Microsoft Corporation (MSFT): Why It Can’t Count on This Surprising Revenue Stream

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

Microsoft Corporation (MSFT)With every Android phone sale, Microsoft Corporation (NASDAQ:MSFT) collects royalties from equipment makers for relevant patents it owns. Microsoft doesn’t release figures on how much it makes, but this article estimates the sum between $5 and $15 per phone.

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

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

6 Movies That You Should Watch to Better Understand The Cold War

Top 15 Best Paying Jobs for Women in 2014

Top 6 Things Rich People Do Differently Every Day

5 Retirement Mistakes To Avoid (and Einstein’s Famous Quote)

11 Smartest People in the World

6 Films About the Financial World You Need To Watch (While “The Wolf” is Not Around)

Warren Buffett and Billionaires Are Crazy About These 7 Stocks

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top 6 Tax Scams and How to Protect Yourself

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!