Microsoft Earns From Android: How Much Per Device?
Microsoft's Revenue from Android: A Surprising Source
Contrary to popular belief, Microsoft generates significantly greater revenue from the Android operating system than it does from its own Windows Phone platform.
For each Android smartphone or tablet purchased, Microsoft typically receives a royalty payment ranging from $5 to $15.
Estimates suggest that this arrangement yields Microsoft at least $2 billion annually.
The Basis of the Payments: Patent Royalties
The financial agreement between Microsoft and Android device manufacturers centers around patent royalties.
Microsoft asserts ownership of numerous software patents that are allegedly infringed upon by the Android operating system.
To avoid costly and protracted legal battles, Android device manufacturers proactively negotiate settlements with Microsoft, resulting in these royalty payments.
Essentially, Microsoft leverages its patent portfolio to secure income from the widespread adoption of Android.
How the System Works
- Microsoft identifies patents potentially infringed by Android.
- They inform Android device manufacturers of these alleged infringements.
- Manufacturers then enter into licensing agreements to avoid lawsuits.
- These agreements involve royalty payments to Microsoft for each device sold.
This strategy allows Microsoft to profit from the success of a competing mobile operating system, demonstrating a shrewd business approach.
The ongoing revenue stream from Android provides a substantial financial benefit to Microsoft, independent of its own mobile platform's performance.
Understanding Microsoft's Licensing Agreements
The specifics of Microsoft’s licensing arrangements with Android device manufacturers have not been publicly disclosed. The following information is a compilation of details gathered from various sources.
Microsoft asserts that the Android operating system infringes upon a number of their patents. Consequently, manufacturers are required to provide Microsoft with royalties from device sales to resolve this issue. Failure to agree to a patent license often results in legal action initiated by Microsoft.
Although a complete overview of these agreements remains unavailable, Microsoft’s legal team published a relevant blog post in 2011 outlining their approach to negotiating with Android manufacturers.
"In the context of ongoing discussions regarding smartphone patent uncertainty and litigation, we are establishing a series of agreements that are equitable and mutually beneficial. These agreements guarantee appropriate recognition and remuneration for Microsoft’s innovations and patent holdings. Critically, they also allow licensees sustained and predictable access to our patented technologies."
By 2012, Microsoft reported that their patent licensing agreements encompassed 70% of all Android devices sold globally.
This indicates a significant revenue stream derived from the widespread adoption of the Android platform.
Understanding Android Patent Royalties
The exact cost of patent royalty fees charged by Microsoft to Android device manufacturers remains undisclosed. Official figures haven't been publicly released, and non-disclosure agreements likely prevent manufacturers from sharing this information.
However, analysis suggests a range for these fees. A Citi analyst reported that HTC was obligated to pay Microsoft $5 for each Android device sold.
Further insights from the same analyst indicate that Microsoft pursued legal action against various device manufacturers, seeking between $7.50 and $12.50 per Android device.
Negotiations with Samsung
Reports surfaced in 2011, specifically in the South Korean Maeil Business Newspaper, detailing negotiations between Microsoft and Samsung. Microsoft reportedly sought $15 per device, while Samsung aimed to negotiate the fee down to $10.
These discussions highlight the significant financial stakes involved in Android patent licensing.
Estimating Microsoft's Revenue
An analyst's estimate of $2 billion in annual revenue is based on an average royalty of $5 per Android device. If the actual average royalty is higher, Microsoft’s earnings from Android could exceed this figure.
Given the continued growth in Android device sales, Microsoft’s revenue from these patents has the potential to increase substantially in the coming years. This could translate into billions of dollars annually.
- Key Takeaway: Precise royalty amounts are confidential.
- Important Note: Estimates suggest significant revenue for Microsoft.
The ongoing success of the Android platform directly impacts the potential earnings Microsoft derives from its patent portfolio.
The Revenue Microsoft Receives from Android Devices
For those unfamiliar with the intricacies of patent legislation, a valid question arises: why are device manufacturers compensating Microsoft? Specifically, what intellectual property rights held by Microsoft are being violated by the Android operating system? The precise details remain undisclosed.
Interestingly, Microsoft has never actually needed to litigate its Android-related patents in a legal setting. Instead of incurring the substantial costs associated with a court case against Microsoft, Android manufacturers opt to secure licensing agreements. This allows them to continue operations without disruption.
It is generally more cost-effective to resolve potential disputes with entities holding patents, particularly when those entities possess significant financial resources like Microsoft. This proactive approach minimizes risk and expense.
Patents Involved in Licensing
Microsoft’s patent portfolio encompasses a wide range of software innovations. Among these are patents crucial to the functionality of the FAT file system, which is the default formatting for SD cards.
This means that a fundamental aspect of Android device operation relies on technology protected by Microsoft’s patents. Consequently, manufacturers acknowledge this dependency through licensing fees.
The amount Microsoft receives from each Android device sold is estimated to be between $5 and $15. This revenue stream represents a significant, ongoing income source for the company.
The FAT Patent and its Implications
Specific details regarding all patents involved remain undisclosed, however, certain patents are of particular relevance. One such patent is frequently known as the "FAT patent." Essentially, Microsoft’s File Allocation Table (FAT) file system, originating with MS-DOS, accommodates both extended and abbreviated file names.
These include longer, contemporary names such as "MyDocument.doc" alongside older, eight-character DOS file names like "MYDOC~1.DOC". The core of Microsoft’s patent centers on a “unified namespace for short file names.”
Technical Requirements for FAT Support
For devices to effectively utilize FAT support – enabling compatibility with standard SD cards formatted as FAT32, for instance – they must incorporate the FAT file system and this specific implementation aspect. A recent ruling by a German court invalidated the European iteration of this patent.
Microsoft has actively enforced this patent against Linux-based devices since 2003. In 2009, a legal dispute arose with TomTom, alleging infringement of two Microsoft patents related to the FAT file system.
TomTom’s GPS devices utilized the Linux kernel, prompting Microsoft to contend that the Linux kernel’s FAT support violated their intellectual property rights. Instead of pursuing litigation, TomTom reached a settlement and agreed to pay Microsoft patent royalties.
Given Microsoft’s consistent assertion of patent infringement by Linux, it’s unsurprising they extend this claim to Android, which is fundamentally built upon the Linux operating system.
Challenges to the Patent
Barnes & Noble represented one entity that actively contested Microsoft’s claims. Microsoft asserted that the Nook – an eReader operating on Android – infringed upon their patents, demanding financial compensation.
Initial court proceedings appeared favorable to Barnes & Noble, but a settlement was ultimately reached in 2012. This involved a $300 million investment by Microsoft into a Barnes & Noble subsidiary, coupled with the granting of patent rights.
Consequently, Microsoft’s patents remained valid and capable of further enforcement.
Image Credit: Wonderlane on Flickr, trophygeek on Flickr