Of course Microsoft should stop charging for Windows Phone
The Windows Phone situation is improving, yet to take from the likes of Android and iOS, Microsoft has its work cut out for it.
Global smartphone market share in Q3 2013 breaks down predictably: Android holds 81.9 percent, iOS holds 12.1 percent, and Windows Phone hangs on to a mere 3.6 percent. BlackBerry, Bada, Symbian, and the ominous Other categories split the remaining 2.5 percent.
Microsoft, at long last, is actually making headway. Globally, it’s up from 2.3 in the same quarter last year. This is due in large part to the mini successes of Nokia – its incredibly affordable Lumia 520 handset, the boundary-pushing 1020, and the handful of other high-quality Windows Phone handsets from the Finnish maker.
But Microsoft is still in need of that giant, initial push to get them over the first major hurdle.
Last year at this time, if you had asked us what that might have been, we would likely have said the Nokia partnership was the first major breakthrough for the platform. Yet, while 3.6 percent of the global marketshare in Q3 isn’t anything to scoff at, it’s not exactly groundbreaking either. The way Microsoft is taking action is telling of the less-than-stellar performance of Windows Phone on the market.
Last week, The Verge reported Microsoft is considering making Windows Phone and Windows RT free of charge for device manufacturers. The question many are asking is: why? A better question: should they?
There has never been any official documentation on how much the licensing fees are, and it’s understood that the price may not be the same for each manufacturer.
However, in January 2012, a ZTE executive told TrustedReviews it pays Microsoft between £15 ($24.55 USD) and £20 ($32.73) per device. Yesterday, MyNokiaBlog corroborated those numbers. From “a source familiar with Microsoft’s licensing scheme,” a single Windows Phone 8 license costs roughly $25 USD per phone and a Windows RT license costs $90 USD per tablet.
While the number for a Windows Phone license may seem fairly low, you have to consider a handful of things.
One, that’s about $25 more in cost per device for manufacturers. On a phone which may cost around $200 in parts to make and retails for around $600, it may seem like a minuscule matter. But rarely are smartphones or tablets made on a small scale. Say, for instance, HTC makes 250,000 of its next Windows Phone device. If it pays $25 per device, that’s $6.2 million in licensing costs alone. That’s $6.2 million more than it would cost HTC to make the exact same device running Android, which Google offers completely free of charge (so long as you don’t count the licensing fees HTC pays to Microsoft for a patent settlement).
Dropping licensing fees altogether, obviously, would encourage those manufacturers who have been merely dipping their toes in the pool to check the temperature to jump in without hesitation. Savings in licensing fees would allow manufacturers to turn that extra money flow into creating better devices, rather than creating haphazard Windows Phones and abandoning them a few, short months later.
It will literally save many companies millions of dollars most no longer have to throw around.
But there’s another giant reason Microsoft needs to drop the licensing fees.
In September, Microsoft announced plans to acquire Nokia Devices & Services. This sort of move could put the loose relationships Microsoft has with its partner manufactures – such as HTC and Samsung – on the rocks.
Microsoft having an in-house hardware manufacturer would not only cause cannibalization (not unlike Nokia has been doing to HTC’s and Samsung’s Windows Phone sales all year long), it gives Microsoft’s an unfair advantage. It’s not going to pay itself licensing fees. Its competitor-partners are shelling out millions on top of millions each year, simply for the right to create Windows Phones. Microsoft’s in-house devices, on the other hand, could be made for less, sold for less, and would forever ride on the coattails of the successes of HTC, Samsung, and any other Windows Phone manufacturer.
Without licensing fees to feed on, Microsoft’s in-house brand would be no different than what Motorola as an in-house brand for Google means for partner Android manufacturers. It’s fair game, as Microsoft would no longer be making direct profit off its competition.
Dropping the licensing fees altogether may not entirely relieve any tension the Nokia acquisition may have caused, but it at least makes Windows Phone a more viable (and profitable) option for companies like HTC, which are struggling to find their place in today’s market.
So should Microsoft kill the licensing fees for Windows Phone 8 and Windows RT? Absolutely.
Ultimately, it could encourage more manufacturers to create more (and better) phones for the platform. With more market penetration, Microsoft could more than make up for the difference in revenue through and a healthily growing selection of applications, ecosystem, and its blossoming software suite.
The sooner Microsoft learns it isn’t the 1980s anymore, the better.