Microsoft and Android
According to this report Microsoft is pulling in healthy revenue from Android. We knew that Microsoft was holding on to patents which many Android OEMs are using and now paying Microsoft a fee. Microsoft may very well be making nearly as much and in some cases more than Google off Android.
Microsoft makes money off Android devices Google does not. Since Google’s services are not present in China, Google makes virtually nothing off Android devices in the largest global market for smart phone. Microsoft makes money per device in that region since most the major players in China like Huawei, ZTE, and Samsung all pay them a license fee for their Android devices. Microsoft benefits from China off Android the way Google may never be able to.
Ultimately, Google is dependent on not only devices with their services integrated to make money off Android but also the engagement of users using those services. ((Of course, with Google capturing data from Android they benefit in ways to their machine learning business. My point is tied to direct revenue from Android devices.)) Which seems somewhat problematic given that Android has become the standard OS for the low-end of the smartphone and tablet market. A segment that makes up the majority of the Android install base is also the less likely to be engaged buying apps, searching the web, and doing all the things that help Google make money off Android. While Microsoft makes a minimum fee off Android of at least $5, and sometimes more, Google’s revenue off an Android device varies and is dependent on the end user where Microsoft’s is not. I’d argue that Microsoft is able to monetize the low-end of the Android ecosystem magnitudes more than Google can. And certainly they can monetize the Chinese Android ecosystem in ways Google can not. Add it all up and it makes sense why there is good reason for Microsoft to not only support the Android ecosystem but to also continue to foster it.
In a recent Vector podcast, Ben Thompson articulated how if Microsoft was to move only into the services business that they would be a much smaller company. Ben highlights that Microsoft employs 100,000 people currently and is adding another 30,000 people with the addition of Nokia. He points out that if Microsoft was just a services business, that they would likely be a 50,000 person company. All of this is used to point out the most significant point for a company Microsoft’s size. They must attempt to capture value (dollars) from as many people as possible in as many ways as possible.
Windows alone is no longer a viable way to bring Microsoft’s backend services value to the mass market. If they can make money off a piece of hardware (like Surface, Nokia handset, or XBOX game console), off a services subscription from a consumer or a commercial customer, off an Android device sale, off an app store, off software (apps), off entertainment content, off accessories, and more, then you can make an argument that they may not just not shrink but that they may actually grow.