Android: Microsoft’s New Cash Cow

The Rise of Android

Android is, without doubt, one of Google’s greatest successes to date. Millions of Android devices have been sold until now, with over 500k Android devices activations happening daily. It is the number one smartphone OS in the world and it has the second largest application repository after the iPhone App Store; with over 300,000 apps and games in the Android Market. Android is also a large profit driver for Google now. Google is expected to make close to $1.3 billion dollars from mobile advertising revenue on Android devices in 2012.

Patent Wars!

In the most recent development relating to the patent wars between the major tech companies, Microsoft has asked Samsung to pay it $15 for every Android device it sells, as part of a patent licensing arrangement. Microsoft has been going after many Android device manufacturers and has been successful in getting royalty payments from companies like HTC, Onkyo, Wistron etc.

With Samsung being the number one Android phone manufacturer, that may amount to a huge figure. Samsung sold more than 3 million Galaxy S 2 units in the first 2 months itself, which means a $45 million payoff for Microsoft from one handset itself.

A Win for Microsoft

If Microsoft is able to coerce every Android manufacturer into such deals, assuming an average royalty of $10, it may make billions from its greatest nemesis in the mobile arena – Android. Such a scenario would be a win-win for Microsoft, as the only other viable option for device manufacturers except Android is its own product – Windows Phone 7. Whether manufacturers use Android or Windows Phone 7, Microsoft would be smiling all the way to the bank.

Google’s Troubles

Google’s troubles are only beginning. After losing the Nortel patent auctions, it still has only about 700 patents in its portfolio. With Oracle suing Google, demanding billions of dollars up front as well as 15% of all Android ad revenues, and Microsoft gunning for its hardware partners, Google is in a tough spot. Manufacturers may refrain from producing Android handsets and tablets if they fear litigation by giants like Microsoft and Oracle. Google is in a very vulnerable position, and it cannot defend its partners unless it builds up a huge patent portfolio. Microsoft, Apple, RIM and others are spending billions to ensure that it stays that way.

The biggest gainers might turn out to be Windows Phone 7. I wouldn’t be surprised to see Windows Phone 7 and iOS as the major players in the smartphone market in the next couple of years, with Android being relegated to the sidelines, however low the chances of that happening may seem now.

Published by