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Thanks to Microsoft, Apple, Nokia lawsuit/licensing triple team, OEMs might be tempted to take the deal

The Verge is citing "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 a report by VR-Zone 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 ComputerWorld and The Wall Street Journal.

Windows Phone license
Microsoft current charges anywhere from $5 to $30 USD per Windows Phone license.

In Jan. 2012, Chinese phonemaker ZTE Corp. (SHE:000063) revealed in an interview with TrustedReviews (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; Reuters reported in June 2011 that Samsung Electronics Comp., Ltd. (KSC:005930) (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. (HEX:NOK1V).  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.
Microsoft's Terry Myerson
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 20137.4m in Q2, and 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 Bloomberg report that Microsoft offered HTC Corp. (TPE:2498) 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. (IDC) 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 (LON:ARM) 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 some OEMs bailed on Windows RT with the launch of Intel Corp.'s (INTC) Bay Trail platform.

Windows RT
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 (GOOG) 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. (AAPL) 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 yet a third licensing fee from OEMs.

Provisional patent
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.
And if H.R. 3309 Innovation Act of 2013 [PDF] -- 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.

Source: The Verge

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RE: Inflection point?
By retrospooty on 12/12/2013 4:34:03 PM , Rating: 2
"If governments around the world can and do successfully migrate to FOSS solutions, I don't see why it would be a problem elsewhere"

It wouldnt, if someone else did it, but they arent.

" Most software in the enterprise is in house anyway, not produced by Microsoft."
and the vast majority of it is written to run on Windows , both servers and desktop OS.

"There's nothing in Windows, exchange etc that can't be replaced with a cloud or local based solution, and one without all the expensive licensing fees."

Agreed, and if someone starts a complete end to end solution like MS they may someday succeed... But someone has to start first.

"But if you're certain of it, I'd like to hear what specific Microsoft software you think is irreplaceable / non-expendable."

Like I said, not irreplaceable. It's just that no-one has replaced it.

RE: Inflection point?
By retrospooty on 12/12/2013 4:36:50 PM , Rating: 2
Dont forget, every product you buy from everyhwere, including every Android, iDevice and Mac is made in factories that run their entire businesses of MS PC's. Every planning, purchasing, inbound logistics, warehousing, shop floor, shipping, accounting, reverse logistics, CRM software etc etc... It all runs on PC's and MS servers as do thier primary communications (MS Exchange).

Starting to see my point? No-one has even began to try to snatch that from MS. It's not that no-one could. They say the journey of 1000 miles begins with a single step... Well, no-one is walking that way.

RE: Inflection point?
By Argon18 on 12/12/13, Rating: 0
RE: Inflection point?
By retrospooty on 12/12/2013 5:15:20 PM , Rating: 2
We have had this same discussion before... What you have described is one of the small pieces... Of course not every single thing in every single company is MS, but every business uses it to some extent and most to an extreme extent and you know it. No-one else does the whole package, not even close.

RE: Inflection point?
By Argon18 on 12/12/2013 5:43:34 PM , Rating: 1
No this isn't true and that's what I'm trying to say. The biggest of the big players that I just mentioned - Google , Amazon , Facebook , Netflix , and others run 100% entirely on Linux. Do they have some Windows peecee's and an Exchange server for the paper pushers, the bean counters, and the managers? Sure. But that's a drop in the bucket compared to the tens of thousands of Linux servers that run the core of their business.

And to your second point, that MS "does the whole package" that isn't true either. One of the reasons that Google, Amazon, Facebook, and Netflix have tens of thousands of Linux servers is that Microsoft simply doesn't offering anything that does that. I agree that Microsoft owns the front office - the corporate email, documents, spreadsheets, etc. I don't dispute that. But the front-office is the administrative "busy work", it is not the core of the business.

FWIW Microsoft could go out of business tonight and it would not affect my business. We've got 122 servers and all of them are running Red Hat Enterprise Linux, IBM AIX, and OpenBSD. Yes we have a handful of Windows peecee's, but they connect to Linux servers on the back end for email and everything else, we don't even have MS Exchange any more.

RE: Inflection point?
By Argon18 on 12/12/2013 5:46:18 PM , Rating: 2
Also the only reason we have a few Microsoft peecee - and the only reason any corporation uses Microsoft peecee's, is for Microsoft Office. Without MS Office, there is no compelling reason to keep Windows around as a desktop OS.

RE: Inflection point?
By espaghetti on 12/13/2013 7:31:09 PM , Rating: 2
What OS would you recommend for a corporation?

RE: Inflection point?
By Jim_Liquor on 12/16/2013 12:58:15 AM , Rating: 1

RE: Inflection point?
By ritualm on 12/16/2013 6:52:31 AM , Rating: 2
Your hatred towards everything Microsoft has effectively clouded your ability to see through your own bullsh!t.

RE: Inflection point?
By Argon18 on 12/12/2013 6:12:49 PM , Rating: 1
I guess what I'm trying to say, is that if Microsoft went out of business tomorrow, they'd have to find front-office alternatives to MS Office and Exchange. These already exist today. As open source (Zimbra and Libreoffice, which do 97% of what Office and Exchange do) and also as commercial products such as Lotus Notes and Wordperfect. In fact, the US DOJ is a very big Lotus Notes and Wordperfect user even here today in 2013. The corporate world is 99.9% MS Office today, but the fact remains that real alternatives do exist.

However if Linux disappeared tomorrow (which it can't BTW, since it's open source!) that would put Google, Amazon, Facebook, and Netflix out of business. They can no longer provide their products and services, which means they no longer have customers. What these corporate giants are doing today on Linux, the core of their business, they cannot do on Windows, there are no Microsoft alternatives.

RE: Inflection point?
By retrospooty on 12/12/2013 6:35:04 PM , Rating: 2
If microsoft went out of business and closed all the apps and put everything off line the entire world would grind to a halt and we would be starving in the streets because we couldn't buy food. No one else can say that. I get that you hate microsoft, I hate them sometimes too but they are what they are. Jack of all trades master of none.

"Folks that want porn can buy an Android phone." -- Steve Jobs

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