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5/30/2011
11:01 PM
Ed Hansberry
Ed Hansberry
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Microsoft's Android Revenue Exceeds Windows Phone 7

To avoid patent claims, HTC is paying Microsoft a $5 licensing fee for every Android phone it sells.

Android, the number-one smartphone platform, doesn't generate any direct revenue for Google since it is an open source platform. It does, however, generate a tidy sum for Microsoft. HTC reportedly pays Microsoft $5 for every HTC phone sold that has Android loaded on it.

Note that Google isn't altruistic in having an open source license for the smartphone platform, it just doesn't think the money to be made is from licensing fees. It would rather charge nothing for the license, thereby helping get it on as many phones as possible, since the entry cost is low. It can then earn revenue from search advertising, which is what Google does best. That has proven to be a successful strategy so far, as evidenced by Android's number-one position in current market share.

Just over a year ago, Microsoft and HTC struck a deal where Microsoft would grant HTC the right to its patent portfolio for Android-powered phones. Citi analyst Walter Prichard now says that the deal amounts to $5 per handset.

Microsoft is going after other Android phone manufacturers as well, claiming that Google's OS infringes on Microsoft patents. Apparently $5 was the 2010 rate. Prichard claims Microsoft is looking for $7.50 to $12.50 per handset in current lawsuits.

I am not sure what Microsoft charges for Windows Phone 7 licenses, but let's assume it is around $10. Right now, Android is moving more phones every two weeks than WP7 has in total, from its November release through the end of the first quarter this year. HTC is a top player in the Android market so I have no doubt that Microsoft is making more gross revenue from Android than WP7--considerably more.

This is all part of Microsoft's game plan. Android isn't free when you consider the number of patents it is claimed it violates, or when you have to pay third parties for licenses to cover items not included in the base OS. When you buy an OS like WP7, the license fee is all-inclusive and gives you protection from lawsuits. If WP7 violates someone's patent, Microsoft is on the hook, not the licensee. That isn't the case with Android. Google has said they will work with and defend their partners, but as of yet, they haven't put that in the license agreement.

The question now is, will Microsoft's strategy work? Filing a lawsuit is one thing. Winning is another. HTC, at least, felt Microsoft has a strong enough claim they decided to license the patents in question from the software giant rather than take a chance in the courts.

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