Google Values Android at $10 Billion; Is Microsoft Taking the Wrong Licensing Route?

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With its open-source mobile Android operating system, Google’s CEO Eric Schmidt told the Wall Street Journal that Android could potentially be worth $10 billion. According to Schmidt, “If we have a billion people using Android…all it would take is $10 per user per year.”

While Google, unlike a closed Windows Phone 7 environment, doesn’t charge any licensing fee for the use of its operating system, Google has other means, perhaps more lucrative than even licensing fees, to make a profit for Android. For one, it earns 30% of what developers sell on the platform through the Android Market, though Google must deal with credit cards, handle the servers–which it has no problem doing being a search giant on the Internet–and work out the infrastructure to support sales. Beyond apps, Google may be venturing more into Apple’s territory, and Android Market could have the potential to sell other digital contents, such as music, videos, movies, books, magazines, and even subscription services for any of the mentioned items.

Furthermore, as Google moves its attention from desktop search to mobile search, there will be even more opportunities to monetize on top of “free.”

Apple’s model, on the other hand, focuses on the exact things that Google is doing or will be doing, including one of the most robust and worthy app store models, a leading digital distribution channel for musics, a growing video and movies download and rentals system, and now even ads via iAds. Apple, unlike Google, will be keeping things more closed. It does not license its iOS platform to others, and instead will rely on a dedicated following of iphone users, developers, and media attention to drive revenues derived from all these sources to complement iPhone sales. Moreover, unlike Google who has partnered with carriers on some handsets running Android, Apple exclusively runs the App Store and probably does not need to split revenues with carriers.

The story of Microsoft seems a bit more convoluted. For a company that has stuck with traditional sales for its revenue model for its desktop Windows OS and Office software, the “you buy a license and use it” approach may not give it the most momentum in mobile. Although the company is able to generate a lot of buzz behind Windows Phone 7, it still must convince OEMs and carriers to support the platform.

As the company moves towards the consumer space, its focus–and prior selling point–on enterprise will be greatly diminished, which could be a positive or a negative. As such, if there is a draw back to an HTC, LG, or Samsung, it’d be the licensing fee. If Android continues to outpace Windows Mobile, would it make sense for OEMs to even pay a small licensing fee, which will eat into their overall profits, for something that they can do with free?

Free shouldn’t even be an issue with a company as large as Microsoft and for a software giant netting as much revenues as Microsoft. With other complementary services for Windows Phone, such as Zune, Marketplace for Mobile, Xbox, Xbox Live, Bing, and advertising, could Microsoft forego the short-term licensing fee to increase over all revenues in those other sectors? Heck, I’d even argue that it makes more sense for Microsoft to give away Windows Phone 7 than for Nokia to open up Symbian–Microsoft controls more Internet assets that it can monetize in conjunction with mobile. The potential seems to exist, and Microsoft would have a lot to gain as the newcomer to the new world order of smartphones by making it even more compelling for developers, partners, and consumers.

(via: IntoMobile and WSJ)

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About The Author
Chuong Nguyen