Microsoft banks on the success of Android to help finance Windows Phone

Microsoft banks on the success of Android to help finance Windows Phone
More than a couple of years ago, when Android was still adding market share in chunks and taking no prisoners, research showed that Microsoft could make as much money off Android as Google does by getting all patent licenses signed. Yes, we understand that technically, Google makes nothing from the sale of Android devices because of the open source nature of the software. But the Mountain View based tech giant makes money from ads and from search related functions on the platform.

As it turns out, sales of Android powered phones are actually subsidizing the cost of producing and improving Windows Phone. Nomura Securities analyst Rick Sherlund says that Microsoft currently takes in $2 billion a year in licensing fees from Android related patents. The analyst believes that 95% of that is profit, allowing the software giant to make more money from Google's open source OS than it does from Windows Phone.

According to Sherlund, Microsoft uses that tidy sum of cash to offset the red ink that flows from the Entertainment and Devices division that includes Windows Phone (and also happens to include gaming console Xbox). The analyst notes that if you take away the profits from the Android licensing fees, Entertainment and Devices would show a loss of $2.5 billion. Besides Windows Phone and Xbox, that group includes Skype. Sherlund says that Xbox is responsible for $2 billion of the red ink. He suggests that Xbox be spun out of Microsoft and that the Android patent profits are hiding the hemmoraging of red ink caused by the gaming console.

For Microsoft, the licensing fees are like an annuity that gives the company the luxury of time as it continues to fine tune Windows Phone to make it a more competitive platform. And a report earlier this year predicted that Microsoft would earn $8.8 billion off its Android based patent licenses by 2017. That buys plenty of R&D and marketing for Windows Phone in the near future.

source: BusinessInsider via MobileBurn

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52 Comments

1. dorianb

Posts: 617; Member since: Oct 24, 2012

One of the few times I can say MS has done the right thing. It looks like they wanted 'reasonable' fees for their patent portfolio & got it. Deciding not to go the "Hell naw! I wants my dimes & pennies too" route followed by tons of lawsuits. They have a steady cash flow so they can develop their own products efficiently. (Don't start. I know what I just typed.)

7. Long1

Posts: 399; Member since: May 18, 2013

Read it good. This money MS take from the Android VENDORS. Not from Android(Google). Those vendors will pay that royalties , no matter what OS they are using. And they pay to anyone who has patent. Of course MS generate more mone from Android devices, then the iOS devices- because of the market share, What a crap article. By the way, PArena should calculate how much MS and MS-Windows related vendors pay to Google(Samsung, Sony, LG, Ericsson, Simens....), too. Right? Hope this will be the next PA article. LOL

12. dorianb

Posts: 617; Member since: Oct 24, 2012

Tell me where I said MS was getting the royalties for the patents from Google. The point was they received what they are due without going the 'Apple Thermonuclear' route. Plus at a fair price because you don'y hear a bunch of other companies whining about MS being unfair. Maybe you are over reading the article.

18. Long1

Posts: 399; Member since: May 18, 2013

OK . Sorry. I thought you are agree with the article. The 'Apple Thermonuclear' was not about royalties, but to kill Android. Those "rectangle" and "round corners" ...."patents" come later. Because Apple pay much , but don't take much back, like the real tech companies do. By the way such iArticles like this, are also part of the "'Apple Thermonuclear". They should bash Android(Google) no matter how.

37. dorianb

Posts: 617; Member since: Oct 24, 2012

I get what you are saying now. I actually like Apple (iOS), Microsoft (Win8), & Google (Android) products pretty evenly. I just wis they were more like car companies in the war that Toyota doesn't sue Nissan or the like when they put LED turn signals on their cars, then everyone follows suit. Or VW/Volvo putting side impact airbags in pretty early in then suing Lancia for doing it too. I know it's not apples to apples, though I hope you get my general broad point. (Male your product good enough & you won't have to worry about the other guy doing something similar.)

24. designerfx

Posts: 76; Member since: Mar 26, 2013

absolutely untrue. This is the apple thermonuclear route. This is how it works, and why they're screwed. They are avoiding lawsuits with google like the plague while lobbying the gov't to try to avoid the glaring antitrust issue.

23. designerfx

Posts: 76; Member since: Mar 26, 2013

patent shakedowns are absolutely *never* the right thing, and always the wrong thing.

30. robinlim85

Posts: 86; Member since: May 03, 2013

i always let my buddy borrow my homework,is that a right thing? my university punished us for plagarism,me for supporting it

2. UrbanPhantom

Posts: 949; Member since: Oct 30, 2012

MSFT (long) might not be a bad idea ;o)

26. Finalflash

Posts: 4063; Member since: Jul 23, 2013

It would actually be a terrible idea. It's kind of like the rich spoiled brat syndrome. As they get free money they will continue to flush it down the drain without giving it any value. That is why WP will be slow to improve and Xbox will keep losing them money for a long time. If they were losing their own money they would definitely try their hardest but since they aren't it's all a half hearted effort. Eventually the loses don't offset the gains and competitors overtake their cash cows and then they wake up too far off the cliff to change course (a very well known fruit company comes to mind).

3. Gemmol

Posts: 793; Member since: Nov 09, 2011

great job i would of done the same but instead of earn 2 billion from droids i would make it 3 to 4 billion

5. Reality_Check

Posts: 277; Member since: Aug 15, 2013

Well, then I would've sued you for overpricing essential patents and wasted 1 billion on lawsuits than pay you 3-4 billion.

