AH Tech Talk: Microsoft May Eliminate Windows Phone License Fees

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When a smartphone manufacturer needs to decide what type of device to make, one of the most important decisions is what operating system to use. Android is the obvious favorite around here, but there are other options, including Windows Phone. Windows Phone needs to be licensed from Microsoft, and Android apps need to be licensed from Google, but the two license systems are handled very differently. According to a new report from The Verge, that may be about to change.

Google provides the source code for Android completely free. Anyone can take it and use it as they see fit. Amazon famously did this with their Kindle line of tablets, which are based on Android code, but show no mention of Google anywhere.

However, if a manufacturer wants to use Google’s apps (Play Store, Gmail, Maps, etc) it needs a license from Google. This doesn’t cost anything, but the manufacturer needs to abide by certain guidelines that Google sets.

Windows Phone is very different. Currently, a company wanting to make a Windows Phone device needs to get a license from Microsoft which costs about $30 per device. That may not sound like much, but it adds up fast. If a particular phone sells 1 million units, that means the manufacturer needs to pay Microsoft $30 million in license fees.

Given this, it’s easy to see why so many manufacturers choose to make Android devices, and why so few make Windows Phone. HTC and Samsung both have made Windows Phone devices in the past, but it’s been quite a while since we’ve heard anything from them about new models. That leaves Nokia as the only real contender in the Windows Phone space, which counts for less than 5% of all smartphones.

Microsoft generates revenue from Windows Phone licenses, Nokia dominates shipments of Microsoft-powered handsets with over 80 percent market share. Microsoft’s acquisition of Nokia’s phone business removes the largest source of potential Windows Phone license revenue.

According to this new report, Microsoft may be considering a drastic change to their licensing system and no longer charge any licensing fee to manufacturers. This would immediately make Windows Phone a more attractive option to manufacturers, especially smaller companies who might be new to the market. The change also applies to Windows RT, which could incentivize more companies to make Windows-based tablets, adding further competition to the tablet market as well.

Another part of this seems to be Microsoft attempting to copy Google’s model of giving the OS away to encourage users to sign up for services. Google has adopted this model for a very long time now, and it’s been working well. Services like Gmail, Maps, Drive, etc are all bundled very tightly into Android, so when a user gets an Android device, they almost always start using Google services more heavily.

So now Microsoft looks to be trying the same thing. Giving the OS away gets more phones to be produced, which gets more users to buy them, which gets more users to sign up for your services.

An interesting aside to all of this is the patent war stuff. Android manufacturers have long been the victim of patent attacks and have usually been on their own to defend themselves. Microsoft has said in the past that it will stand up to help defend Windows Phone manufacturer partners from any potential patent lawsuits. Will that type of protection continue if the OS is licensed for free?

Another question is what does “free” actually mean? It’s highly unlikely it will be free in the sense that Android is…Microsoft won’t put the entire OS code free to download. So if a new manufacturer wants to get in on the Windows Phone game, what will they have to do?

All of this is still rumor, of course. And it’s entirely possible that Microsoft could decide not to pursue this idea. But the fact that they’re even considering it is very interesting and it has the potential to really change the smartphone and tablet landscape.