Report: Windows Phone, Windows RT May be Offered Free to OEMs
December 12, 2013 2:31 PM
comment(s) - last by
Thanks to Microsoft, Apple, Nokia lawsuit/licensing triple team, OEMs might be tempted to take the deal
"sources familiar with Microsoft's plan" as saying that
Windows Executive Vice President (EVP) Terry Myerson
is considering offering Windows RT and Windows Phone for free. The move could be a game changer for Microsoft, which is struggling in key mobile markets including budget laptops, tablets, and smartphones.
I. Free at Last?
Some viewed Microsoft's decision to
offer free upgrades to Windows 8.1
for Windows 8 users as a shift in direction; others argued that the release was analogous to a service pack, which Microsoft has traditionally released for free.
Needless to say, offering an operating system to OEMs for free would be a far greater seismic shift for Microsoft. The "official" MSRP is $120 USD for Windows RT, but the rates that Microsoft sells it to OEMs at are individually negotiated. According to
in mid-2012 Microsoft was asking $80-95 USD per license (with the median asking price around $85 USD) for Windows RT tablets. Following poor pickup of Windows RT, Microsoft reportedly
cut licensing fees
to $30-45 USD by June 2013, according to reports by
The Wall Street Journal
Microsoft current charges anywhere from $5 to $30 USD per Windows Phone license.
In Jan. 2012,
Chinese phonemaker ZTE
in an interview with
(UK) that Microsoft was charging between $20 and 30 USD per Windows Phone 8 license. Larger OEMs have been rumored to get more favorable deals;
in June 2011 that Samsung Electronics Comp., Ltd. (
) (the world's biggest smartphone maker) was paying only $10 USD per Windows Phone license.
Aside from ZTE's apparent tip, the closest to confirmed licensing rate info we have on Windows Phone comes from financial filings from Finnish phonemaker (and Windows Phone maker) Nokia Oyj. (
). While there was a two-way flow of money between Microsoft and Nokia (Microsoft paid Nokia around $1B USD to use Windows Phone over Android), the net direction of the flow was to Microsoft.
Windows EVP Terry Myerson is considering free licensing to consumers to drive sales of mobile Windows product.
A 20-F filing
by Nokia for fiscal 2012 revealed that Nokia was expected to pay Microsoft €500M ($688M USD) more than it received
through the end of 2016
. Given that Nokia shipped
7m Windows Phones in Q1 2013
7.4m in Q2
8.8m in Q3
, that works out to something in the neighborhood of 32-35m expected sales for 2013. Assuming no growth (an unrealistic assumption, as Nokia doubled its Windows Phone sales from 2012 to 2013), sales should work out to 125 - 150 million units through 2016. That's about $5 a license -- at most -- likely even less (of course, Nokia's devices unit later would be
sold to Microsoft scrapping that deal
But in October the rumor mill was buzzing following a
that Microsoft offered HTC Corp. (
free Windows phone licenses
, if it commits to a large volume of handsets (perhaps exclusivity).
II. Why "Free" is Good for Microsoft's Bottom Line
In Q3 market analysis form Interactive Data Corp. (
) indicated sales of 8.9m Windows Phone units (indicating Nokia accounted for basically all of the platform's sales). Windows RT -- the version of PC Windows that runs on CPUs bearing ARM Holdings plc's (
) titular licensed architecture -- moved 200,000 units in Q2 2013 (about half a percent of the 51m+ tablets that were sold in Q2). It's safe to assume that Q3 sales were bad or worse, given that
bailed on Windows RT
with the launch of Intel Corp.'s (
Windows RT sales are basically nonexistent. [Image Source: TalkVietnam]
So Microsoft’s net loss in revenue had it offered Windows Phone and Windows RT for free to OEMs would have been around $50M USD -- a drop in the bucket for a company that made
$5.24B USD last quarter
in net income.
As the fall of RIM/BlackBerry demonstrated, it's absolutely vital to stay relevant in the mobile consumer market, in order to stay relevant in the enterprise market. So it's a smart move for Microsoft to sacrifice roughly 1 percent of its net earnings if that expenditure will gain it ground in the mobile market.
That brings us to a final point -- will it work?
III. Will OEMs Quit Android to Save Money?
Currently there's only one major alternative to the Windows OS family in terms of a third party platform -- Google Inc.'s (
) Android OS. Likewise on budget laptops the only widely adopted alternative is Chrome OS. Chrome OS and Android are "free" to OEMs in the sense that Google doesn't collect license fees and offers to share advertising revenue with the OEMs. However, these operating systems aren't truly free in the long run.
Microsoft has already
scored licensing agreements
from most Android OEMs, which typically fall in the $5-15 USD range. Apple, Inc. (
) seems to
prefer to simply exclude competitors
from the market, but it too
will license in some cases
(e.g. HTC). Either way this is yet
another cost that is borne by your device sales
. Lastly, there's Nokia, who arguably has the strongest patent portfolio in the industry. Nokia is
trying to squeeze
a third licensing fee
The Innovation Act does offer some positive patent reform. [Image Source: InvestorsEye]
The question is whether a free Windows OS would be cheaper. You know with certainty that Microsoft won’t sue you, so that reduces your potential licensing fees to payments/lawsuits costs with Apple and Nokia. Further, you're safe from most software patents, as Apple and Nokia have committed to licensing agreements with Microsoft.
