For those of you who say Microsoft Corporation (NASDAQ:MSFT) has had zero success in mobile, well, you haven’t been following very closely. Microsoft makes more money off mobile handset sales than Google Inc (NASDAQ:GOOG) does. In fact, every time someone purchases a Samsung Galaxy, or a HTC smartphone, Mr. Softy’s coffers get a little more cash.
The Patent Troll Collects His Tax
Beyond cash payments, Microsoft uses these patents to gain leverage on other companies. HTC agreed to build a Windows Phone for Microsoft in exchange for lower fees. Now even Nikon is paying Microsoft for using Android in cameras. Since Android has over 60% of the worldwide smartphone market share, Microsoft Corporation (NASDAQ:MSFT) shareholders are earning a pretty penny.
According to this NY Times column, Android tablets are predicted to overtake Apple Inc. (NASDAQ:AAPL)’s iPad in sales by year’s end. No doubt Microsoft will capitalize further here.
Are These Royalties Sustainable?
There is little chance these payments will go on forever. With Google Inc (NASDAQ:GOOG) shouldering development costs for Android software, it’s still cheaper for equipment makers to pay Microsoft the royalty than to develop their own OS. They also get the benefit of the trusted and popular Android brand.
However, with Google’s purchase of Motorola, some smartphone makers are worried that Big G will give its new subsidiary special treatment. That makes it riskier for other smartphone makers to keep using Android — by doing so, they may end up strengthening a direct competitor — and gives them more incentive to make their own smartphone OSes.
Samsung is in the process of creating its own, to be called Taizen, as one way to regain profits lost to Microsoft Corporation (NASDAQ:MSFT) and lessen its reliance on Google Inc (NASDAQ:GOOG). While Samsung has more resources than HTC and the other Android phone makers, it’s not out the question that economic reasons will spur others to follow suit.
Additionally, at some point Google’s software engineers might very well find a way to sidestep Microsoft’s patents. With Microsoft competing against Android with its own Windows Phone OS, Google certainly has plenty of incentive to do so.
Microsoft Tardy To Class
Microsoft Corporation (NASDAQ:MSFT) deserves its reputation as a big, lumbering company. It’s been behind the curve every step of the way, with a bureaucracy that stifles innovation. Bill Gates spoke of the tablet years before Apple Inc. (NASDAQ:AAPL) came out with the iPad. Yet Apple captured the world’s imagination by having its name associated with an imaginative, high-quality, beautiful product. Google Inc (NASDAQ:GOOG) may do the same with its upcoming smart glasses and driverless car technology.
With the exception of gaming, where the Xbox and Kinect provide innovative inroads into users’ living rooms, Microsoft Corporation (NASDAQ:MSFT)’s moats are being assaulted on every front. That leaves the company is in a perpetual state of catch-up, however powerful its patent portfolio might be.
Mr. Softy still casts a large shadow, but don’t expect these patent royalties to continue flowing in a couple of years from now.
Margie Nemcick-Cruz is a member of The Motley Fool Blog Network
