updated 12:45 pm EDT, Fri May 27, 2011
Analyst says Microsoft leaning on Android royalty
Microsoft is making five times more money from its Android royalty schemes than from its own Windows Phone 7 platform, Asymco's Horace Dediu said in a dissection of a Citi research note. Based on claims by analyst Walter Pritchard that HTC is paying $5 per phone for Android-related patents Microsoft says it owns, Dediu determined that HTC has had to pay a total of $150 million for the 30 million Google-based phones it has shipped so far. With Microsoft have so far only reported shipping two million WP7 devices and charging $15 for the OS on each phone, it would have only made $30 million from its own platform.
The WP7 figure could be higher, but Microsoft has remained deliberately secretive about how many devices have shipped since it gave the number earlier in the year. Gartner has estimated that Microsoft partners shipped 1.6 million WP7 devices in the winter but that Windows Mobile was still larger.
Its rate if accurate could reveal a double-standard royalty scheme at Microsoft, where companies are charged more or less depending on whether or not they also promise to use Windows Phone. Pritchard believed Microsoft's lawsuits against Motorola and other Android-only device makers were demanding a royalty of between $7.50 and $12.50 per unit, well above what HTC was asked. Microsoft notably avoids suing companies like Dell, LG, and Samsung that support both and have otherwise been regular Microsoft partners.
The royalty differences helped support beliefs that Microsoft's strategy had little to do with patent ownership and more with hampering competition. By reducing the already low 10 to 15 percent margins on Android phones, and two to three percent on tablets, Microsoft is hoping to make it unprofitable to sell Android without at least also offering Windows Phone, if not switching over entirely.
Its actions could get it into legal trouble. Barnes & Noble has accused Microsoft of antitrust violations by demanding royalties on the Nook and Nook Color that would be so high as to make selling the Android-based readers impossible. The response alleged that Microsoft was asking for much more than what it was for Windows Phone, suggesting that in some cases Pritchard's estimates were low.