Goldman: Microsoft Is Getting $444 Million Annually From Android Patent Licenses
Microsoft is will generate $444 million in revenue from Android patent deals for fiscal year 2012 (started in July 1, 2011, ends June 30, 2012), according to a note from Goldman Sachs's tech analyst team.
Context & Ripple Effects
The Goldman figure lands one day after Microsoft's broad cross-licensing deal with Samsung, the largest Android-related patent agreement to date, which put a per-device royalty on every handset Samsung sells. It turns what looked like scattered bilateral settlements into a measurable revenue line.
The estimate also sharpens an awkward comparison first flagged by asymco in May 2011: Microsoft had already earned five times more income from Android than from Windows Phone. With Samsung signed, analysts are treating the licensing program — which one blog called Microsoft cementing its role as Android's patent toll collector — as a core part of the mobile P&L rather than legal housekeeping.
First-order effects
- Microsoft gains a recurring, high-margin revenue stream on rival hardware: Goldman pegs it at $444 million for fiscal 2012, with the Samsung agreement alone attaching royalties to the largest Android vendor's entire device volume.
- Every remaining unlicensed Android manufacturer now faces a demonstrated template — settle with Microsoft or risk litigation — since the biggest OEM has already agreed to pay.
Second-order effects
- Licensing costs raise Android's effective price for OEMs, narrowing the gap against Windows Phone at exactly the moment Microsoft needs leverage to attract handset makers and developers to its still-small Marketplace.
- Royalty income effectively subsidizes Microsoft's mobile platform push: money collected from Android devices can fund Windows Phone marketing and subsidies without showing up as platform losses.
Third-order effects
- If the pattern holds, 'free' open-source mobile platforms acquire a de facto patent rent paid to incumbents, making litigation-and-licensing a standard second revenue channel for any company holding foundational smartphone IP.
- OEM economics shift toward vendors with deep cross-licensing portfolios, pressuring smaller Android manufacturers who lack the patent stock to negotiate symmetric deals.
The trend: Smartphone patents are becoming a parallel profit center, letting incumbent platforms monetize rivals' hardware success through royalties rather than device sales.