Thus the only expense you have is potential payments on hardware infringements or infringements on design patents. As the Nokia v. HTC conflict shows, this can still be an issue -- particularly if you buy your chips in jurisdictions where licensing deals from chipmakers don't transfer to their customers (e.g. Taiwan). However, even if Windows Phone/Windows RT OEMs are forced into small licensing fees regarding hardware patents or small redesigns to escape design infringement claims, this still will likely be half what a top Android OEM today is paying.
The Nokia, Microsoft, and Apple patent licensing/lawsuit triple team may make the "free" Windows Phone the only financially feasible option for some OEMs, like HTC. [Image Source: NeoWin]
If Chrome OS
continues to see sales success
, expect at least Microsoft to start to demand similar fees from device makers.
H.R. 3309 Innovation Act of 2013
the "Innovation Act of 2013"
-- makes it through the Senate and is signed into law, that scenario could tilt even further in Microsoft favor, as it could intercede and take over some patent disputes.
Simply put together Microsoft, Apple, and Nokia are triple teaming phonemakers. This approach may eventually make getting the licenses necessary to sell a smartphone or tablet so expensive that Android becomes financially infeasible for top OEMs. And now Microsoft deftly maneuvering to position itself as a seeming knight in shining armor, and offering "free" licensing -- if you use its OS.
Smaller Android OEMs who might be under less legal pressure invariably will have to weigh these financial benefits against the cost of redesigning for a new operating system and the cost to users of having a more limited app selection.
But overall free licensing could be a game changer to Microsoft's mobile campaign, and help Microsoft sustain profits in the long term in the enterprise sector, which current drives most of its revenue.
This article is over a month old, voting and posting comments is disabled
RE: Inflection point?
12/12/2013 3:25:04 PM
Just because the OS is free does not mean that everything will be free. MS makes a killing on their new subscription based services like Office365, Live Gold, and music/video subscriptions and purchases. Plus, at least on RT and WP, there is no (easy) way to side-load applications for use, which means that MS gets a steady income in-app purchases and in-app advertisements.
I think that they are realizing that these ongoing income sources are more important than the COA/liscence fees which are a barrier to getting people to adopt the platform.
As for office, I think we will see it remain on phone distributions as it is fairly limited compared to desktop offerings. But I think that if MS offers RT for free then they would remove office from future devices, trying to get people to lock into an Office365 subscription which would allow you to install office on up to 5 devices.
"Nowadays, security guys break the Mac every single day. Every single day, they come out with a total exploit, your machine can be taken over totally. I dare anybody to do that once a month on the Windows machine." -- Bill Gates
Houses Passes "Anti-Troll" Innovation Act With Pro-Apple, Microsoft Edits
December 9, 2013, 8:55 PM
Crushing UK Verdict Could Force HTC to Pay Nokia a Fee on Every Device
December 4, 2013, 10:00 PM
Fed Up With Cheating OEMs, Microsoft Trolls Chromebooks in New Ad
November 27, 2013, 4:09 PM
Samsung and Nokia Sign 5 Year Licensing Deal, Despite Leaks Controversy
November 4, 2013, 1:41 PM
Nokia Sells 8.8 Million Windows Phones in Q3, Transitions to Telecom Sales
October 29, 2013, 8:11 PM
iLate: CEO Tim Cook Says Apple Watch Will Ship in April
January 28, 2015, 3:03 PM
Amazon's Fire Sale on Fire Phone Steps up in UK w/ 1-Day Sale @ $150 Unlocked
January 28, 2015, 11:53 AM
Apple Sees Record Profit of $18 Billion, Sells 74.5 Million iPhones in Q1 FY2015
January 27, 2015, 6:01 PM
Apple Might Miss High-End of Analyst Estimates, Microsoft Earnings Hint
January 27, 2015, 3:14 PM
Microsoft Smartphone Sales Up 28 Percent as Lumia Budget Models Gain Ground
January 27, 2015, 8:30 AM
Quick Note: Special 20th Anniversary PlayStation 4 Raises $128,000 for Charity
January 26, 2015, 4:14 PM
Most Popular Articles
Under the Hood: How DirectX 11.3 and 12 Will Supercharge Windows 10 Gaming
January 23, 2015, 12:34 PM
2016 Cadillac CTS-V Packs 640 hp Punch with 200 mph Reach
January 23, 2015, 3:25 PM
Google Fixes Homophobic "Bug" in its Translator
January 27, 2015, 2:31 PM
Microsoft Shows Off Latest Windows 10 Build, Preps it for Next Week Release
January 21, 2015, 2:57 PM
Microsoft to Close Nokia Store, May Lose Over a Hundred Thousand Apps
January 26, 2015, 11:15 AM
Latest Blog Posts
Sceptre Airs 27", 120 Hz. 1080p Monitor/HDTV w/ 5 ms Response Time for $220
Dec 3, 2014, 10:32 PM
Costco Gives Employees Thanksgiving Off; Wal-Mart Leads "Black Thursday" Charge
Oct 29, 2014, 9:57 PM
"Bear Selfies" Fad Could Turn Deadly, Warn Nevada Wildlife Officials
Oct 28, 2014, 12:00 PM
The Surface Mini That Was Never Released Gets "Hands On" Treatment
Sep 26, 2014, 8:22 AM
ISIS Imposes Ban on Teaching Evolution in Iraq
Sep 17, 2014, 5:22 PM
More Blog Posts
Copyright 2015 DailyTech LLC. -
Terms, Conditions & Privacy Information