Nokia Is About To Embarrass Microsoft By Releasing An Android Phone On The Cusp Of Its $7 Billion Acquisition

Here's a real noodle-scratcher for you.

Nokia, the company that made a huge bet on the Windows Phone operating system and will be formally acquired by Microsoft within months for $7.4 billion, is about to launch a new smartphone this month running an operating system based on Google's Android.

The Wall Street Journal reports (and we've independently confirmed with sources familiar with Nokia's plans) that Nokia's new phone, which has leaked a few times during the last few months under the codename Normandy, will run a modified version of Android that doesn't include Google services like Gmail, Google Maps, and the Google Play store for Android apps and other content. That means Google won't generate any revenue from Nokia's phone, even though the operating system is based on Android.

The so-called Nokia Normandy will be formally announced at the Mobile World Congress in Barcelona. Nokia is scheduled for a press event on February 24, which is when we should get our first look at the phone.

Nokia's phone will likely be targeted at emerging markets where cheap smartphones are more popular than top-tier devices like the iPhone 5S and Samsung Galaxy S4. With its new Android phone, Nokia is taking cues from several Chinese manufacturers that also heavily modify, or "fork," Android by stripping out all things Google and packing in their own apps and services. The Normandy will have Microsoft and Nokia services like Nokia's Here maps and a separate Nokia app store, according to the WSJ report.

But when Nokia's Android phone does launch, it'll be an embarrassment for Microsoft.

Nokia was the only manufacturer that doubled down on Microsoft's Windows Phone operating system, despite the fact that it was clear the market was gravitating toward Android and iOS devices. Android now holds about 80% of the smartphone market. Windows Phone, depending on who you talk to, has between 3% and 5%, mostly thanks to Nokia's relentless efforts pushing its Lumia-branded Windows Phones. (It has now replaced BlackBerry as the number-three smartphone platform.) Nokia's commitment to Windows Phone is likely one of the key reasons Microsoft was willing to spend billions to buy the company.

Now, Microsoft's future mobile hardware unit is about to launch a phone with a very limited app store and running an operating system from one of Microsoft's biggest competitors, Google.

Microsoft and Nokia fans will probably argue that Nokia's new Android phone isn't a big deal since the phone is aimed at emerging markets. But the wrinkle in that reasoning is that Nokia already makes a bunch of cheap ~$100 Windows Phones in those emerging markets. The Android phone is a sign that before the Microsoft offer, Nokia wasn't entirely confident in Windows Phone 8's long-term prospects, at least in emerging markets where smartphone usage is growing rapidly.

And that's a bad message to send on the cusp of such a major acquisition.