Microsoft paid Nokia $250m for Windows Phone use

http://thenextweb.com/microsoft/2012/01/26/microsoft-paid-nokia-250-million-for-its-use-of-windows-phone-platform/

by hencq • 14 years ago

69 62 14 years ago

It is not clear if they expect the platform support pyments to be larger or smaller than the software royalty agreement, ie whether they are paying Microsoft in the long run or vice versa. I guess it may depend on sales to some extent, although it ways there is also a minimum royalty.

hencq• 14 years ago

Eventually yes I guess, but I think it might be a while before Nokia end up paying Microsoft (in net terms anyway). Microsoft are probably more interested in gaining market share at this point, so I wouldn't be surprised if there's more money flowing Nokia's way in the coming quarters.

brudgers7• 14 years ago

Keep in mind that Nokia's advertising is featuring WP7, and Microsoft is benefiting from that.

thinkling• 14 years ago

Back in 1997, Microsoft invested $150m in Apple along with a release of Office for the Mac. That worked out pretty well. Now after a bit of inflation, it's $250m and a release of Windows Phone.

badclient3• 14 years ago

Sarcasm?

That worked out pretty well.

If not snark, I must disagree. It was a very poor competitive investment which is only justifiable if the gov "cornered" MS into making it over anti-trust.

justincormack2• 14 years ago

It would have been an excellent investment if Microsoft had only kept the shares...

saturdaysaint• 14 years ago

This is completely un-analogous. It would be similar if Microsoft paid Apple $150 million to cease OS development and differentiate themselves merely as a Windows PC builder (which would have made iOS and thus the iPhone and iPad completely impossible). Unless you own the platform, you are selling commodities.

Of course, Symbian was probably headed for the same marketshare hit that RIM (and previously successful Android builders like HTC) experienced this year, so I'm not criticizing the partnership.

cooldeal5• 14 years ago

Old news? http://www.businessweek.com/news/2011-03-07/microsoft-is-sai...

Also, it's 250M/quarter.

The real news is that Nokia sold over a million Lumia phones over 2 months of launch in Europe and is launching the Lumia 900 in March on AT&T for $99 on contract.

http://www.forbes.com/sites/ericsavitz/2012/01/26/nokia-rall...

http://www.forbes.com/sites/greatspeculations/2012/01/26/mic...

dpark3• 14 years ago

> lauching the Lumia 900 in March on AT&T for $99 on contract.

That's not "the real news". It's speculation. You even pulled it from a blog titled Great Speculations.

cooldeal5• 14 years ago

News in the sense, something new to report on. Anyway, two reliable sources say March 18th. BGR and Winsupersite.

Looks like Winsupersite is banned on HN (too many fanboy flaggers?)

http://www.bgr.com/2012/01/25/atts-q1-2012-roadmap-nokia-lum...

http://www.winsupersite.com/article/paul-thurrotts-wininfo/e...

shareme• 14 years ago

Nope, when someone states an activation number than its believable..the number is far less than 1 million..in fact some are classifying it as only 300,000 sold.

nantes• 14 years ago

So, I have to wonder, does this mean Microsoft makes more from Android royalties than Windows Phone royalties?

groggles2• 14 years ago

Probably, given that Microsoft has never made money on Windows Mobile -- minuscule licensing costs coupled with a high engineering price. In their brightest expectations I don't think they see themselves making money with it.

Microsoft's mobile efforts have always been about the ecosystem. Office, Exchange, Windows security technologies, and now the xbox platform (though I still marvel that having your xbox achievements available for perusal was thought to be a big feature of WP7). Given that approach, Android can serve that purpose even without royalties.

technoslut2• 14 years ago

>In their brightest expectations I don't think they see themselves making money with it.

If MS defeated Android there is no question that they would raise the price of the licensing fee. Since they won't MS is faced with the reality that, while they are making money now, these patents won't last forever.

brudgers7• 14 years ago

$250 million for a long term hardware partner is not much compared with the $12.5 billion Google is spending to acquire Motorola Mobiity in order to have one...and Google doesn't even get royalties back to cover part of the costs.

