Apple's new iPhones are fine but Microsoft really profits from smartphones

Apple's new iPhones are fine but Microsoft really profits from smartphones

Summary: I'm sure Apple's new iPhone will be exciting and wonderful, but it won't propel Apple back to the top over the true smartphone giant: Microsoft. Yes, you read that right: Microsoft.

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iPhone! iPhone! iPhone! Oh please, get over yourself, Apple! Yes, people are excited about the new iPhones, but so what? Apple will never, ever get to the top of the smartphone heap again so long as the true giant of smartphone revenue, Microsoft, is on the scene.

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Sure, Apple's new iPhones are nice but for real profit margins just look at how Microsoft profits from Android. (Credit: Apple)

It's not because Microsoft's Windows Phone market share exploded to 90-percent while you weren't looking. It didn’t grow. No matter how you measure Windows Phone market share -- Nielsen, 2 percent; Gartner, 3.3 percent; or IDC, 3.7 percent -- Microsoft’s share is far in the rear of Apple iPhones and the Android smartphone family.

And, Microsoft certainly didn't catapult itself into the lead by buying Nokia. Nokia's market share has been dropping like a rock.

No, the reason why Microsoft is number one with a bullet is because it profits from Android-related patents.

As George Kesarios, a financial analyst, explained in Seeking Alpha, the financial news and analysis site, "Android was developed using technology from many different companies. When patented technology is used in open-source projects, companies really don't go after them because usually they have little or no revenue. However, when an open-source project hits the jackpot, such as Google's Android, then the companies that control parts of the technology seek royalties, because these projects make money."

So, it was that "Microsoft has taken just about the whole space to court and is milking them."

 And, how much is that exactly? Kesarios works it out. "While we do not know exactly how much money Microsoft makes on average from each Android device sold, the general consensus is that Microsoft makes about $8 on average,” he wrote. “If we translate that into dollar revenue, Microsoft stands to make as much as $3.6 billion in 2013 from Android royalties (I assume Microsoft is taking a cut from 60 percent of the 750 million Android devices that will ship this year, times $8 a device)."

That's not small change and, once the contracts are signed, this revenue doesn't cost Microsoft one thin dime. Life can be very profitable for a patent troll.

Microsoft has been making money from Android for years. Earlier this year, the estimate was that Microsoft would make $3.4 billion from Android.

Looking ahead Microsoft will make even more money from Android due to patents. Thanks to its recently acquired Nokia's design patents, Microsoft can also be expected to hit up smartphone vendors for more payments. In the meantime, Nokia, which retained most of its technology patents, is expected to try to profit from Android vendors.

That said, Kesarios warns Microsoft and friends to not get too greedy. "If Microsoft wants to play it smart, it must play dumb. Even if it has the financial and legal muscle to milk the Android space even more, it must avoid doing so, because chances are that the market will not stand for it."

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Topics: Mobility, Apple, Hardware, iPhone, Legal, Microsoft, Mobile OS, Smartphones

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44 comments
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  • And I thought Microsoft was going out of business?

    Guess not....
    toph36
    • They are.

      Sometime next week, I heard.
      William Farrel
  • Say what you will about Microsoft's phone UIs

    prior to Windows Phone 7, but they got into the fully computerized smartphone niche before anyone else did. WinCE was a real OS that did powerful things, and it did them ten years ago (on the Pocket PC platform.)

    Now they are earning the benefits that come from that early entry.
    Mac_PC_FenceSitter
    • Real PC things

      Were percisely why it flopped.

      Registry, horrible mobile UI, frequent crashes and lock ups, etc.

      Par for the course with Windows Mobile. I knew a few people with those POS devices and they were bad. Palm (I had one) wasn't much better but it was at least somewhat reliable.
      itguy10
      • I wouldn`t say it exactly flopped, as you say...

        ..the market was much different back then, and consumers didn`t use PDAs that widely. For those that did, Palm saw their dinner getting eaten pretty handily by HP and Compaq`s handhelds, and many handheld scanners were running Windows CE.

        Just because you didn`t see too many at your corner grocery store doesn`t mean it flopped.
        daftkey
      • your statement lacks context

        "Were percisely why it flopped."
        hmmmmm that like saying the 1988 ford Taurus flop because it doesn't sell the same numbers as 2013 Camry in 2013. Window mobile was moped the floor with the other handheld pc make of the time. so much so that the adopted window mobile....
        Meansman
      • "flopped"?

