Nokia CEO Stephen Elop famously opined that there would have been less "opportunity for differentiation" had Nokia developed Android handsets. So it went with Microsoft -- and the two negotiated exclusivity provisions and other agreements. For example, Nokia Maps replaces Bing on the new Lumia 920. And Windows is the only software being used on high-end Nokia smartphones.
As part of the overall deal Microsoft is also giving Nokia billions of dollars in payments and support. What probably would have been better for the Espoo, Finland-based company is a deal that gave it the flexibility to develop Windows and Android devices, much like Nokia's Asian competitors Samsung and HTC.
To date Nokia has sold roughly 7 million Lumia units, with 4 million of those sold in Q2. Accordingly there is some positive momentum. But it's far from clear how Nokia handsets will fare in Q4 2012 with the iPhone 5 and very popular Samsung Galaxy 3 and Galaxy Note 2 competing for consumer attention.
Though impossible to estimate with any certainty, my speculation is that had Nokia produced its current hardware but with an Android OS version it would be looking at millions more units sold (perhaps 2X - 4X). My view is that the drag on Nokia handset sales is Windows rather than the hardware. This is especially true in the US market where Lumia sales are below 1 million units.
Indeed, comScore (see chart) continues to report declining Microsoft market share in the US. It's now below 4 percent. Windows Phone 8 is supposed to change that but there's nothing to indicate that the new devices will see an explosion of consumer interest.
It's not entirely clear why Nokia didn't reserve itself the option to produce an Android handset. Perhaps there's an unannounced "escape clause" that allows Nokia to explore alternative operating systems if the existing Lumia line fails to deliver enough sales for a long enough period of time.