Indeed, considering the very real possibility of patent licensing fees, Microsoft may even get a slice of every hand set Google sells.

On the other hand, considering that Nokia is and will continue to feature Windows Phone in their advertising, Microsoft is likely to further benefit from the expenditure.

TylerE• 14 years ago

It was my understanding that the Motorola purchase was solely about acquiring patents, and did NOT include the hardware side of the business at all.

nkassis• 14 years ago

No I believe the hardware side of the mobile division is included. But that was just a bonus (or a curse?) for Google who, as you said, just really wanted the patent.

randall• 14 years ago

To the contrary. The purchase included all of Moto Mobility, which is the STB / Phone side of Moto, and must also include patents.

http://en.wikipedia.org/wiki/Motorola_Mobility

brudgers7• 14 years ago

Motorola Mobility still makes devices, e.g. Droid.

Third quarter numbers: http://files.shareholder.com/downloads/ABEA-58XVPR/165679343...

peterjs• 14 years ago

It's such a huge amount of money. Patents are what they officially say. Obviously, they have partners and they don't want to lose them in the short term, so protecting them seems pretty harmless. But they will inevitably compete at some point in the future. That seems to be one of the reasons behind the "patent story".

The other two might be that they are making so much less money on every device they sell than Apple. It could possibly become a reasonable source of revenue (Google almost always talks about market share of Android, not the revenue).

The last thought, is the big picture of utilizing the emergence of tablets to become a predominant player in the industry. Beyond search. And somehow surpass Microsoft and Windows as the omnipresent platform. That seems really tough.

Time will tell.

lallysingh• 14 years ago

$12.5 Billion is the price, but that's not how much Google's paying out.

http://www.reuters.com/article/2011/08/31/us-motorolamobilit...

Motorola had $3.2 Billion in cash, and its losses act as tax deductions for Google (8yrs * $700 million = ~$5.6 Billion, from the article). 12.5 - 3.2 - 5.6 = $3.7 Billion.

brudgers7• 14 years ago

The amount of unused tax benefits MM has is $1.7 billion according to the article - the $700 million a year figure is speculation by an analyst.

Furthermore, future tax benefits ought to be discounted to a current value and the potential rate of return for alternative investments for Google's cash must be considered.

Not to mention that Microsoft's $250 million also affects their taxes.

rbanffy6• 14 years ago

If Microsoft pays Nokia a fixed amount for using the OS on a certain number of models while Nokia pays Microsoft a variable amount proportional to phones sold, it's very easy to see Nokia's best possible scenario is to sell just enough phones to cover the production costs while keeping as much of Microsoft's money as possible. RIght now, the odds of outselling Android and iPhones are very slim.

Considering sales volume, I'd say Nokia is right on target. Elop may prove himself a genius, after all.

bwarp• 14 years ago

Sounds feasable. It's not like they're not selling any Series 40 phones [1] ....

[1] http://www.engadget.com/2012/01/25/nokia-s40-sales-reach-1-5...

brudgers7• 14 years ago

Long term, the odds of WP7 outselling both are better than slim because Microsoft was thinking about the low end market when they designed WP7.

There are two standard screen sizes, 800 x 480 and 400 x 480 which is well suited for cheaper commodity devices.

Nokia sold 93 million commodity devices last quarter (that's about half the number of iPhones ever sold). The market is huge and neither Android or iOS is likely to go there.

Android won't because the development costs of adapting the OS to small low margin commodity devices would be borne by the manufacturers and carriers, and iOS won't because of Apple's branding strategy.

Nokia recognized that its core competency was manufacturing and hardware design, not user interfaces and software development. Considering that they were probably better at both than any other handset manufacturer, it is probable that other handset manufacturers will follow course, should Nokia see even moderate success with their strategy.

[edit] Nokia has sold 1.5 billion S40 devices. WP7 is what will replace them.

ZeroGravitas2• 14 years ago

Android is already on the low end commodity devices. And those manufacturers and carriers (i.e. prepay or non-US) don't seem that fussed about adapting Android, they just use stock. So it's only really the chip suppliers who need to get Android working.

