Monday, October 03, 2011

$444m. The number of the beast? With paper, Microsoft has become a profitable Android player. Has the look-alike smartphone market become boring?

Microsoft making millions milking monster OS. PCMAG STORY >>

Oh where's the innovation these days?

If I were a smartphone vendor, I'd be very concerned about long-term industry profitability. The majority of smartphone vendors are currently losing money... and that's in a booming market. Imagine how things will look when the market levels off. The smartphone market is starting to look a lot like the airline industry.

According to a recent Goldman Sachs report, Microsoft will make around $444 million this year from Google's Android via licensing fees for its embedded IPR. And as Microsoft continues to pursue IPR and licensing deals on top of Android, getting somewhere between $5 to $10 per pop, Android could become a billion dollar business for Microsoft. (Ironically, Android is currently more profitable for Microsoft than is Windows Phone.)

Of course, in reality, Microsoft is looking for a way to boost Windows Phone, and by working the other side of the equation to increase Android handset prices, Microsoft will have a more competitive platform on their hands. A $10 licensing fee is significant amount of money on a device with a bill of materials that is approaching sub-$100.

For years, the employees of legal and IPR departments in companies around the world have been worried about potential of "submarine" IPR attacks against Linux, with some troll waiting around for a large installed user base before rising to the surface. In the end, it was something much larger.

As the smartphone battler gets more vicious, it will take some heavy guns for any platform to succeed. The business is now as much about collecting patents as it is about innovation.

As the world awaits the next iteration of the iPhone, the truth is, we already know to expect more of the same: some nice marginal improvements, but nothing revolutionary. And competitors will match feature-for-feature in this follow-the-leader market.

Smartphone developments have gone flat.

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