Microsoft has an interesting relationship with mobile operating systems and to cut to the point, it has failed to extend its dominance of the desktop and server operating system market into the mobile world, despite trying for two decades and almost as many different platforms as we have seen versions of Android. We've seen Windows CE, PocketPC, Windows Mobile, Windows Phone and now Windows Mobile 10. Microsoft even bought their very own mobile device manufacturer, Nokia, in a transaction that looked like it was designed to ensure at least one company sold Windows Phone devices. Unfortunately for Microsoft, Google's Android and Apple's iOS have dominated the mobile operating system universe. Microsoft has almost pulled the plug on Windows Phone and Windows Mobile 10; a shame as things were getting interesting with Microsoft's software engineers working on some innovative technologies designed to bridge the so-called app gap between Windows Mobile 10 and Android.
This is not to write that Microsoft dislikes Android: we are seeing more and more evidence that Microsoft is contemplating forking Android and releasing a variant of this operating system, but using Microsoft Services rather than Google Play Services. We've seen Microsoft working with Cyanogen, the company trying to wrestle control of Android from Google, and we've also see Microsoft steadily improve their applications and service access on the Android platform. And let us not forget Microsoft's licensing deal with several manufacturers who sell Android-based devices, such as Samsung and HTC. At least in the case of Samsung, Microsoft and Samsung are believed to have signed a deal to end a lawsuit whereby Samsung promotes Microsoft applications and services on its mobile products and Microsoft doesn't sue Samsung. The modern Microsoft has stopped trying to persuade customers to use their mobile operating system, but instead to access their products and services such as Office 365 on whatever mobile platform he or she wishes.
Microsoft have never properly disclosed how much money they make from these licensing deals with Android manufacturers, but it has been estimated to be as much as $2 billion. Whilst this is small change compared with it's other operating system revenue, $2 billion is still a lot of money. And last week, during an investor briefing, Microsoft announced that its patent licensing revenue had fallen by 26% compared with this time last year. 26% of $2 billion is a little over half a billion dollars. The difference is believed to be down to a change in the Android marketplace, where we are seeing cheaper and cheaper devices being sold around the world and especially in the emerging markets, such as India and China. One of the reasons why these devices are less expensive is because some manufacturers - Microsoft did not namedrop - are somewhat less bothered about paying American companies their licensing fees. It may only be a few dollars per device sold, but these savings are being passed on to the customer and not to line Microsoft's pockets.
The drop in revenue is not significant to Microsoft, and we wouldn't expect it to be, but it may encourage executives to support their own forked version of Android with a distinctive Microsoft flavor. And we can expect ongoing changes to the market as more customers opt for cheaper devices, too. Microsoft are probably thinking that if they can't beat Android, they will make do with joining them.