Analyst reveals that Microsoft earns $1.6 billion a year from Android, five times more than from Windows Phone

February 10, 2014

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ZDNet has managed to get its hands on an interesting report from Nomura, a financial services company, which shows that Google’s Android is proving to be a major breadwinner for Microsoft.

Due to licensing agreements between the two technology giants, Microsoft netted $1.6 billion from Android over the latest financial year.

Perhaps the most interesting revelation is that this money from Android is actually plugging a deep hole caused by some of Microsoft’s other Entertainment and Device Division (EDD) projects, such as Skype and Windows Phone. Estimates suggest that Xbox is by far one of the biggests costs to the company, which is currently losing Microsoft around $2 billion a year. Without royalties from Android, the EED would be losing around $2.5 billion a year in total.

In order to come to this conclusion, Rick Sherlund, an analyst with Nomura, assumed that Microsoft makes around $5 for each Android unit sold, and that Microsoft has around 70 percent of the market covered with its licensing deals. According to Sherlund’s numbers, 122.5m Android devices shipped by the September quarter in 2012, which netted Microsoft around $386 million. By the June 2013 quarter, Microsoft is thought to have raised around $489m. Assuming a 90 percent gross margin, the figures suggest that Microsoft made $1.6 billion from Android in the 2013 financial year, will make a further $1.73 billion in fiscal 2014, and $1.82 billion by 2015.

Previous estimates have suggested that Microsoft’s licensing arrangements could generate revenues of somewhere between $5 and $15 per device, which puts Sherlund’s numbers on the conservative side.

If this story isn’t juicy enough, the estimate suggests that Android actually earns Microsoft more money than its Windows Phone business. Sherlund has worked out that Windows Phone generated $3.3 billion in revenues this financial year, but only produced a gross profits of $347 million, that’s less than 22% of the amount accumulated from Android.

It should be noted that Microsoft has never revealed the exact financial details of its royalty schemes, but it has openly declared that it has a licensing deal with virtually every major OEM and ODM, which is sure to be a lucrative arrangement for the tech giant.

Comments

  • AA :P

    just shows how crappy windows phone franchise really is!

    • On a Clear Day

      Microsoft is a company that has gotten out of touch with the market – thus you see them all over the place doing “a little bit of this, a little bit of that” and not succeeding much with any of that.

      They used to be king of the hill when Windows and PC’s ruled; even thought that they could change the world back again to their way of thinking when they brought out Windows 8 – as we all know that didn’t work too well for them. Like any large, monolithic corporation that has come to resemble more a dinosaur facing extinction – than an example of a potent, evolving force reacting to and changing in keeping with and at the behest of evolutionary forces.

      • Ethan West

        Microsoft needs to re-invent itself. They cant rest on past laurels, cos the world just doesn’t work that way. Its good that the latest nokia phone has swallowed its pride and is coming out with an android based OS. Hope it works out for them. I still believe they make some of the most durable phones. Sadly build quality is a thing of the past! Now people prefer the latest fad, which changes almost on a daily basis. I’m not blaming them, cos I’m one of them. I understand technology changes overnight and its never gonna change. Wish Microsoft would understand that!

        What I think they can do is concentrate on their strengths like build quality, the excellent carl zeiss camera, the varied color combination for the skins, etc,. and introduce android with the latest upgrades. Lets see how it goes.

      • R2D2

        True, they’ve arrived late for the phones and tablets before
        realizing how huge this market would become. But I don’t agree with that: “a little bit of this, a little
        bit of that” and not succeeding much with any of that.”

        Windows is still dominant OS on the planet: http://en.wikipedia.org/wiki/Usage_share_of_operating_systems

        Software: to do a majority of office
        jobs you will always end up working with Microsoft Office which has no true competitor

        Gaming Consoles: Still one of the two best consoles on the
        planet is Microsoft Xbox

        Servers: One of the two most popular web servers is Microsoft IIS, SQL Server is
        in a top 3, Windows Server is in every office that uses Windows client
        machines.

        Programming: Visual Studio is the best IDE ever created, the top languages are
        coming from MS: C#, VB, VB.NET, F# http://www.tiobe.com/index.php/content/paperinfo/tpci/index.html

        It will be a very long time before they extinct.

  • MasterMuffin

    That’s a lot of assuming and “ifs”

  • Luka Mlinar

    15$ per device. That’s so ludicrous, i wouldn’t even mention it in a post.

    • Guantaco

      Then why did you mention it?

      • Luka Mlinar

        To state the ludicrousness of mentioning it in the first place. Thought that was obvious.

        • Guantaco

          then you mention it again. stoop talking about it.

          • Luka Mlinar

            Hey man, I’m not the one feeling ashamed of my comments after writing them :D

  • Shark Bait

    I bet Google would love to be making that direct. It makes Microsoft’s business seem unsustainable though, how long can they continue covering the divisions losses like this? Those are some pretty big losses!

