Microsoft and Android

Ben Bajarin / February 11th, 2014

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.1 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.

  1. 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. []

Ben Bajarin

Ben Bajarin is a Principal Analyst and the head of primary research at Creative Strategies, Inc - An industry analysis, market intelligence and research firm located in Silicon Valley. His primary focus is consumer technology and market trend research and he is responsible for studying over 30 countries. Full Bio
  • Ian Waring

    It’s a never ending source of amazement to me that Microsoft haven’t been dragged in front of any regulatory authority for demanding money with menaces – on patents so week they force folks to sign an NDA, or in the case of B&N who refused, have to buy them off for a significant sum. The parallels with the US Rail Industry in the early 1900s are staring everyone in the face. Why are the anti-trust authorities asleep?

  • steve_wildstrom

    This is, to put it bluntly, nonsense. If the Android handset makers felt Microsoft’s patents were invalid, they could have challenged them the same way everyone else did everyone else’s. Microsoft had no particular sword over their head (Microsoft and Barnes & Noble have, or had, a more complex relationship with a major Microsoft investment in B&N; NDAs are a standard component of these cross-licensing agreements.)

    The antitrust authorities kept a very close eye on Microsoft until the consent decree rans its course. Since then, there haven’t been any allegations of Microsoft antitrust violations, and patent law and antitrust law really have nothing to do with each other.

    By the way, there were no antitrust enforcements against early 20th century railroads either. They were given their regional monopolies by federal land grants, but were regulated under the Interstate Commerce Act.

  • Matang_Lawin

    IMO, The only clear winner in android is Samsung.

    • Mr. Bill

      right – that’s why there are something like 3000 different android builds in smartphones out there and increasing. No winners in it? A company does not have to earn billions in revenue for a product to be winning business.
      And – the only clear winner in iOS is Apple.

  • Mr. Bill

    I believe that MS is simply cross licensing the FAT32 long filename patent. I really strongly doubt that they are raking it what its now automatically assumed.
    Why hasn’t MS gone after google if android is so MS patent encumbered that the others including goliaths like samsung immediately “cave”? Because google does not include the FAT32 module in the AOSP android. Most others do because they have card slots or MSC conections to internal storage.

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