Mobile Wars Winner: Microsoft's Licensing Strategy More Profitable Than Apple?
7/12/2011 by: Marcus Pollice
With the Windows Phone 7 platform desperately struggling for market share, Microsoft has begun to use their legal muscle to earn money off phone sales of their competitors. Earlier, it was revealed that the company already collects license fees from HTC as well as Acer and Asus. What happened if you did not accept the license deal? The case of Motorola happened, as Microsoft filed a lawsuit against Motorola over patent infringement. More recently deals with manufacturer Wistron and several other, smaller companies have been signed.
Now, allegedly, Samsung joins the ranks paying somewhere between $10 and $15 per sold Android-device in license fees to Microsoft. This story originated from the Korean media outlet Maeil Business Newspaper and was spread around by Reuters. As of yet, neither company has commented on this story.
Microsoft's Brad Smith, General Counsel and Senior Vice President, Legal and Corporate Affairs, seems to be very proud about the licensing business, judging from his tweets posted last week. It's a well established business practice, that if you can't beat your competition, you can at least try to sue them. In this particular case, it seems Microsoft found it easier to make companies comply with licensing, if they were already heavily involved with Microsoft on the PC platform or cooperating more closely with Windows Phone 7. This is evidenced by the fact that Acer, Asus and HTC are already aboard the train in this regard.
Though if the beancounters from IDC are worth their salt, Microsoft will command a healthy 21% of the smartphone OS market in 2015. If the license agreements of today are then still in place, we can project that Microsoft will collect revenue of about 60-70% of the smartphone market. Currently, Microsoft already earns more money through licensing fees of sold Android phones than Windows Phone 7 licenses sold to phone vendors (which is a very odd statistic). This means that by Google Android having a 40% market share, Microsoft could become more profitable in the smartphone business than any of the companies on the market, including current #1 in profitability, Apple Inc.
In this context the outcome of the sale of the Nortel patent pool is particularly interesting. Back in April when things looked like Google would acquire those patents, the company stated that it would use it to defend against infringement cases and to protect open source software in general. Now that a consortium formed by Microsoft and Apple got those patents, it improves Microsoft's position to continue squeeze license fees from manufacturers.
We wonder when Wall Street is going to ask Google to seriously look in the mirror and brings leaders that are actually able to deliver the results: Google lost bidding wars for 700MHz 4G Network Frequencies, Palm (HP), SUN Microsystems (ORACLE) and now Nortel.
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