    • AA :P

      nice to see them die.

  • John Doe

    Question: When Android finally moves from Dalvik to ART, will this alleviate Google from any cross licensing agreements? Saving Google and it’s phone manufacturing companies better off?

    • http://www.rubenalamina.mx/ Ruben Alamina

      I don’t think so, because Microsoft has had .NET native images for applications (compiled the first time they are installed) on Windows for quite some time. If the mechanism of ART is similar (and it is by how much we know so far), the royalties about it (if they are on the licensing deals) should still be there for them to collect.

    • Guest123

      Google doesn’t have cross licensing with MS for Android. Once reason Google doesn’t do external SD cars is MS patents.

      OEMs will pay MS to keep MS off their backs, and push the fees to consumers.

      Furthermore, Dalvik is Java and that’s Cisco’s lawsuit that’s now settled with cross licensing, and Cisco lost the first round.

      No one really knows what MS is holding over OEMs to make them pay for Android, as MS does their dirty little sh!t with NDA and secrecy.

      If you haven’t read this article by Sun’s former CEO about patent leveraging by apple and MS you ought to. . . funny stuff:

      http://jonathanischwartz.wordpress.com/2010/03/09/good-artists-copy-great-artists-steal/

      • AA :P

        davlik/ java issue was with oracle isnt it ? sun was bought by oracle right ? and google won that.

        also, MS old FUD machine working at its hardest. that’s the reason MS needs to die. if they showed what’s the infringing piece of code is – the linux community would change the algorithms within no time and they’d lose their revenue on future “extortion money”

        • Guest123

          Yes, Oracle. . .

  • AndroidBoss

    No surprise. We all know Windows phones are a fail and unpopular. Really boring operating system; I mean I had a better experience with an iPhone than a Lumia…

    • xdapao3

      Android >>>>>>>>>> Windows Phone > dogshit > iOS

      Oh and Windows Phone is a “fail” compared to iOS only in the US and Japan while in Europe and in most of the world Windows Phone is as much of a “fail” as iOS (meaning they both are totally dwarfed by Android and compete for a distant no. 2 place in the market) and WP is actually AHEAD of iOS in a lot of markets, even “rich” ones.

      • AndroidBoss

        Android> iOS> Windows phone.
        At least iOS is looking a bit like Android these days.
        And WP is a fail everywhere.

        • xdapao3

          Let me repeat… in MOST OF THE WORLD (basically, everywhere but the USA and Japan) iOS is a small player which is fighting it out with WP for second place. In Europe, for example, both WP and iOS have only around 10% (TEN PERCENT) of the market each, the rest is all Android. In Italy WP has just SURPASSED iOS and the same has happened in 14 other markets all around the world and is about to happen soon in several more).

          Got it?

          And I am not even sure that I would call that piece of software crap an *operating system* since it needs a software (iTunes) installed on a PC for the very basic function of transferring files to and from the device, it lacks a user manipulable file system, it creates another copy (!!!!) of any file any time you open it in a new app and so on… (not to talk about all of the other huge handicaps it shares with WP such as the lack of REAL multitasking…).

          iOS is hands down the most LIMITED and DUMBED DOWN mobile operating system on the market today, no question about it.

          And since iOS7, iOS is ALSO a buggy, laggy, unstable, unreliable, unlegible, neon-colored mess…

          • AndroidBoss

            Look, I don’t like iOS. I’m just saying if I ever had to ditch Android, I would go with iOS.

          • H.R. Pierson

            Firefox new OS, or maybe Ubuntu mobile. But as you are intimating, perish the thought , right?

          • H.R. Pierson

            Talked with a Dev last week. Said he’s scaling back on iOs. Said we’ll see numbers soon showing why.
            I did this and last week. IOs roi is Way down vs Android.
            These boys don’t care. They’re driven by pride but dollars as well.
            Pride = a quality product/user experience. Dollars? Well that’s obvious.
            Xdapao3 is right on regarding the latest iterations of iOs being inferior. Really hard to squash bugs in a buggy environ.

  • Anardo Cuello

    This is so sad

  • Willie D

    Why again is Microsoft making money on Google products?

    • AA :P

      protection money

    • AbbyZFresh

      The same way Google makes money on Apple products. Microsoft is still a trusted brand for their products so people will continue to buy apps of a brand that is familiar to them,

  • Pintuchief

    Double Facepalm .. Well that was inevitable ..!!

  • Data

    I’m soo ashamed to be indirectly paying M$.

    • Adrian Remus

      Thank you making WP possible.

      • Data

        Don’t forget Xbox & Skype!

        On a sidenote, Disqus works for me again as normal!!!

        • Adrian Remus

          Yep, also, the app is fast again. Loads comments even faster than before.