        A typical point of view from the coffee shop crowd. Read the story again. The other day I updated my Pioneer in dash Navi unit and guess what? Win CE popped up. Ford Sync, Win CE. Imaging that. The cash register in the coffee shop, guess what? Most likely Windows something.The fact is, Microsoft is all over the place. It may not be noticed by the yuppies sipping Mocha and feeling superior amongst themselves while discussing which color of IPhone will be the most popular, but they are there! But I forgot. The future of the universe depends on the next Apple announcement.
        naplesjoe
  • The market will not stand for it?

    OK, well, if the patent is legit (note, LEGITIMATE) and is defendable, then the market may not have much choice.

    I agree that MS would be smart to milk Android for all it can, within reason, but if there is a technology patent that is defendable and an Android maker is using it without authorization, I'd say that maker better get some cash in hand 'cause MS will come knocking and demanding $$$.

    To be legitimate, the patent(s) can't be like the Apple's look and feel suits, but if legitimate, MS could be in for another $billion or two.

    And you wonder why MS hasn't really tried to get into the phone market? They are already in the market big time through Android.

    Maybe MS isn't as dumb as you think -
    Cynical99
    • "Life can be very profitable for a patent troll."

      And for MS, too, apparently.

      You see, a troll just makes money from patents, and doesn't actually make products that use those patents. But MS *actually makes phones.* And has been making phones *since before Android was a glimmer in Google's eye.* Indeed, they were making PDA software since before *there was a Google.* Thus, they are not trolling Android, but recouping the costs of the R&D that Google tried to use for free.

      MS are innovators. I know it hurts you to say it, but try. You'll feel better once you get it out of your system.
      x I'm tc
      • Things haven't changed at zdnet

        This disposable troll says that Windows CE is something that Google should pay for. What is it about this site that attracts this particular crowd? I'm not counting Loverock, of course, obviously he's a fan of all things open source, so he comes off like he does to drive fans away from Windows. Nicely played, sir.

        But sadly, nickel-and-dime Microsoft fans do abound here in a disturbing abundance. I guess this is why: http://techrights.org/2013/05/14/zdnet-msft-staff/
        thebaldguy
        • question?

          "This disposable troll says that Windows CE is something that Google should pay for"
          was it a product that was developed? did that development lead to the creation of patents for the related R&D? if your answering yes then you have your answer.
          Meansman
      • ...

        Of course, the problem with saying that Microsoft is being an innovator or a patent troll here is that no one (except the companies paying Microsoft and MS themselves) actually KNOW what patents are infringing. Microsoft has intentionally refused to name them.

        This is problematic because it takes away one of the solutions to patent infringement; choosing to code around the patent. Which, of course, Microsoft doesn't want, as then they won't get their money here. It also stinks BAD, because patents are supposed to be public. In normal patent actions, the accuser would have to name the patents involved.

        By the way, this is the reason Microsoft hasn't sued Google directly.
        DarkPhoenixFF4
        • Microsoft hasn't sued Google directly

          Google doesn't sell phones until they purchased Motorola, so without product there is nothing to be gain from suing Google(until now). because android is a free product but the services that Google offers to oem's are not.
          Meansman
  • I'm outrageg!

    The DoJ, EC and all the goverments must investigate this M$ racket in the name of freedom.
    M$ has always been a plague for technology, it's time to eradicate it!
    LlNUX Geek
    • DOJ and Eu did investigate.

      and the rest if history. Face it, MS survived and you are a fool
      Cynical99
  • You telling me Apple wouldn't if they could?

    If they had a patent that applied they would be more than asking for payment they would be attempting to halt sales of any device that looked in the direction of said patent and force a recall of sold units.
    greywolf7
    • I don't think anyone is telling you that...

      "You telling me Apple wouldn't if they could?"

      You don't have to look very far to see where Apple's been trying to play the patent game - the difference is that they play it differently (Apple would rather not license their patents - instead being the only ones able to offer the technology at ridiculous margins).

      So no, nobody is saying Apple doesn't do this. The angle of the article was more to show where Microsoft is making plenty of money indirectly in a market where they are having trouble doing so directly.
      daftkey
      • Out of curiosity

        Does anyone know how much Apple might make from each Android sale? I suspect they have patents that Android must use, so must be making something from Android.

        Anyone know?
        Cynical99
  • Wow SJVN

    Took you long enough to find this article. It's quite old
    Dreyer Smit
  • In a related event...

    pot smoking is now legal in Redmond, making writing silly articles much easier!
    Tony Burzio