6. Gemmol

Posts: 793; Member since: Nov 09, 2011

that would of been cool, I would respect you or your company to sue back, but I am sure those companies that gave in so quick would not of sue back, they would of lost more in the long run......look at everyone who sign with microsoft there was no need for them to do a apple vs samsung, it seems they got some really good patents that make others give in, the only company I seen try to fight back was amazon, but they end up giving didn't they? well whatever it is from watching on the outside it seems microsoft could of squeeze out 3 or 4 dollars more from each handset but they made deals with some that they lessen it if they make a windows phone like HTC......but yeah man we would of had fun suing each other

28. Finalflash

Posts: 4063; Member since: Jul 23, 2013

No they couldn't because I'm pretty sure MS fought to dime as are these "cross licensing" agreements. The companies that are licensing these patents need them for their laptops and PCs too because they aren't mobile related patents, instead they are for things like wifi and such. MS is just sick good with their accounting and have stuck these agreements into their devices section so they can report a "profit" every quarter instead of a massive loss as mentioned in the article.

10. marbovo

Posts: 658; Member since: May 16, 2013

If you would make 3 to 4 billions, what are you doing here on PA commenting the article instead of doing something good with you billion dollars since you are very good in earning money??? Go back to work or your boss will fire you.

34. Gemmol

Posts: 793; Member since: Nov 09, 2011

either you did not read my post properly or I hit a note with your love for droid, well either way, I was saying since they own the patents, they should squeeze some more out of each company, instead of earning 2 billion make it 3 billion

4. Reality_Check

Posts: 277; Member since: Aug 15, 2013

Analyse each patent and try to come up with alternatives.

8. alterecho

Posts: 1106; Member since: Feb 23, 2012

Isn't Nokia sitting on a massive pile of patents? Why don't they earn from licensing fee?

42. rusticguy

Posts: 2828; Member since: Aug 11, 2012

They earn a billiontoo.

9. shy2papa

Posts: 336; Member since: Jan 23, 2010

With all that money WP is still s**t, Wow MS would make even more money if nokia went android #Just Saying

11. ilia1986 unregistered

If Nokia went Android from the start, they would probably have 40-50% Android marketshare, matched with Samsung as of now. But of course we all know how that decision turned out. I wonder what Steve "Using Android is like pissing in own pants" Elop would say now. Oh, wait I forgot. He retired after selling Nokia to MS and getting a pile of cash in return.

13. ballaonnabudget

Posts: 38; Member since: May 15, 2013

Steve Elop now works for Microsoft and is a candidate to become the next CEO. Clearly you're uninformed but once i saw your nokia + android comment I already knew that.

14. ilia1986 unregistered

Maybe I am uninformed (I could care less about elop after he sold Nokia to MS) but he did say it a few years ago.

43. rusticguy

Posts: 2828; Member since: Aug 11, 2012

Investors are rallyting behind Alan Mulally to be next CEO of M$

40. snowgator

Posts: 3621; Member since: Jan 19, 2011

I love revisionist history. There is zero way of knowing what would have happened if Nokia went Android. 40%-50% of Android sales? Well, I say Nokia would have had less the LG, fewer then Motorola, and Casio would have.doubled them up. So there. Prove me wrong. Oh wait, you can't. Those thoughts are like Chasing the Wind. Sort of like any other thoughts about how Nokia would be rolling in cash and on easy street. Silly arguments.

50. Sniggly

Posts: 7305; Member since: Dec 05, 2009

Actually, there is a way of knowing, Snow. Right now Windows Phone has a paltry 4ish percent market share, depending on where you look. Sales of most Windows Phones have been utterly abysmal. However, one manufacturer stands above the rest by a large margin: Nokia. Nokia sells about 90ish percent of all Windows Phones, from the reports I've seen, and seem to be the only reason WP is a blip on the radar at all. Given that Nokia manages to sell phones saddled with an OS the public has largely given the middle finger to, imagine how they'd do running an OS which currently holds 80 percent worldwide market share? Nokia is an iconic brand that's even well recognized in the United States, which they all but abandoned for years on end. They've long been known for their durability and reliability. Hell, my mom's 2003 Nokia bar phone is still her only cell device. Worldwide they used to utterly dominate, but declined due to their inability to adapt themselves and Symbian to the changing market. If Nokia had doubled down on Android instead of Windows Phone, with the kind of devices they've already put out, they would have dominated, and even I might have bought one at one point, my loyalty to Motorola notwithstanding. And even if they didn't utterly dominate, they would have more marketshare than LG, Motorola, and Casio put together at the very least. I bet you that if you put out a survey worldwide asking smartphone owners who have passed on the Lumias whether Android would make them reconsider, you would get a whopping, resounding "YES!!!!"

15. rodneyej1

Posts: 3576; Member since: Jul 06, 2013

How is Windows Phone bad❔

29. shy2papa

Posts: 336; Member since: Jan 23, 2010

@rodneyej1 Well its not that bad I love Android IOS and BB10 but, but windows phone still has a long way to go to match the other OS but I can't believe I am saying this windows phone is fast and easy to use but for me personally speaking to much restriction and I am all about customersation being a tech geek and big fan of gadgets

35. Gemmol

Posts: 793; Member since: Nov 09, 2011

I do no customizing I think this is why I feel that when I leave my note for the 1520 I will be fine

41. shreyas.s666

Posts: 83; Member since: Aug 24, 2012

How in the world BB10 is good?

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