Years of experience, patents, and research in the mobile smartphone business is paying off for Microsoft. The Redmond, Washington-based Windows Phone maker’s biggest money maker in mobile isn’t even its own Windows Phone business, but rather its patents, which are licensed out to handset makers. As Microsoft is trying to capitalize on the growth of Google’s Android ecosystem, licensing its technology to HTC for use in the company’s Android smartphones generates three times as much revenue as the money collected by Microsoft through Windows Phone licensing.
According to ASymco analyst Horace Dediu, Microsoft makes about $15 per Windows Phone 7 license to HTC, of which the company sold 1.4 million handsets in the second quarter of the year, netting Microsoft $21 million for that quarter. In the same quarter, Microsoft also licenses out its patent technology, at $5 per handset, to HTC’s Android business. Since HTC sold 12 million phones with Google’s operating system, Microsoft generated about $60 million in revenue from its patent technology that very same quarter, or roughly three times the revenue generated by its Windows Phone business.
Given that Microsoft is going to be targeting Samsung next–and a variety of other Android smartphone makers–Google’s Android smartphones will be lucrative business for Microsoft as the company is trying to build market share for its own platform. However, with Nokia on board for Windows Phone, perhaps Microsoft will eventually make more money on Windows Phone licenses given the size of Nokia’s market position.
When Microsoft and Apple began going after individual handset makers over patent infringement rather than chasing Google, I wasn’t sure why. Now it seems like the answer is clearer–going after Google may have yielded a one-time patent licensing deal where as Microsoft and Apple, if they win their cases against Android smartphone manufacturers, can get continue royalties based on the number of devices sold.