should be paid for.
It has long campaigned against Android, and Google in general, for offering a free operating system to handset makers, which it claims uses elements of its own technology.
Through a series of patent agreements, Microsoft now receives payments from every major Android handset maker except Motorola. Due to Android phones' explosive growth, Microsoft now earns more money from Android royalties than it does from licensing Windows Phone.
The Nokia X will be available in all markets apart from Japan and Korea, where Nokia is not present, and North America, with shipping starting within a week, Nevanlinna said. It will be priced at 89 euros excluding operator subsidies.