And here's a good example of that:

http://armdevices.net/2012/01/19/rockchip-rk2918-ice-cream-s...

MediaTek, who Elop cited as eating Nokia's low-end market by suppling chips to no-name brands in his "burning platform" memo also have been working on Android for a while and have partnered with Google to make GoogleTV (i.e. Android) chipsets too.

rbanffy6• 14 years ago

> There are two standard screen sizes, 800 x 480 and 400 x 480 which is well suited for cheaper commodity devices.

There are Android devices being sold with 200x320 screens. To say nothing about Nokia's huge sales of S40 devices.

> Android won't because the development costs of adapting the OS to small low margin commodity devices would be borne by the manufacturers and carriers,

The closer you are to the upstream manufacturer's (the company you buy chips from) reference design, the lower your costs. I can't imagine companies that cater to the lowest-end of the market trying to differentiate on technology.

> WP7 is what will replace them.

There are a lot of if's in this idea. It could happen IF Microsoft could make WP7 attractive on low-end devices (big if #1) AND Android manufacturers fail to make Android run on them (big if #2) AND Nokia decides they will replace S40 with WP7 (big if #3). Samsung will merge Bada into Tizen (a.k.a. Meego) and pursue the low-end segment with it. WP7 will only be a contender for the low end if Samsung starts to fail in a market they know very well (big if #4).

When you see Microsoft paying money to Nokia so that they boost WP7 market share you have to imagine they already failed to convince more viable companies to do it. I have little doubt Microsoft offered similar deals to Samsung, LG, HTC and others and Nokia was simply the cheapest one. Or the only one who took it.

recoiledsnake• 14 years ago

The smartphone market is worth much more than a measly $250M/quarter. Nokia would want to sell any and all smartphones it can, not just enough to cover production costs. That would be suicide. Your best possible scenario is actually the worst possible scenario for Nokia.

rewind• 14 years ago

If selling phones is profitable, then the best scenario is to sell as many phones as possible, regardless of Microsoft's money. Once they sell more than enough phones to offset Microsoft's money, it means their profit per phone goes up, so "selling just enough phones to cover the production costs" doesn't really make sense.

cooldeal5• 14 years ago

> it's very easy to see Nokia's best possible scenario is to sell just enough phones to cover the production costs while keeping as much of Microsoft's money as possible.

I can't really think of a dumber strategy than this.

vsl23• 14 years ago

Don't see how a measly (relatively speaking for these giant companies) $250M should have been a major factor for Nokia to choose to focus on Windows Phones rather than Android.

Apple and Google are dominating the smartphone OS market and I don't see how two slow-moving companies will make a serious dent in the consumer market. How many people wold would give up their iPhone for a Windows phone, especially as an early adopter? I'd be very surprised if any Windows Phone gains serious traction with consumers.

The best shot I see for Windows Phone success would be in the enterprise market where easy/free compatibility with MS Office products and other MS products used at work could be a large benefit. But Apple is making headway here as well so it could all be for naught.

akmiller2• 14 years ago

I gave up my iPhone for a Windows phone and I haven't looked back! However, I don't use any other Microsoft products at all.

stumm• 14 years ago

Out of curiosity what device did you get? And what was your reason for switching?

guelo3• 14 years ago

Microsoft is gigantic, rich and relentless, they do not give up. Look at the amounts of cash they've been burning on Bing for years patiently waiting for their opening. You should not never count them out.

vsl23• 14 years ago

You make it sound like its inevitable that Bing will be a huge success just because Microsoft can burn money. Its has made inroads, but my guess is that it has reached its peak.

I'm not counting on Microsoft giving up on its products - I just see them as patiently burning through cash (generated from its successful cash cows) without making a significant splash in mobile. Just because they can afford to throw away money doesn't mean that they'll be successful at all of their new ventures.

This isn't exclusively a Microsoft thing either. Look at Google and its multiple attempts at new products (Wave, Buzz, Google+). They can obviously afford it because of their own cash cow, search.

sylvinus• 14 years ago

Note that $250m just seems to be the quarterly fee...

Microsoft paid Nokia $250m for Windows Phone use

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