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Switching to Android phones won’t save Microsoft

The Exchange
This undated photo provided by Microsoft shows Satya Nadella. Microsoft announced Tuesday, Feb. 4, 2014, that Nadella will replace Steve Ballmer as its new CEO. Nadella will become only the third leader in the software giant's 38-year history, after founder Bill Gates and Ballmer. Board member John Thompson will serve as Microsoft's new chairman. (AP Photo/Microsoft)

New Microsoft (MSFT) CEO Satya Nadella is just settling in but he’s already getting plenty of advice about how to save the company. One idea is to dump the flailing Windows Phone operating system and shift to a version of Google’s (GOOG) Android that substitutes Microsoft services for Google’s.

It's a useful thought exercise given Microsoft's predicament, but ultimately such a shift wouldn't solve enough of the company's mobile problems and would leave Nadella dangerously dependent on a top rival.

Weird as it sounds, it would be perfectly legal for Microsoft to create a phone based on Google software, given Android’s open source foundation. Amazon (AMZN) relies on the guts of Android, known as the Android Open Source Project, or ASOP, for its Kindle Fire tablet line, as do many low-end phone makers in emerging markets. The software provides basic functionality and core apps without including Google's popular mail, mapping and other services.

“ASOP offers Microsoft the chance to remake its mobile strategy so it exploits all the strengths of its most bitter rival – it’s free, widely available – and grab mobile developer interest,” writes Charles Arthur, technology editor at The Guardian. “For Microsoft, presently a distant third in this race, it could be the answer it needs.”

Blogger and analyst Ben Thompson similarly suggests an ASOP-based phone strategy for Microsoft.

But a basic question for the supporters of the hybrid Windroid strategy: Why would it sell any more phones than the flunking Windows Phone OS?

Windows Phone has minimal market share around the world, under 4% of smartphones shipped last year, according to research firm IDC. It’s almost invisible in high-end markets such as the United States; even in some less developed markets, where it comes in second place ahead of Apple (AAPL), it trails far behind Android.

An obvious problem

One obvious problem is the Windows Phone ecosystem has many fewer apps than Android or Apple’s iOS. That’s the core thinking behind “Windroid” – make a phone that’s (almost) compatible with the million Android apps already out there. Microsoft would still have to make an enormous effort to convince developers to issue special Windroid-compatible versions of their apps, of course, but it’s not impossible.

However, the app gap is hardly the only problem dogging Windows Phone. A second big problem is that mobile carriers sell most phones and Microsoft has failed to grab their attention. Verizon Wireless (VZ), the top U.S. carrier, sells only a few, dated Windows models, without any promotion. AT&T (T) is a little better but you have to scroll far down its list of “Featured” phones to find a Windows model (just below a used Galaxy S III Mini and the 2011 Blackberry Curve).

By contrast, Samsung (005930.KS) spends billions in “marketing,” much of it to entice carriers to push its Android phones. Its latest models are at the top of all the U.S. carriers' websites and win prominent placement in their stores. Phone makers lacking equivalent promotional spending, such as HTC and Motorola, have gone nowhere despite building well-reviewed Android devices.

Another problem is Microsoft is way behind in consumer cloud services in developed markets. The popularity of Google Mail, Youtube, Google Maps and other offerings, including the Google Play Store, is a big draw for Android phones. And the attraction of Apple’s iOS is without equal. Microsoft’s Bing, Outlook and Skydrive, now OneDrive, don’t have nearly the same pull with consumers (and the Xbox brand that is so popular is one Microsoft criminally underexploits).

Finally, beyond Nokia, the past choices for Windows phone hardware have, to put it bluntly, sucked. Apple’s never going to make a Windows Phone, obviously, but Samsung, Lenovo, LG, HTC and others have largely ignored Microsoft’s platform. And, in most cases, Google doesn’t allow phone makers who sell Android phones with Google services to also sell versions without those pieces. So those same popular phone makers most likely wouldn’t be able to sell Windroid phones.

Microsoft could obviously also try to address these failings at the same time it switches to Windroid. But it could make that same effort – spending big on carrier promotions and popularizing its cloud service offerings – without the massively expensive and distracting decision to drop Windows Phone. In fact, Microsoft may taking a different short cut, trying to let Android apps run directly on Windows Phone, The Verge reported this week.

The app gap

And about that app gap – there’s no evidence shifting to an Android-based operating system will actually close the app gap in a meaningful way. The ubiquitous Google-less Android phones in China exist in a market where Google services have been banned and the absence of apps for other popular Western franchises, say Instagram or Vine, is not important. (Which likely explains rumors Nokia will unveil a low-end, ASOP phone for developing markets at the Mobile World Congress later this month).

The Amazon experience is hardly enticing, either. After lagging well behind the market leaders for a few years, Amazon sold 2% fewer Kindle Fire tablets this holiday season than in 2012, even as the overall market grew 28%, according to IDC. And that was despite a spendy television campaign taking the iPad head on. But Amazon has trouble with distribution beyond its own website. Its app store, despite near-compatibility with Android, lags far behind Google. Candy Crush Saga arrived just a few months ago, almost a year late, and there’s still no Kindle Fire app for Snapchat, Clash of Clans, Whatsapp or Beats Music, for example. Some apps can't be ported without replacing critical Google services like location awareness, not a simple matter.

And let's not even get started on Blackberry’s effort to add Android compatibility, which Arthur mentions to support his argument. How’s that going for Blackberry?

Google probably also has means at its disposal to deter developers from getting too cozy with a Windroid app store. Developers with Google Play store exclusives could get better promotional placement or co-marketing payments, like those Intel hands out. That’s without even considering changes Google could make to Android to hamper or deter ASOP use, a specialty of old-school Microsoft. Apple found out the hard way how dangerous it can be depending on Google for key technologies.

So far, Microsoft’s mobile strategy has been a failure. Nadella certainly needs to take a hard look at what’s not working and make changes. Expanding and emphasizing Microsoft’s services on competitors’ platforms, another of Ben Thompson's suggestions, sounds promising. The new Nokia Lumia Icon phone coming exclusively to Verizon is getting rave reviews and might be worthy of more promotion. Even giving app cross-compatibility a try could at least generate data on customer desires.

But embracing Google’s platform? That's madness.