Microsoft (NAS: MSFT) sure drives a hard bargain.
Not only does Microsoft now milk money out of more than 70% of Google (NAS: GOOG) Android devices sold domestically, but the software giant also demands a hefty price tag for its own Windows Phone 7 mobile operating system. The amount of those Android licensing fees has been estimated between $10 and $15 per device from popular OEMs such as Samsung and HTC.
Chinese gadget maker ZTE has inadvertently tipped part of Microsoft's hand by disclosing that it pays Mr. Softy between $20 and $30, after converting from euros. The tidbit was revealed by ZTE UK portfolio manager Santiago Sierra at the U.K. launch of the ZTE Tania Windows Phone, and it's the first time any manufacturer has divulged Windows Phone licensing figures.
Unsurprisingly, ZTE explicitly said that creating a Windows Phone costs more than a comparable Android one, because of its "different cost structure." While open-source Android is obviously free, there are some other implicit costs associated with building an Android phone.
When a manufacturer wants to build an Android phone, it can get the OS for free but has to do a lot of legwork picking hardware and making sure the software integrates properly with the hardware. That's not to say Google doesn't work with OEMs; it certainly collaborates with major makers such as Samsung, HTC, and Motorola Mobility (NYS: MMI) .
Shortly after it announced the Motorola acquisition, some slides were leaked showing that Google favors some device partners (including Motorola) that build to Google's specifications. With as many Android OEMs as there are, it's unrealistic that Google gives them all this level of attention.
In contrast, that Windows Phone license fee will also get an OEM more support from Microsoft in terms of providing precise specifications that it will need to produce the phone, and it also provides software drivers and code along with the OS.
With Microsoft just having reporting earnings, you'll notice that the company's Entertainment and Devices Division (EDD) grew its revenue by 15% to $4.2 billion. Windows Phone and related patent-licensing revenue is included in EDD, along with Xbox and Skype. EDD's revenue growth was attributed to the latter two, while the 21% drop in EDD operating income was partially due to payments to Windows Phone partner Nokia (NYS: NOK) .
Windows Phone doesn't look like it's paying off quite yet. While WP7's market share still lags Android, at least Microsoft is bringing in dollars from both.
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At the time this article was published Fool contributor Evan Niu holds no position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Microsoft and Google. Motley Fool newsletter services have recommended buying shares of Microsoft and Google and creating a bull call spread position in Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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