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

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.
Written by Steven Vaughan-Nichols, Senior Contributing Editor

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.

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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