It's no surprise that Microsoft is earning royalties from each Android device sold; at least from manufacturers it has licensing agreements with. What's quite concerning is how Microsoft earns significantly more from Android than its own home-grown mobile operating system, Windows Phone.
$792 million in three months is no chump change, even for a company that has reported earnings of $18.06 billion in its fourth fiscal quarter of 2012 from Windows, Office and other software and hardware businesses. However, consider that the company actually lost $262 million from its entire Entertainment & Devices division for that period, which includes the Xbox 360 and Windows Phone. Microsoft did not release revenue figures directly related to Windows Phone, though.
These Android royalty figures are estimates based on the number of HTC and Samsung phones and tablets sold, given these companies' licensing agreements with the Redmond software giant. Analysts at Trefis estimate a payment of $10 by HTC and to $12 to $13 from Samsung for every Android device sold, leading to this amount.
Microsoft has actually exceeded expectations. In late 2011, Goldman Sachs estimated that Microsoft will earn $444 million in Android licensing fees for the whole of 2012, whereas Trefis’ report cites only the second calendar quarter of 2012.
The figure could actually be greater, as the $792 million estimate only takes into account HTC and Samsung. Microsoft has many other deals with other manufacturers, and the company even claims to have such arrangements with manufacturers amounting to half of all Android smartphones sold in the U.S.
As such, even if Windows Phone is still lagging behind Android and iOS in the market, Microsoft is probably laughing all the way to the bank with proceeds from Android sales. Redmond can perhaps even bankroll its development efforts in Windows Phone 7 and the upcoming Windows Phone 8 from its Android earnings.
Windows Phone actually posted a growth of 277% in the second quarter of the year, compared to 2Q 2011. However, in nominal terms, that's just 5.1 million units, which is a far cry from Android sales of 107.8 million in the same quarter. Even so, Microsoft seems to have earned quite a generous cut from these hundred million Android devices, and no one seems to be complaining.
Of course, we would argue that this is a good move in terms of innovation. But until the time Windows Phone gains traction in the market — and perhaps shares dominance with Android, as analysts at IDC predict — Microsoft can settle for its billion dollar business from devices they did not even develop.