Why Microsoft’s Android Ransom Matters

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Android’s smartphone dominance is turning out quite nicely for Microsoft.

Thanks to patent licensing agreements, Microsoft collects royalties from five Android vendors, including popular smartphone maker HTC, Networkworld reports. And now, Microsoft is rumored to be putting the squeeze on Samsung for even more royalties, to the tune of $15 for every smartphone sold. (Samsung will likely seek to pay $10 per phone, says Reuters.)

Microsoft doesn’t say how much it charges phone makers to license its own mobile operating system, Windows Phone 7, but analysts have estimated a range of $5 to $10 per phone, CNNMoney has reported.

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For each of HTC’s Android handsets, Microsoft reportedly makes $5, according to Citi analyst Walter Pritchard. So Microsoft is making roughly the same amount of money on HTC’s Android handsets as it does on Windows Phones—and Samsung may be next.

All of this may sound like inside baseball, but it could be a big deal for the future of the smartphone market. As long as Microsoft is making money on Android — and on two of Android’s biggest phone vendors, to boot — it’s making money that can be invested in Windows Phone. And if phone vendors are paying Microsoft regardless of whether they choose Android or Windows Phone, they’ll probably continue to build phones on Microsoft’s platform.

After all, phone makers and wireless carriers are worried about depending too much on Android. “From a vendor perspective having that balance is critical, being dependent on one OS is not beneficial for us,” LG marketing executive James Choi told Pocket-Lint in January. “That’s the same with not just the manufacturers, but the operators as well.” Samsung and HTC executives echo those sentiments in the CNNMoney article I cited above.

So what we have here is a one-two punch. Microsoft hits phone makers with patent licensing fees for Android, and offers Windows Phones as a way to diversify at no significant extra cost. Of course, this is all meaningless if people don’t buy Windows Phones, but the patent ransom helps Microsoft stay in the game while doing some much-needed work on its own software.

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